5 WHERE IS GETTY HEADED IN 2007?
November 14, 2006
During his last conference call for stock analysts Jonathan Klein provided some broad outlines for dramatic changes in strategy in 2007 (Story 884). As usual, anything that Getty does is likely to have a major impact on the rest of the industry. Both Getty photographers and others in the industry have expressed deep concern regarding the implications of some of the proposed changes. At present there are no details beyond what Klein said in the call. Nevertheless, it is not too early to begin to explore how certain moves might play out for Getty, and to consider options photographers and other suppliers might have.
New Licensing Models
The first point to note is that Klein said, "We will continue to evolve licensing models, and have plans for at least two more licensing models to be launched in 2007."
These are in addition to RM, RF, RR (Riser), Subscription and Micro Payment that are already available. Soon it will be as difficult for buyers to choose a licensing model as it is to negotiate prices and rights on an RM image.
I have no advance knowledge of the licensing models they might be considering, but it seems to me that there are two obvious areas to exploit.
The first is finding some way to significantly raise the price on at least a portion of the micro payment offering. One way would be raise prices on images that are in high demand. For example, when an image hits 50 downloads the minimum price would go from $1.00 to $3.00. These images could be automatically moved to a separate section of the site. This could force some customers to go for the images that haven't been used as much, but there may be good reasons that has little to do with price as to why people keep downloading particular images. If there is that much interest in a particular image, customers would probably be willing to pay a little more for them. When an image hits 100 downloads the minimum price could go to $5.00 and so forth.
Certainly, it is very important for Getty to find some way to test the resistance of the micro-payment customers to higher prices. Currently there is no realistic Getty product to up-sell these customers to.
Book Publishing Market
The second area that they need to focus on is in finding way to better service the book publishing market. This market may spend $300 to $400 million a year on still photography, but given the volume of images publishers tend to use the prices they can afford to pay are very low.
Getty has two problems here that can't be solved by putting more salesmen on the street. (1) They can't sell what you don't have, and to a great extent Getty does not have the right kind of subject matter relative to what the book publishing market needs. (2) In addition about half the imagery on the Creative section of the site currently is RF and it is priced higher than the book publishing market can afford.
RF prices are too high and the subject matter available in RF often too generic for book publishers who need images that illustrate very specific points.
RF probably can't do a lot about not having the right subject matter, but sales volumes for what they have would likely increase if RF images were available at a better price.
To solve the RF price problem Getty may try to establish a special price point applicable only to volume editorial users. For example the normal RF price for a 10MB image might be $325, but editorial users who reach certain annual volume levels could buy any RF image, for $125.
However, the difficulty will be in getting RF producers to go along with such a plan. Ever since RF was introduced the strategy has been to charge one fixed price for any given file size, anywhere in the world, no matter what the usage. Many RF producers will probably resist making exceptions for certain types of use, but Getty wholly owns so much RF content that they can probably force through a two-tier RF model even if some of the outside RF producers resist.
At first glance an editorial tier for high volume RF users would seem to make a lot of sense, but once a two-tier system is established there will be pressure from other users for additional tiers that fit their particular situations. This is a road Getty may not want to travel as it would bring RF closer and closer to being priced as RM.
The other problem Getty has in selling to the book publishing market is that the company doesn't have the right kind of imagery. Over the years Getty has focused on developing a very tight offering of images aimed at the advertising market. Images that illustrate important sub-points, but may not be hugely exciting creatively, have been passed over. Now Getty needs a lot of this imagery because there are customers who need it and Getty's competitors are taking market share away from them. The travel industry also needs this type of imagery when they get to doing brochures on very specific local activities within a larger more general subject area.
Corbis has a much better editorial file than Getty given their editing strategy in the early years. Content aimed at the editorial market and specific travel locations tends to have a much longer useful life than images of the latest styles, trends and technologies that are prevalent in the Getty Creative collection. Corbis probably earns more from sales into the editorial market than Getty, but is only one-third the size in gross revenue. Another strong competitor to Getty in this editorial segment of the market is Alamy. Alamy has over 7 million images (compared to Getty's 1.6 million) and 72% of the company's revenue comes from sales to editorial customers. Many of the images Alamy is selling come from Getty photographers and are images Getty refused to accept.
