Where Getty Goes From Here

Posted on 12/2/2019 by Jim Pickerell | Printable Version | Comments (0)

Paul Roberts of the Seattle Times has recently interviewed Craig Peters, Getty Images CEO, and published an analysis of the company’s current situation entitled “Its Crunch Time For Seattle Based Photo Giant Getty Images, And For Photographers” that everyone in the industry may want to read.
While researching this story Roberts also interviewed me. The following are some of the things I told him.

There will definitely be an increased number of lower royalties as a result of ending RM licensing. Look at the figures in my In May 2018 article. If these figures are anywhere near being representative think of what that will mean for Getty.

In 2006 Getty licensed rights to about 1.66 million images for gross revenue of $634.1 million or an average of $381.47 per image. Based on my $29 per image average in 2018 I think they licensed rights to between 9 and 10 million Creative images. Tremendous growth in the number of images licensed.

But, 78% of gross Creative revenue, or $218 million based on the analysis I did in 2018  came from 8.5% of the images licensed, or roughly 850,000 images. Let’s assume that with the elimination of RM licensing the average price per image licensed drops from $29 to $10. (I actually think it will be lower than $10, but I’ll be generous.) Thus, if they make the same 850,000 sales to the same customers it will now generate $85 million, not $218 million. Another way to look at it is that 10 million sales will generate $100 million in Creative revenue. They will need to make almost triple the number of sales in 2020 to equal 2019 Creative revenue.

I think Getty believes that if they price everything at RF rates and offer Premium Access deals to everyone then Shutterstock and AdobeStock customers will suddenly flood to them. I don’t think that is going to happen. Shutterstock licensed uses to 179.6 million images in 2018. That’s a lot more than Getty’s paltry 10 million, but I don’t think many customers will switch just because it is Getty. In addition, I think there is very little growth in the number of customers who are willing to pay anything for the images they use so Getty won’t get their growth from new customers who have never paid for images in the past.

Getty has 28 million Creative images to choose from. Shutterstock has 300 million. Granted if you count Getty’s editorial collection and historical archive they have about 350 million images, but there is no indication that Getty’s Editorial revenue has been growing, even thought they have been selling some editorial images at higher prices and will continue to license editorial images as RM. However, if the editorial is part of Premium Access deals it will be part of the same low price as everything else.

It is also interesting to note that with Premium Access deals major editorial users are currently getting still images and footage clips at extremely low prices based on image creator sales reports. Here are a few examples of what major publications have been paying Getty for the images they purchase.

   Price Royalty
McClatchy Group $2.13 $0.64
Thomson Reuters $2.26 $0.68
TI Media $2.30 $0.69
Radio France $2.83 $0.85
Hearst – UK $2.86 $0.86
Hearst Newspapers $2.93 $0.88
ESPN $3.15 $0.95
Express Newspapers $5.21 $1.56
Conde Nast $5.57 $1.67
NBC Universal $6.03 $1.81
Yahoo Entertainment $6.40 $1.92
Telegraph Media $6.51 $1.95

These prices vary slightly month to month given the number of images the companies pay to use the images. The image creators receive about 30%, and sometimes less, of these figures.

A photographer in the UK recently called my attention to a strategy that has encouraged senior Getty sales people to make Enterprise deals that guaranteed Getty fixed monthly payments rather than flexible prices based on the customer’s actual needs, or how the images are used. Getty calls this Premium Access. The more such deals the sales person makes the more he or she is rewarded. There is no way for the salesperson to easily determine how an individual deal might benefit the company in the future, because there is no way to determine what the customer might have had to spend for future uses if they had been forced to pay for each use based on usage. Thus, the final deal is based entirely on how much the salesperson can talk the customer into paying Getty on a monthly basis.

Since the content costs Getty nothing to produce there is no cost figure to be figured in. It makes no difference whether they give away 1.6, 10 or 30 million pieces of product a year as long as the cost is the same. It is simply a matter of managing cash and trying to have a steady flow. As a result, there are incredible variations in what Premium Access customers pay to use the same piece of content.

You asked, “Wondering whether it might be useful to characterize the end of RM as the latest of a series of changes in the business that have helped drive down per photo payments to under X.”

Eliminating RM is the latest in a series of changes, but the key concept that has had the biggest long range impact is Premium Access. I don’t know exactly when PA was launched, but I think it was somewhere around 2006. Photographers began to recognize the potential dangers and here are 2 stories in 2008 (http://www.selling-stock.com/Article/gettys-subscription-plan-angers-photographers ) and (http://www.selling-stock.com/Article/gettys-subscription-plan-angers-photographers ). The suit was later abandoned due to the costly road blocks Getty put up. The suit never went to trial.

