March 2005 Selling Stock

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(c)2005 Jim Pickerell - SELLING STOCK is written and published by Jim Pickerell six times a year. The annual subscription rate is $145.00 to have the printed version mailed to you. The on-line version is $125.00 per year. Subscriptions may be obtained by writing Jim Pickerell, 10319 Westlake Drive, Suite 162, Bethesda, MD 20817, phone 301-251-0720, fax 301-309-0941, e-mail: jim@chd.com. All rights are reserved and no information contained herein may be reproduced in any manner whatsoever without written permission of the editor. Jim Pickerell is also co-owner of Stock Connection, a stock agency. In addition, he is co-author with Cheryl Pickerell DiFrank of Negotiating Stock Photo Prices, a guide to pricing stock photo usages.

"Opportunities are usually disguised as hard work, so most people don't recognize them."

February 18, 2005 (Story 707) - Early this week Jupitermedia Corporation announced that it had signed a definitive agreement to acquire Creatas, L.L.C., the parent company of Dynamic Graphics, Inc. (www.dgusa.com), and PictureQuest for $38,175,000 in cash and 1,483,073 restricted shares of Jupitermedia common stock. The value of the stock at today's price is about $21.8 million making the total value of the transaction about $60 million. Jupitermedia intends to finance the cash portion of the purchase price with cash on hand and borrowings under a credit facility to be obtained in connection with the transaction. The transaction is expected to close in March 2005 and is subject to customary closing conditions, including regulatory approvals.

The following day Jupitermedia reported revenues for its fourth quarter of 2004 of $21.0 million up from $18.8 million in the previous quarter and compared to revenues of $15.2 million for the same period in 2003, an increase of 38%. Net income for the fourth quarter was $5.5 million, or $0.16 per diluted share, compared to net income of $2.2 million or $0.08 per diluted share, for the same period last year.

For the year ended December 31, 2004, revenues were $71.9 million compared to $47.0 million for 2003, an increase of 53%. Net income for the year ended December 31, 2004 was $15.7 million, or $0.49 per diluted share, compared to net income of $1.4 million, or $0.05 per diluted share, for the prior year.

For fiscal 2005 Jupitermedia expects revenue between $108 and $111 million. This figure includes three quarters (April through December) of revenues from the Creatas acquisition, but the company emphasized that they have been very cautious in their estimate because they still do not control Creatas and there will be a very complex integration of the two companies. On a full year basis for the company the revenue from its existing businesses to grow at about 17.5%.

Online Images Division

The key question for those in the stock photography business revolves around that portion of the revenue of these two companies that is related to stock photography.

2004 revenue for the Images Division (Jupiterimages) that includes Comstock Images, Thinkstock Images, Thinkstock Footage, Photos.com, HemeraImages.com, Ablestock.com, Clipart.com and Animations.com was $22.6 million. However, because they owned many of their image properties for less than a full year they claim that they are at a $30 million per year annual run rate for this division.

The revenue that the Creatas properties will generate for Jupitermedia is a little harder to calculate. To begin with, there are two legitimate accounting systems for booking revenue and Jupitermedia's accountant, Deliotte Touche, has at this point not determined which system they want Jupiter to use. The two systems are called "gross" and "net" accounting. In "gross" accounting, the system Getty uses, the full price paid by the customer is recorded as revenue and the royalties paid to third parties become a "cost of sales". In "net" accounting the company only records that portion of the customer fee it will retain as revenue (not including any royalty payments it will make). The royalty is handled separately and is not added into the "cost of sales" from an accounting point of view. The net result and the net profit for the company for either system remain the same, but the expenses are handled differently. (While "net" accounting is not widely used in the stock photo industry it is interesting that it would give a much more accurate picture of the total revenue from stock photography because it would eliminate most of the double counting of revenue that currently takes place.)

Creatas has been operating on a "gross" system and Jupitermedia has been using a "net" system. For all of 2005 Jupitermedia has placed a conservative estimate of the revenue for the Creatas properties at between $32 million (net system) and $40 million (gross system). This does not include the magazines and events business that generates about another $4 million. In 2005 Jupiter will actually only recognize about three-quarters of this amount because they do not expect to take over Creatas until April 1, 2005.