Opening The Taps
Klein said, "the day is coming soon when ... we are planning to open our content taps very broadly." It sounds like Getty recognizes that they need to build a much more diverse collection similar to what Corbis and Alamy are offering. The question still unanswered is how they will approach this.
Corbis hired professional editors and spent years collecting, scanning and keywording a broad range of subject matter from hundreds of the world's top photographers. Gates spent tens of millions on this effort. Alamy has taken a different approach. Once the quality of a photographer's work is judged to meet a certain standard the photographer can upload as many images as he or she wants. The photographer must do all the keywording so Alamy has very little cost in getting new images on its site. It is currently adding new images at a rate of almost one-million a quarter.
The major problem for Getty is that using either of these approaches it would take a lot of time to build a significant editorial file and the stock market wants to see quick results. There are also a number of other issues that Getty must face if they plan to build such a file.
- Will they let anyone, judged to meet some initial quality standard, upload images on their site?
- If they edit won't that greatly slow down the acquisition of new images? Will they use an editing strategy similar to iStockphoto where they contract with some of their photographers who are experienced in a particular subject area to edit for a fee?
(iStock pays photographers $.50 per image -- regardless of whether the image is accepted or rejected -- to edit newly submitted work.) Will experienced photographers want to do this? Will Getty ask photographers making the submissions to pay the editing fee?
- Will this collection be kept separate from their other collections much as they have done with iStockphoto, or will they integrate it as they have done with Riser?
- Will photographers be required to keyword their own images?
(Letting photographers keyword results in inconsistencies. Getty's very structured keywording system tends to magnify the problem. Alamy recognizes that due to bad keywords it delivers too many inappropriate images in search results and the company hopes its 'Alamy Rank' will force photographers to begin doing a better job of keywording. On the other hand if Getty intends to do all the keywording for a greatly increased number of images it will slow down the process of getting the images online and dramatically raise Getty's staff costs.)
- Will Getty charge photographers an upload or storage fee as they have done with Photographer's Choice?
(If they do, it seems likely to greatly limit the number of photographers who will be willing to participate. Many are beginning to have second thoughts about Photographer's Choice as the return-per-image continues to drop.)
- If they charge a storage fee, how much?
(Currently the average return per image for photographers with images on the creative section of the site is about $130 per-image per-year. Getty has been charging PC photographer $75 to upload an image. But the return from an editorial collection may be dramatically different. The average return for a photographer from Alamy seems to be in the range of $7 to $12 per-image per-year. It seems highly unlikely that sales from an editorial collection managed by Getty will be significantly higher than these numbers given the volume needed to have the right image at the right time and the relative infrequency of the sale of any specific editorial image.)
- Will they reach out to the cream of the iStockphoto image suppliers (there are currently over 25,000 of them) and move their images up to a higher price point?
(This could have detrimental effects to the overall quality of the iStockphoto imagery. But, it could be a strategy to dramatically raise the price point on at least some of the iStockphoto offering.) On the other hand, if the quality of the imagery on iStockphoto begins to decline will customers turn to other micro-payment sites?
- Will Getty accept non-released images on a non-exclusive basis as Alamy has done, (and Corbis had to do initially) in order to get content?
(Alamy is now looking for a way to separate out images with solid releases in order to have a solider offering for the commercial market.)
- Will Getty insist on exclusive rights to the images?
(If they do it seems likely that many of the agencies and photographers producing such images will refuse to participate and that it would greatly limit the comprehensiveness of this collection.)
- If Getty makes its site as open as Alamy, and non-exclusive, it would certainly attract content, but there is a risk that it would upset advertising buyers who are looking for a more tightly edited offering. There is also a risk that existing suppliers will be upset if editorial images are integrated with the current ones on the creative section of the Getty site.
- Will photographers really clamor to give Getty more content as Klein believes, or will many hold back in offering low demand subject matter given Getty's record of squeezing suppliers?
- How will Getty deal with percentages? Kline said, "we have no intention of changing royalty rates." But, a given editorial image sells much less frequently than a commercial image and thus photographers need a higher percentage of any sales to cover their costs. Alamy pays 65% royalties. I believe most editorial image suppliers will find royalties of 35% to 20% of sales unacceptable.
(A big factor may depend on whether they keep the collection separate like iStockphoto or integrate it into their main site. If it is a separate site it might be easier to offer a different contract for editorial shooters.)