At first there were only a few PA deals and they were for rather high gross revenue, but in the last few years virtually everyone can qualify for such a deal.

I just stumbled across what I think is a new website. The sales pitch goes like this:
    Choose the Premium Access plan that gives you the best of Getty Images and iStock—all in one place.
            One plan. Two brands. Unlimited possibilities. Learn more about Premium Access today.

  • Access carefully-curated, high-impact imagery and videos—from on-trend creative to the latest in editorial.
  • Keep the creativity flowing with unlimited user seats and no daily/monthly download limits.
  • Choose a plan that covers all of your annual downloads and get the best price per image.
It looks to me like they are going to finally integrate Getty Images and iStock all in one search. The “carefully-curated” is not accurate at Getty today. They take in everything they can get their hands on. It will clearly be a single monthly fee for whatever the customer decides he or she wants to download.

It sure looks like there is no fixed price for this service. It is all about what the customer and the Getty salesperson can negotiate. I wonder how low a salesperson is willing to go in order to reach his/her gross sales quota for the month.

Let’s take a look at the Getty Images Revenue Picture

Moodys Investor Service has reported that the gross revenue for Getty Images for the:

12 months ending 30 September 2007 was    $857.6 million
12 months ending 30 September 2011 was    $945 million
12 months ending 30 September 2014 was    $879 million
12 months ending 30 September 2017 was    $836.8 million
12 months ending 30 September 2018 was    $867 million

Thus between 2014 and 2017 revenue was down 4.8%. In 2018 revenue was back up 3.6% compared to 2017. However, compared to 2011, which as far as we know was the highest revenue Getty Images ever achieved in a 12 month period, 2018 revenue was down 8.9%.

So far we do not have a figure for 12 months ending 30 September 2019.

On February 6, 2019 Getty was assigned a Caa2 rating by Moody’s Investor Service for its new $400 million senior unsecured notes due 2027. These funds are to be used primarily to refinance its $2.4 billion of existing debt. This rating is downgraded from B2 to B3 in accordance with Moody’s Loss Given Default Methodology (LGD).

Moody’s indicated that “Ratings could be upgraded if the company demonstrates continued revenue stability in the Midstock business within the Creative Stills unit, and exhibits continued mix shift to higher volume enterprise subscriptions and higher margin Royalty-Free products. Additionally, upward rating pressure could occur if free cash flow to debt (Moody's adjusted) improves to the low- to mid-single-digit percentage range and total debt to EBITDA approaches 5.5x (Moody's adjusted).”

Based on previous revenue reports we estimate that the $867 million in 2018 breaks down as follows:

Creative Stills (Midstock) $280 million
iStock (Microstock) $230 million
Editorial $250 million
Footage and Music $100 million
Fine Art Prints $7 million

Sources have indicated that currently RM licensing represents about 10% of revenue. It is unclear whether that is 10% of gross revenue ($867 million) or 10% of Creative Stills ($280 million). That would be either $87 or $28 million. This move is sure to reduce overall revenue. It is highly unlikely that Getty will see a significant enough increase in the number of Royalty Free images licensed, at much lower prices, to offset the loss of RM revenue. The move may reduce overall costs, but that is unclear.

Given my May 2018 analysis of Getty Creative Stills sales 8.5% of the unit sales were for prices over $200. These sales represented 78% of the gross revenue charged Creative Stills customers. These sales were certainly all RM images. Assuming this sample is representative of Getty’s Creative business, in 2020 all this revenue will be gone.

In the same analysis 15.85% of sales representing 91% of revenue were for prices over $50. Very few Royalty Free images will be licensed for prices as high, or higher than, $50. Assuming these figures are representative of all Getty sales 84% of their Creative Stills business represents only about 9% of the Creative Stills revenue of $280 million.

Based on these figures I am inclined to think that the 10% figure probably represents at least $87 million, or about 31% of gross Creative Stills revenue. All this is likely to be lost in 2020. I see very little chance that there will be any way for Getty to make up this lost revenue.

Getty's best hope for future profits is that this strategy change reduces costs dramatically.

Copyright © 2019 Jim Pickerell. The above article may not be copied, reproduced, excerpted or distributed in any manner without written permission from the author. All requests should be submitted to Selling Stock at 10319 Westlake Drive, Suite 162, Bethesda, MD 20817, phone 301-461-7627, e-mail: wvz@fpcubgbf.pbz


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