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JULY 2003 SELLING STOCK
Volume 13, Number 6
©2003 Jim Pickerell - SELLING STOCK is written and
published by Jim Pickerell six times a year. The annual subscription rate is $120.00 to have the printed
version mailed to you. The on-line version is $100.00 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 reporduced 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 of Negotiating Stock Photo Prices, a guide to pricing
stock photo usages.
Thought For The Month
Pessimists are right some of the time, but optimists have more fun all of the time.
On the other hand, common sense is not automatically pessimism.
Anonymous
(Thanks to Tomas Speight for passing this on.)
A21 TO ACQUIRE SUPERSTOCK
May 2, 2003 (Story 553) - On April 24, 2003 a21 Inc. announced that it had
signed a Letter of Intent to acquire SuperStock, Inc. Earlier in the month the
company had also announced a Letter of Intent to acquire Nonstock.
A21 President Haim Ariav said, "We are extremely delighted to join forces with
SuperStock. The company and business that Bill Beermann and Jim Ong have built is a
natural fit with a21." "SuperStock is about excellence in customer service, image
collection and infrastructure. a21 is about excellence in photography. Together, we
can provide a new level of access to the best photographers, artists, photography
agencies and customers in the business. We look forward to working with the highly
talented team at SuperStock."
SuperStock ( www.superstock.com )
established itself in New York City in 1973 and
re-located to Jacksonville, FL in 1993. In addition to licensing work from
photographers and artists, the company owns an archive of more than 250,000
contemporary, vintage, historical and fine art images.
"The a21 business model and the support they have behind it made us quickly realize
we wanted to be involved with them," said Jim Ong, SuperStock CEO and Co-Founder. "As
our industry continues to evolve, we believe the a21 opportunity will provide us with
the strategy and resources to not only continue our success, but make an even more
meaningful difference to our photographers, artists and customers."
Nonstock, Inc. ( www.nonstock.com ),
is a New York City based agency specializing in
high quality commercial and fine art photography. Nonstock was founded almost 8 years
ago and, "our goal has always been focused on the highest quality images from the
best known photographers," stated Jerry Tavin, President of Nonstock.
Consummation of these two agreements is contingent upon the completion of
satisfactory due diligence, acceptable financing, and the execution of a Definitive
Agreement between the companies. Ariav said, "We believe we can close both of these
deals through the summer and possibly into the early fall, at the latest."
A21 intends to continue to operate the two brands as separate companies. Ariav said
we will, "keep the brands separate and not dilute them, but allow them to cross sell
within themselves." He pointed out, "There will be an opportunity to sell the
Nonstock images through the SuperStock portal."
Moving forward they feel that Nonstock's "technology infrastructure can be improved
upon." They also expect to use some of the capital they bring to the acquisition to
"enhance SuperStock's technology," but in general they seem very happy with
SuperStock's portal and the way it operates. Ariav said, "We feel SuperStock is a
great company that has been run incredibly well. It is a good time to get involved
with SuperStock and build that company forward."
A21 was incorporated in October 1998. Initially, it was focused on building a web
platform to provide editorial photographers with a better way to market their images.
Neither SuperStock, nor Nonstock are known for their editorial images. Ariav
acknowledged that their early efforts had been aimed toward editorial and pointed
out, "The editorial market has shifted tremendously along with the fees for stock
images dropping. As a group we decided we would be more viable as an entity if we
focused on the commercial stock and assignment space."
Ariav and several of the board members also have a strong background in photography.
Ariav graduated from Brooks and started a career as a fashion photographer. Got
interested in the internet and founded Muffin-Head Productions, a New Media agency
that created and designed internet solutions for clients. He later sold the company
and is now "back doing both of my loves - technology and photography."
Ariav said, "One of the models we have internally is that it is not going to be all
about stock. While sales of stock imagery are very important to us there are other
avenues that we will be looking at. We want to get into the assignment/representation
side of the business. Having been a photographer, "I know how the process works," and
he believes there are unexplored opportunities to develop assignment work. "Nonstock
could be a nice piece to build an assignment representation business from. Jerry and
his group are a tightly focused group that is highly respected in the space. Art
buyers can find what they need through stock and assignments."