This acquisition puts Jupiterimages solidly in third place in the world (after Getty Images and Corbis) as a seller of stock images. They also own the market for subscription stock sales as there is no one left of any significance licensing images by subscription. In 2005 over 50% of Jupitermedia revenue should come from the licensing of stock images and illustrations.

Low Royalty Payments

It does not necessarily follow that Creatas is only paying out an average of 20% in royalty to its image suppliers. They either own or have perpetual contracts to a significant portion of the images they represent and on these they pay no royalties. In addition some third party supplier contracts may be structured to provide additional payments that would not be counted as royalties and would still fall under costs in the "net" system.

Chairman and CEO Alan Meckler also told me that the RM share of Creatas and PictureQuest revenue is less than 25% of their total.

Synergies Between The Two Companies

During the conference call with analysts Meckler outlined some of the synergies between the two companies.

• Jupiter is already one of the largest distributors of imagery in the world, but now with Creatas they have a significant new distribution channel for several of their own brands. Creatas is known as a distributor, not as a producer of images but also gets significant revenue from the images it has produced.

• The possibilities for cross promotion of both businesses should dramatically increase volumes for both brands. All the Creatas brands will become better known because of Jupiter's mass of internet traffic. Meckler said, "Jupiter has always felt that the more ways you can distribute your wholly owned images the more profitable your business will be. We have a concept that is different from most. We have many brands as well as an umbrella brand and we will continue to build this in numerous ways."

• Jupiter has been an RF business and something in the range 80% of Creatas business is RF. But PictureQuest does have a significant RM segment to its business. Comstock has about 25,000 RM images (15% to 20% wholly owned) that are scanned and ready to go. They also have a fairly large additional RM library that has not been pushed very aggressively to date. By turning the Comstock images over to PictureQuest they should be able to significantly improve sales of that material and "a business that has been somewhat moribund will now start to grow significantly.

• While RM and the distribution of images they don't wholly own is a relatively new strategy for Jupiter, Meckler indicated that they would probably bring in more 3rd Party content. Some of that is likely to be RM. He said, "We're now going to open the doors to Rights Managed." Comstock has also been contacting some of the RM photographers they used in the past and asked them to start producing again. If Jupiter works to build a customer base for the Comstock's RM images that will probably also work to the advantage of other RM suppliers on PictureQuest.

• Dynamic Graphics has some of the more significant magazines in the field for Graphics and creative professionals. On a monthly basis Step In Design and Dynamic Graphics are probably passed along to 35,000 to 50,000 image, graphics and creative professionals. These publications can be used to promote Jupiter products. According to Meckler, Jupiter is "the only company in the industry that can face the image buying public in print, in person and on the web. No other company can make that statement."

• Creatas has a very powerful and unique multi-million dollar subscription service called Liquid Library that offers 50MB images. Not only is Jupiter the largest photographic subscription services in the world, but now through numerous brands it offers a variety of images sizes from 1MB up to 50MB at a variety of price points.

• One of the important factors that will aid in future growth are the strong Creatas and Picture Quest sales teams. The addition of sales operations in the UK, Germany and Australia will help Jupiter expand and market all its offerings in these areas. Jupiter seems to be very impressed with the Creatas sales team. Jupiter has developed different pools of buyers and an expertise in e-mail blast campaigns that separately target each group with offers specific to their needs. It is expected that the Creatas sales group will coordinate e-mail and personal contact to grow the business.

Meckler said, "While the gross margin in 2005 is likely to be down from 80% to approximately 75% (due to the royalties paid to some Creatas suppliers), when we get all the synergies in place we will certainly see these numbers rise going into 2006. With our multi-brand strategy, overbrand strategy, our subscription strategy, internet traffic strengthen strategy and our new magazine muscle Jupiterimages will have rapid and very profitable growth in 2005 and the years to come."

It has also been rumored that early next quarter Jupiter will offer a new site connected with Art.com (Jupiter Images brand) that will be a distributor of other brands, something like Picture Quest. Many of the brands that are already on PictureQuest and Creatas will be offered to opportunity to go on this new site.