- Who will make the judgment of who is a 'professional photographer' and what standards will photographers be required to meet? Klein said, "We will open our system to all professional photographers who meet the criteria." Will all iStockphoto and Shutterstock photographers be considered 'professional' even if they have only submitted a few images? Their images are being sold to 'commercial' customers so why should there be a difference.
Building An Editorial Collection
The above outlines the massive problems Getty faces in building their own unique, editorial collection. It seems to me that the easiest way for them to get into this segment of the market and instantly be competitive with Corbis would be to buy Alamy. They could operate it as a separate brand as they have done with iStockphoto.
Alamy's current biggest weakness is in sales and marketing. Getty's sales force could push the Alamy brand much more effectively, particularly in the U.S., and while average return-per-image would never reach the level of their current 'creative' brands it would certainly improve over what Alamy is generating today.
Acquiring Alamy and the Alamy contracts would also give Getty an excuse for maintaining a two or three-tier (counting iStock) contract system.
Another benefit for Getty is that they would gain access to Alamy Rank. One of the biggest problems with a large file of images is bringing the most relevant images to the top. Alamy Rank is still unproven, but at least it is a step in the right direction. At the very least Getty could benefit by understanding how the system works rather than trying to re-invent something different.
Many people in the industry would not like to see Getty get control of this alternative source, but it seems to be such an obvious win-win for Getty and Alamy that no one should be surprised if it happens.
Closing The Taps
Klein said that the new licensing models would "...provide the ability to shape and mold our collections instantly by opening or closing the taps as needed." The opening and closing of taps can be a very tricky issue for suppliers to deal with.
- Does this mean that Getty will stop accepting new images on that subject once they have reached a certain level? What if the new images are actually more relevant than some of the images currently in the collection? Who would make such a judgment? (This would require extensive and continuing editing of the collection, something Alamy has found not to be practical.)
- Will photographer invest in shooting certain subject matter only to come back and find that the "tap" is closed?
- Will there be a continuously updated list, easily accessible by photographers, describing which subjects will no longer be accepted?
Klein also said, "We will, over time, be entering into new contracts with photographers." What will this new contract be like? Remember the pain photographers went through in the process of negotiating the contract in 2001. The StockArtistsAlliance (SAA) is an outgrowth of that first negotiating round. Will Getty try to get everyone under one contract or will they recognize that the editorial side of the business is very different and establish two separate contracts - one for the commercial collection and one for editorial?
In my opinion, having two separate contracts, and two separate sites with a possible linking between the two sites, makes much more sense, but I'm not ready to bet that Getty will take that route.
In the new contract the company will certainly seek more flexibility in moving images from one pricing model to another. So an image might start as RM, but if it doesn't quickly do well as RM they'll move it to Riser, or maybe RF, or maybe a new model targeted at editorial users. This may optimize the salability of the image, but it won't necessarily maximize the revenue it generates. It will also make it very difficult for photographers to make rational decisions as to how much they should invest in new productions, if they have no idea at what price point the image will be offered.
Some photographer's will say, "I'll let them make that decision relative to the pricing model they use for my images. They will do what they can to generate the most revenue from an image and that the will be good for me." Photographers need to recognize that isn't necessarily so. When Klein says, "...our main relationship with...photographers...will largely be as a distributor for them" he's talking about a relationship where Getty Images has no cost of production or preparing images for distribution. Therefore, if they can license an image for $2 rather than nothing, they've got a $2 increase in revenue. Every additional dollar benefits them, but the royalties from such sales will not necessarily be enough to offset the photographer's production costs.
It is clear from looking at iStockphoto and some of the other micro payment sites that many of the image producers have little concern about earning enough to cover production costs. Photographers who need to earn enough to cover production costs and make a profit should carefully consider whether giving Getty Images "greater flexibility to enable images to go into the collections" is in their best interest.
Getty Images will also be interested in offering a broad selection of imagery at every price point. So if they already have a good selection of a particular subject matter at the highest price point they may place your image in a lower pricing model just so they can offer good imagery at every price level.
Existing photographers may have little choice, but to accept whatever the new contract asks in this regard. If the photographer resists their images may be dropped lower in the search-return-order. (With the huge number of images that are likely to be dumped into the collection, being low in the search-return-order is the kiss of death.)
2007 is shaping up to be a very interesting year.