A21 also intends to commission stock photographers to create new content and pay
them a substantial day rate plus a smaller percentage of each sale. This is an aspect
of the business that SuperStock was very strong in at one point in the company's
development, but in recent years SuperStock has closed their studios and moved away
from creating content which they either wholly or substantially owned. They made this
decision because photographers were offering them so many great images that they no
longer felt the need to create wholly owned material. "We're not going to get totally
back into creating imagery, but we would like to spend some resources and energy in
creating original photography for our use," Ariav said.
A21 is a public company traded on the over-the-counter market with the symbol
ATWO.OB. You can also find more information about the company ata21group.com.
RF METAMORPHOSIS
June 7, 2003 (Story 559) - The RF industry is facing some interesting
challenges as it tries to move ahead. The road to growth may not be as easy as it has
been in the past, or as some would hope.
Speakers on RF at the recent CEPIC Congress in Portugal generally agreed that
selling images on CD-ROM discs is an interim bridge technology on the road to full
internet search and delivery, and that the usefulness of CD's is nearing an end.
The buying trend is toward single images and away from discs. There are some big
variations market to market, but in general disc sales are in rapid decline compared
to a year or so ago. About 80% of Getty's RF revenue comes from single image sales.
Other distributors indicate that their ratio of single image to disc sales is in the
same ballpark. And since disc prices are about four times the average single image
price that means that something in the range of 95% of the RF units sold are single
images. Disc purchasers tend to be volume users of images whose aim is to build a
library of images as a way of reducing future image costs. Subscription and online
library models may satisfy the needs of many of these buyers in the future.
In the past year the average price per single image has been pushed up resulting in
increased gross revenue for many suppliers, despite a poor economy. As prices have
risen many distributors have seen a DROP in the number of single images licensed -(a
13.5% decline for the gettyimages.com site). In a bad economy buyers are supposed to
use more RF than RM because it is cheaper. Someone forgot to tell Getty's customers
how they are supposed to act. Given the dominance of Getty's platform, probably in
excess of 50% of all RF sales are made through the Getty site and thus their trends
may be indicative of where the industry is headed.
The decline in the number of images licensed at Getty is all the more remarkable
because it occurred during a period when they added Digital Vision's high quality,
high priced images to its site. Sources tell us the DV material sold very well
representing in excess of 20% of Getty's RF revenue in the last 12 months. David
Moffly of Creatas and James West of Alamy say both revenue and units licensed are
growing on their sites, but that may be because both companies are relatively new to
the RF space and are adding many new RF suppliers to their offering.
Issues
There are a number of issue RF producers will have to deal with in the near future
and none of the answers are clear cut or easy. They include:
- Making pricing more complex and thus increasing the "Hassle" factor
- Unauthorized Uses.
- Drive for better quality vs. the greater expense to get there.
- Subscription and Library models.
Pricing
Determining how to price "Royalty Free" products and still keep the transaction
simple and hassle free is becoming a major dilemma for producers. To make the
transaction simple most RF sellers started out offering three different prices based
for different file sizes. Initially the prices were very close to what PhotoDisc was
charging so the buyer had a reasonable idea of what the costs and terms of use might
be if they purchased a RF image. But in a effort to find a more profitable model a
variety of price systems have developed from offering more file sizes, to
sub-dividing a brand (PhotoDisc model), to Flat Rate, to Subscription, Library and
Virtual CD's. A "Time Based License" model is also being discussed. The end result
for the buyer is confusion. All RF is not priced equally. If the buyer is looking for
the best bargain for their particular needs they must do a lot of research on the
various options offered by different RF brands and the rights vary.
As portals increasingly represent many different brands - and each brand develops
its own pricing - it has become harder for the customer to anticipate what the price
of an RF image might be as they begin a search. Only after the customer has selected
an image can he determine the price for that image. Thus the price is no more
transparent while searching than it is with an RM image. This is particularly a
problem for the low end user who only plans to make a single small use of the images
they intend to purchase. Often an RF image will be the most expensive option
depending on the image the buyer picks and how they intend to use it.
Tom Christiansen of Lute.no and FontShop, and other distributors, say that RF single
image prices now exceed RM prices for many uses. But, as volumes decline sellers need
to raise prices to maintain a stable (and hopefully rising) revenue stream. Many
distributors think the only way to increase volume is to reduce (or at least not
raise) prices. Faced with rising RF prices some low end customers look for
alternatives such as the library and subscription models.