With this announcement many Creatas and PictureQuest suppliers have breathed a sigh of relief. One of the chronic problems at Creatas over the last couple of years has been a delay in the payment of royalties to suppliers. When asked about this Meckler said, "Those days are over. We have the cash and we'll be cleaning that up very quickly. Obviously we need good relations will all our suppliers"

January 31, 2005 (Story 705) - There seems to be an increasing industry trend for a greater portion of the available stock imagery to be produced by large production operations, rather than individual photographers. These production operations are similar to motion picture production companies (although usually on a much smaller scale) in that they employ people with a wide range of skills all working together to produce the end product. The chief operating officer may be a photographer, but in many cases the COO has other skills, or capital, and photographers, like all the other staff, are hired on a buyout assignment basis to produce the needed images.

As this trend expands photographers who want to work on a royalty basis are likely to find it harder to get their images on major web sites and the proportion of available images that are wholly owned by large production operations will increase.

Some of these production operations, particularly in the RF area, have been around for a long time, but as the industry changes and a few portals dominate the marketing of imagery around the world it seems likely that images (both RM and RF) created by these large production operations will make up an increasingly larger share of the total images licensed.

Tension Between Suppliers And Sellers

To better understand why this is happening consider first the basic tension between the image producer and the seller. The image producer wants to spend his or her time shooting subjects in greatest demand. If possible, he also wants to increase his percentage of images in these subject categories relative to all the other images in the category on the site where his images are represented because this increases the odds that one of his images will be picked by the customer.

The seller wants the broadest cross section of subjects possible, including subjects that are of low demand, so his company may satisfy the needs of any customer that comes to its site. To the extent possible the seller also wants to limit the number of images on its site, particularly in the high demand areas where there tends to be lots of very similar imagery. Provided there is a basic minimum of choices to any given search the fewer images returned, the easier for the customer to find something to use. The question for every seller is what is the desirable critical mass in any given subject category. Many sellers feel they have reached that point in the high demand subject areas.

The seller also wants to limit its costs of acquiring images, integrating them into the system and maintaining the database. This means that the fewer images the organization has to deal with, the fewer administrative hassles and the lower cost. Finally, to the degree possible, the seller wants to increase its margin which means reducing the royalty paid whenever possible.

Thus, the image producer wants to constantly increase the number of images he has in play and left to his own devices would produce more and more of the subjects in highest demand while it is in the best interest of the seller to place limits on the number of images it accepts and to find inexpensive ways to acquire images of more low demand subjects that may not sell in high volumes.

Some other factors that drive the trend toward greater dependence on production operations and less dependence on individual photographers are:

• Technical requirement to properly prepare images on online databases

• Volume Production

• Availability of statistics

• Oversupply of images in high demand categories

• Lower percentages available to producers

Technical Requiremements

The technical requirements for an acceptable digital image are getting tighter and tighter and becoming more and more difficult to meet. This includes not only proper post production preparation or digital files, but also effective keywording to very tight specifications. It is no longer satisfactory for a photographer to produce a great piece of film and turn it over to the agent or portal for marketing. Now sellers expect image producers to do more of the work of preparing the image for marketing. Formerly, much of this was handled by the agent.

It is the rare photographer who is equally skilled in all the various steps of the process, and even for those who are capable of doing everything themselves, handling the production process from start to finish is usually not the most efficient use of the photographer's time.

For example, the process of cleaning up images from a two or three day shoot can sometimes take weeks for one person to do. That is not necessarily efficient time management for a photographer who has the ability to organize and plan shoots. Keywording can also be very time consuming and is best done by someone with a gift for language.

Post production may be more efficiently handled by a team with a variety of skills than by a single individual. It may be possible to sub-contract some of these activities, but many who have tried that route have discovered that they need to manage the process more closely than is often possible with a sub-contractor. Producers who handle much of the pre-productions arrangements can also be very useful members of the team.

Thus, for many it makes a lot more sense to put together a team to handle production rather than try to do it as an individual.

Volume Production

There are several advantages in producing volume. Producers in a position to offer a steady volume of images to a distributor are much more likely to be accepted than the individual photographer who comes in with 50 or 100 great images. In such cases there is much less administrative overhead for the seller.

In addition, with a volume of images in play, the producer can begin to determine what sells and what doesn't and make better decisions about what to shoot in the future. Of course, the major portals have the best statistics, but they tend to only share this information with their best producers, or not share it at all. Thus, a production company that is producing volume has a better chance of figuring out what is in demand than the small individual supplier who is trying to guess what the market will want. Of course, the photographer who just shoots what he likes and doesn't worry about market demand at all is usually not someone most portals are interested in representing.

While volume producers want to shoot high demand subjects, they also want to do everything they can to keep the seller (portal operator) happy. Thus, they will occasionally produce images specifically requested by the portal even when they do not have a high level of confidence that the image will sell. They can afford to take this risk because their volume generates enough revenue that they can occasionally afford a few losing shoots. On the other hand, if an individual photographer goes to great effort on the instruction of the agent, and produces a losing shoot without enough revenue from successful shoots to offset the lost, that photographer may be out of business. This also hurts the seller because now he has to spend time to develop another shooter.

Oversupply

If you go to any major web site and search for specific subjects within the high demand subjects areas of business, lifestyle, nature, scenics and travel you will quickly see that there are many more images available on these subjects than anyone would want to review. Consequently, many portals are trying to slow their growth and be more discriminating in the new images they accept. While some new and updated images of the high demand subjects will always be needed the trend of those who control the major portals seems to be to put tight limits on the amount of such imagery they will accept.

Even thought portals require image suppliers to fully prepare the scans and supply keywording ready for automatic uploading, they still have costs in adding images and managing the ever larger database. Many feel it is not in their best interest to let the database get a lot bigger, and certainly not to put up images that are similar to what they already have on the site.

They will add truly unique images when they find them, but they don't want to spend a whole lot of time cross checking every image against what is already on their site to determine if it is unique. Consequently, they tend to look for new providers who specialize in subject areas where there may be lesser demand, and where the portal currently has very few images.

Portals As Producers

Some photographers expect the major portals to increasingly produce images that they will wholly own. For most portals that is not a good economic proposition. They may do some wholly owned production of subjects when it is clear there will be very high, immediate demand for such images. But for the most part it is better for them to let someone else take the production risks and earn their revenue from a percentage of sales.

Many distributors have no intent, or interest, in getting into production. They want to focus on selling product rather than producing. This leaves them with two choices -- getting that product from production companies, or individual photographers. Production companies are the preferred choice because the seller can get more images with less administrative hassle.

Getty has gone through a stage of building an in-house production operation that would work with individual contract photographers to encourage them and guide them to shoot subjects where the company felt it had holes. While this produced some great imagery, it appears that the costs were higher than Getty would like. Now Getty has focused its efforts on acquiring a much larger portion of the imagery it licenses from Image Partners that are either agents or production companies. Some of these suppliers are agencies that accept imagery from individual photographers, and prepare it to meet Getty's standards. But the economics are such that these suppliers are encouraged to do wholly owned production when ever possible.

If a photographer is getting a percentage there are at least two and sometimes three cuts of the gross fee ahead of him and thus the payment per-usage is often very small. In some cases the production company's percentage is small (30% or less) and if they work with photographers on a royalty basis that must be split with the photographer. The trend is for the production company percentages to be reduced. If the production company can afford the upfront capital investment there is an incentive to hire photographers, own the content and keep the entire portion of the fee the seller pays rather than sharing a percentage with a photographer.

Given these relatively low royalty rates, many photographers may eventually find it more desirable to produce such images for an immediate buyout fee, rather than speculating that the images will produce more in royalties down the road.