Even in the major markets the RF prices sometimes exceeds what major buyers are
willing to pay. Consider that most customers do not buy the smallest file size
designed primarily for online use. Instead they buy the file size that is around 10
to 15 MB which is good for most 1/4 page uses. At Getty, that file size costs $149.99
and at DV $249. The 28MB file costs $209.99 and at DV $269. Many book publishers in
the U.S. want to pay $125 for an image of any size for unlimited use in a particular
product. At that price RF exceeds their budget. Prices in many countries around the
world are even less. I suspect Getty negotiates bulk deals with many of these
publishers to give them the RF images at the price they want. My point here is not to
say whether Getty should, or should not, negotiate in these situations, but to point
out that if they are negotiating then much of the purported" convenience factor" of
RF is lost. If they don't negotiate then they are likely to lose sales.
Sellers started out by trying to maintain one price worldwide for each of their
discs and for each file size they offered. Some still do, but others are discovering
that as they raise prices for single images they price themselves out of some
markets. Some RF suppliers have adopted the strategy of adjusting their rates in
various countries and offering their discs and single images at lower prices based on
what the market will bear. Others are trying to hold the line and keep their offering
at the same price throughout the world. This is getting harder to do.
I know of at least one case where a South African agent refused to represent one RF
brand because they believed the products were too expensive for their market. This
brand's pricing is in the middle range of RF pricing, not the extreme high end. On
the other hand, in South Africa (and many other countries) the majority of uses are
small in size and circulation, and RM images with pricing based on usage are cheaper
than RF.
RF sellers who reject this price cutting strategy fear that multi-national companies
will do their buying in the country where the image is least expensive. RF has a
major problem that RM doesn't face. When a customer buys and RF image they can use
the image any way they want, but if they buy an RM image the allowed uses are clearly
defined in the license. RF has "seat licenses" that place some limits on how large
companies with many offices or art directors can use the RF images they purchase.
But, if you think RM licensing is complicated try to figure out the rules for seat
licensing for the various brands. The end result is that offering an RF image at
different prices in different countries is much more risky than doing the same thing
with an RM image.
Those who are willing to adjust price to the market argue that cross-market buying
is not a significant problem. But the RM market provides some precedents to consider.
For years major U.S. book publisher (huge users of images) have purchased many of the
images they use through offices in the United Kingdom because UK fees are much less
than those in the U.S. Most major publishers are multi-national companies and can
adjust the location where they purchase, if there is a significant economic benefit.
Another thing that may be hurting RF is that a lot of RM images are now available
online for immediate search and download and there are convenient price calculators
that allow customers to determine the price for a particular usage without the
necessity of negotiation. Buying an RM image is becoming more convenient while there
is increased hassle when buying and RF image.
Multi-Level Offerings
Some sellers have suggested that the solution is to divide the collection into
multi-levels based on quality, or costs of producing the image. Each level would be
priced differently. This is moving closer to the RM method of pricing. But selecting
images for such categories can be very difficult, and most often wrong. Some buyers
are willing to pay more for an image assigned to the lowest level given their
intended use and others will need one of the high quality images, but only be able to
afford a low price. The beauty of the RM strategy is that it is possible to sell any
image at many different price points depending on the needs of a particular customer.
Unauthorized Uses
There is no consistency in RF licenses. As a result customers are often not sure
what they are allowed to do with the image. Customers have been told for years that,"
You can use the image anyway you want." In fact, there are restrictions on most RF
licenses, but since there is no consistency and often the licenses are not easy to
read or understand the restrictions are mostly ignored. There is a great deal of
unauthorized, unpaid use of RF images.
Some producers would like to see the industry move toward a standard license and
more enforcement, but most are afraid to inject a greater degree of "hassle" into the
transaction or do anything that might discourage RF purchasers. Consequently, it is
doubtful that anything will happen on this front. Meanwhile the Rights Managed
sellers roll along with very precise licenses for specific, clearly defined uses.
Image Quality
If the number of images licensed is actually dropping, raising prices is difficult,
and producers are required to continually spend more to raise the level of quality;
will this begin to cut into profits of the RF producers?
There is a strong drive to improve RF quality despite the fact that most observers
would have to agree that the quality is currently equal to RM. There are more
elaborate productions, more and more images being shot, and higher standards for what
is acceptable in order to produce a prime selection for a single disc. In a recent
promotion Digital Vision says they only accepted 1.2% of the images they reviewed in
2002, and in many cases the photographers had already done a tight edit before
showing the images to DV. In the past a photographer could produce all the images for
a disc in a day or two of shooting. Now it is not uncommon to have several
photographers shooting over a period of weeks to produce images for a single title.