One move that may seem counter to the production company strategy is that Getty is expanding the Photographer's Choice operation and accepting more images from the individual photographers they represent. However, there are two things to keep in mind. This will be a very small number of images compared with the quantities they accept from other Image Partner agencies. Secondly, each photographer pays an upfront fee to have his images included so Getty has offset its costs. As a means of acquiring images PC is much more comparable to the arrangements with Image Partners than Getty's normal direct dealings with individual photographers. The biggest negative for Getty is that they give up a higher percentage of PC image sales than is the case with many Image Partners.

Control What Is Shot

Sellers would like to influence and control production as much as possible without having to fund it. Working with a few production companies appears to give them the greatest influence for the least cost. It's not a perfect solution, but it seems to be a lot better than working with lots of individual photographer over whom they have very little control.

There are cases where the Image Providers manage to slip in high demand subject matter that the seller might not have accepted had he been editing everything tightly as is the case. This will tend to overbalances the volume of images in a subject category, but at least the seller has very little cost in adding these images.

In the long run, it appears that what Getty, Corbis and other large portals need to do to maximize their profits is work with a few highly efficient production operations that will produce exactly what the sellers want -- at no cost to them - and not over-saturate any particular subject area in the database.

How Do Individual Photographers Survive?

Some photographers will say, "I don't want to set up a production company. I like working independently. What should I do?" Others simply don't have the management skills to run production companies. Still others don't want to work on an assignment or staff basis for a production company. They say, "How is the individual photographers survive?" As I see it, the choices are not easy.

It may not be a good analogy, but think about automobile manufacturing. When the industry started in the early 20th century there were hundreds of manufacturers with different ideas about how a car should be built. They produced many different models and each sold a few. But as manufacturing efficiency and marketing became more important there was consolidation. A lot of people with good ideas were either absorbed by the bigger companies or left by the wayside. The consumer was left with many fewer choices, but most of them worked well and were available at prices the consumer could afford.

In the creative/advertising area the variety of visual interpretation will be limited if fewer photographers are creating most of the images. On the other hand that has already happened with RF, and it doesn't seem to be creating any negative reaction among the buyers. They seem satisfied with the choices available. Thus, I see no reason why a larger portion of the images directed toward the creative/advertising side of the business won't be created by production companies.

There may be more opportunity on the editorial side of the business because there is a much broader need for specialized subject matter for which there is a relatively low demand. It may not be cost effective for the big production operations to ramp up in these areas of the business. And it may not be cost effective for the portals to hire staff at reasonable rates to produce this imagery. In the long run the real question is will it cost effective for the editorial shooters to produce this material and make it available if they are not also earning income from some other source (which in many cases may be possible).

Photographers may not want this to happen, but I believe it is a reality they all need to consider as they plan their stock photography future.

January 14, 2005 (Story 696) - At the end of 2004 Alamy had more than 2 million images on Alamy.com.

January 6, 2005 (Story 694) - Corbis begins 2005 with the announcement that they have acquired Zefa Visual Media Group. This is right on track with the November rumors that they hoped to complete the deal by the end of 2004. According to the press release the combined revenues of the two companies is in excess of $200 million. That should break down to around $43 million for Zefa and $160 million for Corbis in 2004. Corbis plans to announce 2004 sales at an annual meeting January 19th in New York City.

"This deal further solidifies our plan to accelerate penetration of key commercial markets," said Steve Davis, President and CEO of Corbis. "Moreover, as a result, we expect to dramatically improve our market share, not only in Germany, France, and the UK, but around the globe."

Zefa has more than 140 employees, eight offices throughout Europe and the company currently represents more than 450,000 images. (Corbis employed 900 people before the acquisition of Zefa.) The number of images is somewhat deceptive because a significant percentage of them have been supplied by third party agencies and it is unclear what will happen to those relationships as existing contracts expire and Corbis integrates the Zefa material into its own database.

Zefa is known for cutting-edge, fresh, hip commercial photography, particularly with a European flavor and that is one of the key areas where demand has been has been growing and where Corbis' offering could use a boost.

The addition of Zefa is expected to strengthen Corbis' commercial business and its business in Europe. According to Corbis spokesman Dov Schiff, Europe represents one of the fastest-growing markets for Corbis, with 39 percent growth for the first half of 2004 compared with 19.3 percent in the U.S. Currently, about 40% of the company's sales occur overseas. That should jump to well over 50% with the addition of Zefa.