This raises costs. Will all this work lead to an increased volume of sales, or is
there a limit to what the market can absorb?
There is also discussion of editing out older images of lesser quality and
re-mastering discs. But, sometimes the older image, or an image produced from one of
those quick and dirty one-day shoots is exactly what the buyer needs. The image that
someone else has defined as "better" won't necessarily satisfy the buyer's needs.
Release Status
Rights status is another factor that concerns some in the industry. Some say there
are images being sold as RF that don't have complete and comprehensive releases, and
there are uses being made of some images that might not be covered by good releases
anyway. This has limited some of the images that producers are willing to accept for
RF distribution. For example, I recently heard from a photographer who had a set of
images of classic cars that one of the major RF producers was considering. The
photographer had solid releases from the owners of the cars, but could not obtain
releases from original manufacturer (Packard) because that company no longer exists.
The fact that this other release was not available prevented the RF company from
accepting the image. Another photographer was asked for a release of a wide angle
shot of a ticker-tape parade in New York. Who can provide such a release? Producers
are justifiably nervous about some of the uses that might be made of non-released
images and the potential cost of litigation, but as the fear increases it is likely
to put severe limitations on what can be offered as Royalty Free.
Such images could be offered for sale as RM with the stipulation that the image is
not released. Since there is the potential to negotiate every sale with RM (even when
an automatic online pricing and delivery option is offered) it is possible to vet the
use in the RM environment and determine if there are potential problems with the use
given the release that is available.
Subscription or Library Model
One of the most intriguing trends in the RF space is the subscription, or library
model of sales. There are a number of variations, but brands like AbleStock.com,
Photos.com and Liquidlibrary.com are gaining increased traction in the market. These
models work for customers who use lots of images and have a limited budget. It also
helps if the customer is willing to design around the images that are available, but
some of these services offer some pretty good images on all the major themes. Niall
O'Driscoll of AbleStock.com says, "Our single image sales are falling dramatically
due to the appeal of membership." Graphic Design firms like the library concept
because they can pay one low monthly or annual fee and use the images for all their
customers. O'Driscoll says, "Most of our customers are not price sensitive because
they charge their clients for image use. However, they recognize the value membership
can offer because they charge the cost to one or two clients and the income from the
rest of their billable projects is pure gravy."
For $400 for 6 months or $700 a year you can subscribe to AbleStock and get
unlimited access to 16,000 images. If in a year you can find six or seven images to
use you've covered your cost of membership. Photos.com has a one-month subscription
for $100 (less than the price of many mid-sized RF images) and the subscriber has
access to 50,000 images. A year's subscription costs $500.
The Liquid Library strategy is an interesting option to CD's. Subscribers pay $125
per month and build their own custom library by getting a package of 150 new images
per month. They have unlimited rights to use any of the images in their library as
long as their subscription continues. (These images are LL's latest offering, not the
customer's custom selection.) In addition the subscriber has access to LL's total
online collection (over 70,000 images) at a greatly discounted fee. Any image they is
added to their library and available for future use.
There is no need for users to buy CD's to build their library or to maintain their
own database because the images are available at the Liquid Library site at any time.
The customer has a great incentive to continue paying the monthly fee because that
gives them continued access to the images they have purchased.
CD sales offer some of the advantages of subscriptions, but at a much higher
per-image-price. Membership also provides the subscriber with new images each month,
something they don't receive when buying discs. At the moment buyers can find more
breadth of subject matter on CD's and in the RF single image databases, but the
subscription services are adding content rapidly. The wisest search strategy for
buyers concerned about cost would be to check out the subscription services first and
see if they can find an image they can use. Then check out the regular RF suppliers
and finally go to the RM offerings.
These companies wholly own all the images they offer. Most are shot by staff
photographers, although in some cases the company buys images outright from
photographers for very low fees. Some of the traditional RF producers are providing
images to these companies, but the traditional company's brand is not identified. At
these prices it is hard to see how subscription sellers will be able to continue to
supply sufficient new content to satisfy their customers. But, I thought the same
thing about the RF industry a decade ago. Only time will tell.
Summary
What the RF CD/download model did to traditional RM stock the RF subscription and
library model may eventually do the current RF industry. It is an evolution of the
convenience proposition that the original RF model offered customers.
I don't see the entire RF market going to subscription, but it does seem that a
certain segment of the current RF buyers will find this model attractive. It seems
that all those who can make use of RF are already doing so and that the total volume
of uses is not likely to rise significantly. That would seem to indicate that the
level of existing RF sales is likely to decline as the subscription model takes a
portion of total RF sales.