"Zefa's fresh, fashion-forward photography is a perfect complement to Corbis' imagery and services," said Jennifer Hurshell, Corbis Senior Vice-President, Image Licensing. "Our clients demand tremendous stylistic breadth of imagery, and this takes us another step forward to building one of greatest creative resources in the world."

Current plans call for Corbis to complete the integration of the Dusseldorf-based company into its website, global sales organization, and marketing programs by the end of 2005. Corbis willconsolidate offices in London, Paris, New York and Dusseldorf into a single location in each city. It is believed the Zefa website will be closed when the integration is complete, but it is not clear when that will happen.

Tomas Speight, CEO of Zefa said, "This will enormously benefit our photographers, who will gain global reach from Corbis' global sales network and industry-leading services." Speight has been named vice president of international operations of Corbis. Erwin Fey, president of Zefa, will become a consultant for Corbis.

Some Zefa photographers are concerned that the editing strategies may change resulting in fewer of their images being accepted for marketing. Only time will tell if there are any basis for these fears, but not all Zefa photographers share Speight's optimism that this acquisition will "enormously benefit our photographers."

January 21, 2005 (Story 698) - At Corbis' second annual meeting, held in New York, CEO Steve Davis announced that the company had gross 2004 revenue of $170.4 million, representing growth of approximately 22% over 2003 revenue of approximately $140 million. Recently acquired zefa visual media group reported approximately $41 million (33 million Euro) in 2004 and Davis estimated combined 2004 revenues of the two companies at approximately $211 million.

"We have experienced strong growth across all our lines of business. Our strategy of offering complete visual solution, encompassing existing imagery, rights services and assignments and representation, has gained tremendous traction with the market. 2004 revenues are the highest in Corbis history," Davis said. "Today's creative professionals want exceptional imagery combined with the services necessary to use them in innovative ways -- which is why more publishing and advertising clients start with Corbis for their visual projects than every before."

Corbis revenue in the Americas grew at a rate of 18% and international revenue grew at almost twice that rate, with European revenue growing 31%, Asian 51% and Japanese 57%. Davis attributed the Japanese boost to a lucrative partnership with Amana, Japan's leading stock photo seller. Non-US sales accounted for approximately 42% of Corbis' revenues (or $71.6 million). With the zefa acquisition Davis predicted continued growth in excess of 40% for 2005 and expects the company to have positive cash flow from operations for the first time in its history.

About half of Corbis' image sales worldwide were for editorial uses with the other half being for commercial advertising uses. Given Corbis' very strong editorial image collection, one?third of the commercial sales used images from the editorial collection. I was unable to get an official breakdown of these percentages figures into actual dollars, but for the purpose of illustration I believe about $25 million of the revenue was for media services which would include everything but still image licensing such as rights clearance, research, motion licensing and assignment services. This would leave approximately $145 million that represents the still image licensing portion of their business. Given the percentages almost $97 million of this image licensing total would have been for the use of editorial images and about $48 million was for commercial images.

IPO

There have been recent rumors in the London press that Bill Gates, who owns Corbis, might be about to launch an IPO, but in his opening remarks Davis quickly put that idea to rest by saying an IPO was not "imminent."

Rights Clearance

During his presentation Davis described Corbis as a "media services company" and put particular emphasis on the rights clearance aspects of the business. Sources indicated that the rights clearance division grew in excess of 100% in 2004, and experienced 90% growth in 2003. Corbis got into this business in 2003 when it recognized that many of its customers had great difficulty in using many of its editorial images because they had so much trouble in clearing the personality rights of the subjects.

They acquired a company that had been doing this kind of clearance work for the motion picture industry and began offering their customers a clearance service that includes personality, property, trademark and logo rights. Not only does Corbis generate revenue from providing such clearances, but facilitating clearances has made it possible for advertising and commercial customers to effectively use more Corbis images than they had been able to use before. Corbis also supplies this service for their customers regardless of whether the image in question has been acquired from Corbis or from someone else.