In the past year many RF suppliers have been able to keep revenue stable on a lower
volume of sales by raising prices or taking market share from other RF suppliers.
But, it may be difficult to raise prices much more. It appears that RF is no longer
cannibalizing RM sales and that the two may have reached a level of equilibrium. If
RF can't take additional market share from the RM side of the business, and sales
overall don't grow, then the only thing left for the RF producers is to take market
share from each other.
To do this the winners will probably need to continually produce better and better
quality images and in so doing raise their costs.
At the CEPIC conference Patrick Donehue said that Corbis recently sold a Royalty
Free image for $22,000. It was a new image that had just gone online and the customer
wanted to restrict other use of the image. Corbis was able to scramble and take the
image out of circulation so they could supply the customer with the exclusivity he
desired. Unfortunately, such options are not going to present themselves to most RF
suppliers. They will not be able to charge more for large uses. To grow revenue they
must grow the volume of uses and keep their costs in check. And that is likely to be
a very difficult challenge as they move ahead.
ZEFA MOVES TO LONDON
June 7, 2003 (Story 561) - Zefa visual media group has moved their
headquarters from Dusseldorf to London and their new address is 90 Long Acre, Covent
Garden, London WC2E 9RZ. Sources indicate that part of the reason for this move was
to be closer to the 3i venture capital group that is their principle source of
financing.
In March Zefa opened a production office in the East Village area of New York and
hired Lisa Curesky to head the office as zefa's Creative Director North America.
Curesky was formerly with The Stock Market and Corbis where she held the positions of
Creative Director and Photography Department Manager.
Curesky said, "My job now is to interest top advertising photographers across North
America to contribute to the unmistakable zefa 'look"'. "We look forward to providing
our signature personal service to both promising newcomers as well as established
professional photographers. Working closely with our photographers we offer very
detailed briefings and competent feedback supporting targeted and profitable shooting
combined with fair terms. In this way we are confident that the distinctive zefa
style will be able to establish itself in the North American market," Curesky
continued.
The address and contact information are: zefa USA, 41 East 11th Street, 11th Floor,
New York, NY 10003, tel: 212-331-1246, fax: 212-331-1106.
Many expect zefa's next major move to be the establishment of a full scale marketing
operation in the U.S. Zefa CEO, Tomas Speight, would not comment on when that might
happen, except to point out that given the current weak dollar, European capital can
buy a lot more for fewer euros than was possible just a year ago.
MARKETING IMAGES IN JAPAN
May 21, 2003 (Story 556) - To the rest of the world Japan has always been a
tantalizing market for stock photography. The Japanese have produced much of the best
equipment used to capture images. They have a very visually oriented society. And
according to Jonathan Klein Japan is the second largest market for stock photography
in the world after the United States.
Despite it's importance in the world of images, outsiders - non-Japanese image
creators -have only been able to penetrate this market in a very marginal way. For
decades Westerners have made their images available in Japan -- and some sell -- but
only to a minor degree when compared to those produced by Japanese photographers.
Japanese agents estimate that the total stock photography market in Japan generates
something in the range of $200 million in gross sales annually. 80% of that is for
images created by Japanese photographers. This leaves a market of about $40 million
for photographs from the rest of the world. Japan is divided into Urban and Local
markets. The urban markets are in Tokyo, Osaka and Nagoya. Urban markets use both
Japanese and foreign created materials, but the local markets prefer mostly Japanese
created materials.
There is no Japanese bias against using images created by photographers of other
nationalities. It's just that Japanese picture buyers have a very different sense œ
when compared to buyers in the rest of the world -- of what makes a good image, and
how images should be used in marketing products and services to Japanese customers.
Pictures that disturb the emotions, that surprise or stimulate are preferred in
Japan. This visual sense is almost impossible for a Westerner to understand or
acquire because it comes from a complete immersion in the Japanese culture from
birth.
Every country and culture has differences in what they prefer both visually and in
other ways, but the differences between the Japanese and the rest of the world, when
it comes to photographs, are much more dramatic than the differences between various
Western cultures. American photographers have discovered that a lot of what they
produce sells well in Europe, and vice versa, because the cultural differences are
less extreme. However, when Americans or Europeans attempt to sell in the Japanese
market they find that many of their images that have done well in their own country
have no appeal for the Japanese.
It also works the other way. Much of what Japanese produce is unlikely to sell well
in U.S. or European markets. Junichi Nakamura of Orion Press points out that when FPG
was selecting images Orion's Color Box catalogs to create its Photo Haiku catalog for
distribution in the U.S. market the editors rejected an image that had sold more than
300 times in Japan. They felt it was unlikely to sell in the U.S. market. This is
just one example that demonstrates that local interests aren't always global
interests.
If the subject is travel and the picture needed is of the Effel Tower or Monument
Valley, then it probably makes little difference whether that image is created by a
Japanese or a Westerner, but if the subject deals with business, lifestyle, people,
food, art, transportation, communication, etc. there are huge differences in how
these subjects must be approached depending on whether the resulting images are meant
for Western or Japanese buyers.
Why does this matter? It is important for photographers and agents to be aware of
these differences as they attempt to expand into new markets. It is important to have
realistic expectations.
Editing and Marketing Strategies
Japan is probably a prime example of a country where a database of locally created
images is likely to be much more useful to the buyers than an international database.
Currently, Getty Images is engaged in a major effort to make their worldwide database
searchable in Japanese and to add Japanese created content to their site. (See the
end of Story 552 ).
Getty's current revenues in Japan are about $5 million annually and much of that
comes from sales made by sub-agents. Since the sub-agents probably keep about 40% of
the gross revenue collected this $5 million to Getty could represent as much as$8.3
million in gross sales by the local agents. However, Japanese agents estimate that
the total revenue is probably closer to $6.8 million. This would mean that currently
Getty has about 17% of the $40 million Japanese market that their images currently
address.
Of course Getty hopes that by adding Japanese content to its site it will be able to
capture some of the additional $160 million spent annually for Japanese content.
Several Japanese agents feel Getty will find it difficult to get enough Japanese
content to seriously compete in that segment of the market, although none dispute
that if Getty has the content buyers will use their site.
Part of the problem facing Getty is how to address this very distinctive local
market with an offering that is also designed to appeal to global buyers. Getty has
always tried to limit the images on their site to those they felt had a worldwide
appeal. There are two reasons for this. One is that due to the cost of scanning,
keywording and preparing the images for online search and delivery they need to
generate a volume of sales from any image they place online. In addition, they have
always been concerned about buyers being overwhelmed when they get too many images as
a result of any given search. It is believed that buyers desert a site when searches
generate too many hits that are irrelevant to the buyer's idea of what is appropriate
for their needs.
The difficulty Getty will face -- or for that matter any other western database
attempting to market in Japan -- will be that as they add images that are relevant to
the Japanese buyers the database is likely to become less relevant to Western buyers.
If they add enough to satisfy the needs of the Japanese culture, buyers from other
cultures may begin to feel they are seeing too many inappropriate images. On the
other hand, if Getty limits the amount of Japanese material the offer is likely to be
so sparse that it very quickly drives customers back to the Japanese agencies that
have the depth of Japanese content those buyers are looking for.
Opportunity For Japanese Portal
It would seem that Getty's entry into the Japanese market may set the stage for a
Japanese portal similar to PictureQuest or Alamy but one that brings together the
work of Japanese agencies and concentrates exclusively on handling images that will
be of interest to Japanese buyers rather than attempting to reach a global market.
Indications are that while this idea has been discussed in Japan, as yet there is no
serious move in this direction.
Instead, most Japanese agencies are moving to set up their own separate sites.
Experience in the West has shown that buyers tend to make more use of sites with a
broad cross section of imagery than sites with a limited "general" offering. Smaller
sites can be effective when they cater to a small specialist, niche segment of the
market. But even then these niche agencies can usually generate additional revenue by
making the same images available on a portal that reaches out to the broader market.
The existence of the Getty site with searching available in Japanese will almost
certainly drive more Japanese buyers toward online to look for images. Once buyers
have tried the online experience they are likely to want to get all their images
online. A portal with a strong offering of Japanese images could be a very effective
competitor to Getty.
Several Japanese agents say their customers still want transparencies and want to
continue to operate in the analog world. These agents believe this interest in film
will continue for some time. It seems to me that the marketing Getty will do in the
near future is likely to change that attitude. That has certainly been the case in
the rest of the world. Once customers discover the advantages of digital search and
delivery they switch rapidly - provided the content they need is available digitally.
The main advantage for traditional Japanese agents continuing to operate in the
analog world will be that Getty won't have the depth of content.