Getty Images has made a fledgling effort to offer a similar service, but it appears that Corbis is clearly recognized by advertising customers as the leader in this aspect of the image licensing business. During his presentation Davis offered customer testimonials as to how the availability of such a service had made it possible for them to acquire rights on deadline and successfully complete projects that might have otherwise been impossible.

Davis also announced the launch of a new Corbis service, allied with Rights Clearance, called Rights Representation. Rights Representation allows Corbis to better serve both Corbis customers and rights holders by administering all aspects of the rights management and clearance process.
The company launched this service with the announcement of rights representation partnerships with the Andy Warhol Foundation for the Arts and Marvel Enterprises, Inc. It is expected that in the near future they will be announcing worldwide representation of a number of other major rights holders.

In looking at the percentage of growth one investment analyst made the observation that "revenue growth is not directly comparable between Corbis and Getty, given Corbis' broader services offering," and said that Corbis has defined its business model around the broader concept of digital imagery while Getty focuses more tightly around stock photography. It seems to me that both Getty and Corbis are very focused on stock photography. If we take footage out of the mix, I estimate that at least 85%, and maybe a little more, of Corbis revenue comes from the licensing of still stock photography and illustration. With Getty that figure is 92%. In both cases the companies are strongly dependent on stock image licensing. Getty has a stronger footage division, and as we pointed out above Corbis is currently stronger in Rights Clearance. But both have a long way to go if the goal is to reduce their dependence on still imagery licensing.

Expansion Plans

In addition to presenting 2004 results, Corbis described its global expansion plans. Davis announced the January opening of Corbis' first office in Canada. This new office, combined with the acquisition of zefa, has extended Corbis' direct operations into five new markets -- Canada, Italy, Holland, Belgium and Poland -- strengthening its global reach. Davis also announced Corbis' intention to open its first office in China in 2005 and said China is projected to be "one of the top advertising markets in the world" (although that may be in the rather distant future).

"We have experienced significant expansion in Asia and Europe as well as strong growth in revenues from new products and new distribution channels," said Davis. "To better service our advertising agencies, publishers and editorial clients, we are expanding our global presence, providing creative professionals around the world with access to images and motion licensing, research, and rights services 24/7. This is just one more way that we are fulfilling our commitment to meet our clients' visual needs."

January 29, 2005 (Story 703) - Getty Images has reported that fourth quarter revenue grew 20.6 percent to $162.1 million compared to $134.4 million in the fourth quarter of 2003. Excluding the effects of changes in currency exchange rates, revenue grew 15.5 percent. For 2004, revenue grew 19.0 percent to $622.4 million compared to $523.2 million in the prior year. Excluding the effects of changes in currency exchange rates, revenue rose 12.7 percent compared to 2003.

Operating income for the fourth quarter of 2004 grew 54.1 percent to $43.8 million, or 27 percent of revenue, compared to $28.4 million, or 21.1 percent of revenue, in the same quarter last year.
Operating income for the full year of 2004 rose 62.9 percent to $168.3 million, or 27.0 percent of revenue. In 2003 operating income totaled $103.3 million or 19.8 percent of revenue

"A strong December capped another record-setting year for Getty Images - we achieved the highest level of revenue, operating margin and net income in our ten-year history, for both the fourth quarter and full year," said Jonathan Klein, Getty Images' co-founder and CEO. "We met or exceeded every 2004 target we set for the company, including achieving significant growth in our editorial business, launching the first fully localized e-commerce site in Japan and achieving a 27 percent operating margin, two full percentage points ahead of our target."

Klein pointed out that typically December can be unpredictable, but this time they saw very healthy demand that made it one of the strongest months of the year. He said, "December tends to be indicative of strong conditions for our customers and that was the case last year in stark contract to the Decembers of 2001 and 2002 when business prospects were much more uncertain for out customers."

Business Outlook

For the 1st quarter of 2005 the company expects to report revenue in the range of $175 million to $180 million and earnings per diluted share of $.51 to $.54. For all of 2005 the company expects revenue in the range of $705 million to $715 million and earnings per diluted share of $2.10 to $2.20.