IMAGE STATE REVENUE DOWN
May 21, 2003 (Story 558) - Image State has reported that during the period
from 1 July 2002 to 31 December 2002 Group turnover amounted to ú2.9 million
(approximately $4.7 million), down 17% from ú3.5 million (approximately $5.7 million)
for the six months ended 31 December 2001.
The split of turnover by region was approximately US 36 per cent., UK 27 per cent,
and rest of world 37 per cent. The Group's products are sold by agents in over 50
countries. This broad international spread of sales has continued to insulate the
Group from the worst of the steep drop in advertising expenditure in the US and the
UK. 18 per cent. of overall sales were accounted for by royalty free products and the
balance, 82 per cent, by rights protected images and footage. On-line sales amounted
to approximately 6 per cent of the total.
Like for like sales were down 8 per cent. reflecting the difficult market conditions
in the US and Europe. There is no indication of any recovery in the advertising
market either in the US or UK.
The Group lost ú0.9 million before interest, tax, depreciation and amortization
("EBITDA") compared to a loss of ú1.6 million for the six months ended 31 December
2001. The Group's operating cost run rate in the current third quarter has been
reduced to ú375,000 per month (of which approximately ú75,000 per month relates to
head office costs) compared to ú500,000 per month this time last year, a reduction of
25 per cent.
The Group loss before taxation was ú1.5 million compared to a loss of ú3.4 million
for the six months ended 31 December 2001. The Group made a loss per share of 0.6p,
compared to a loss per share of 1.6p. for the six months ended 31 December 2001.
On 10 October 2002, the Group arranged a finance facility of ú2,350,000,
(approximately $3.86 million) which was provided by its two largest shareholders OVP2
Limited (a subsidiary of Pacific Investments PLC, a Group ultimately controlled by
Sir John Beckwith) and Mike Luckwell (both Directors of the Group) who between them
hold approximately 58.1 per cent. of the Group (together the " Founders") and Mark
Johnson, a Director of ImageState and Pacific Investments PLC. The facility was
subsequently increased on 17 December 2002 by ú750,000 and subsequently on 25 March
2003 by a further ú675,000 for a total of ú3,775,000 or approximately $6.2 million.
The terms of the facility remain unchanged.
Under the terms of the agreement the loan is repayable on 31 March 2004 or, at the
lenders' behest, may be converted into ordinary shares in the Group at a conversion
rate of 1p per share. The purpose of the loan is to provide additional working
capital and reduce trade creditors.
The Independent Directors (comprising the Chairman and Finance Director) have
reviewed the potential sources of funding for ImageState's immediate needs. That
review concluded that currently there were no other sources of acceptable finance
available to the Group, given the current volatile condition of the stock market and
the very cautious nature of the debt capital markets. In reviewing the terms of the
loan the Independent Directors considered the immediate needs of the business for
further funding and the implications of not receiving such funding in the short term,
together with the recent share price trading range.
The Chairman and Finance Director, who consulted with the Group's nominated adviser,
concluded that the terms of the finance facility are fair and reasonable and in the
best interests of all shareholders and the Group.
In due course a resolution will be put to shareholders to provide the necessary
authority to allot the new shares in the event that the loan is to be repaid through
the issue of shares at 1p. All shareholders will be eligible to vote on this
resolution, except for the Founders and Mark Johnson.
The Group had net liabilities of ú3.9 million as at 31 December 2002 with all
investments carried in the balance sheet at the lower of cost or net realizable
value. During the year ended 30 June 2002 the Group provided ú14.1 million for
impairment in its carrying value of goodwill. This assessment was performed in
December 2002. No further impairment has arisen in the six month period to 31
December 2002.
Current Operations
In the last six months the focus of the Group has been to increase its product
offering, integrate the digital image databases, launch a new e-commerce web site for
its US and UK operations and agent network while implementing a significant cost
reduction program. The Group has made progress on all these issues.
The Group has developed the ImageState web site as a portal and has therefore
expanded the collections of images it sells to include other leading publishers'
content. Similarly the Group has expanded the distribution deals it has in place with
third party distributors of its product.
ImageState completed the launch of its new e-commerce enabled web site at the end of
March. The new web site (www.imagestate.co.uk) has 160,000 digital images and
combines the digital image collections of the Group in a single site as well as the
collections of other leading image publishers. Up to a further 40,000 digital images
are expected to be added by the end of September and this will complete a nine month
project to combine the Group's previous web sites into one integrated site.
The new web site brings all this additional content together and enables customers
to research, price, buy and download on line both rights managed and royalty free
content. According to Michael Cornish, Executive Chairman, "A substantial amount of
management time has been absorbed on integrating the acquisitions made over the last
3 years and launching a competitive web offering."
Cornish also said, "the trading environment remains very difficult and there is no
sign of any recovery in advertising expenditure. In particular, the uncertainty
created by the current situation in the Gulf is having a short term adverse impact on
activity levels."
Liabilities
At 31 December 2002, the Group had net current liabilities of ú8,366,000, including
a net overdraft totaling ú4,000,000. The overdraft facility made available to the
Group by its bankers is repayable on demand. The facility is subject to a number of
financial covenants including minimum net assets, which the Group has not met. The
bankers have not demanded repayment and the Directors expect the covenants to be
reset in due course.
Continuing financial support from the shareholders and/or the Group's bankers is
required to enable the Group to meet its liabilities as they fall due and to continue
operating without immediate realization of all its assets. The Directors have
discussed the Group's financing arrangements with the two major shareholders, who
have confirmed that it is their intention to provide financial support until at least
31 March 2004.
Management Changes
Chris Adamson, the Finance Director, has decided to pursue other opportunities and
will leave the Group at the end of October 2003. Chris is being replaced by James
Deeny who has joined as Finance Director Designate.
STOCK BOSTON STRATEGY
May 2, 2003 (Story 554) - Stock Boston is moving aggressively to get a full
searchable database online so buyers can do their own research. In the meantime they
have "suspended custom in-house research while we work on this project." Stock Boston
has no plans tore-introduce the kind of file research they offered in the past. In
future picture buyers will be required to do their own research, and the only images
available to them are those in the online database.
As they develop this database they have told photo buyers that "you can call onus
for specific individual images or high res scans."
Stock Boston is one of the leading specialist agencies servicing the textbook market
with the unique type of imagery it requires. Because these buyers are usually looking
for very specific subject matter on a very broad range of topics, rather than the
more generic images that often satisfy the needs of many commercial customers,
agencies like Stock Boston have tended to maintain very large files of analog images
and to research those files based on customer requests.
Given the recent trends in usage price reductions by the major textbook publishers
(industry sources indicate that some of the major suppliers are offering world rights
for textbook usages for as low as $145), Stock Boston has been forced to move quickly
to reduce overhead. In effect this means eliminating the traditional, costly and very
labor-intensive file research.
Stock Boston has asked also placed a temporary moratorium on new submissions from
contributors until they get their new site operational and said we "will contact you
when we're ready for your freshest, newest work."
CEPIC 2003 CONGRESS
June 7, 2003 (Story 560) - The annual CEPIC International Congress in Europe
has established itself as one "must attend" conference for those interested in
marketing stock photography. The opportunities for networking with both RF and RM
stock image producers and with senior officials from companies around the world that
market stock images is unequaled.
This year's meetings were in Lisbon, Portugal on Friday and Saturday, May 30th and
31st. There were over 530 delegates from 338 companies and 45 countries in
attendance. Other events and social activities were planned for the days both before
and after the main event. Many of the larger companies use this event as a
opportunity to meet privately with their sub-agents from around the world.
In the opening session Rolf Heinz from Gruner+Jahr discussed trends in global
magazine publishing; John Birkenshaw from PIRA International in UK talked about the
book publishing market; Winston Fletcher, Chairman of the Advertising Standards Board
of Finance in the UK provided a perspective on the world advertising market and Joao
Ferreira of Motor Press in Portugal offered information about the publishing market
in Portugal. Most of these presentations were loaded with facts and figures and I
will explore some of that information in more detail in future articles.
Steve Davis, CEO of Corbis provided his perspective on the picture market and said
that, "Our challenge is to help clients tell stories". He offered his interpretation
of a 1,500 customer market survey done by Corbis that was designed to discover what
motivates buyers in their selection of images.
Davis said that the number 1 reason was the Image and how relevant it is to the
buyers particular needs. Second was the ease of use of the web site and the third
most important issues was the service provided by the seller in making it easy the
customer to get the files they need and clear rights. For most buyers price was less
of a factor than any of the above and it was usually listed as 4th of 5th in order of
priority. Davis said, "From this we conclude that we really aren't in a terribly
price sensitive market. For most buyers is about getting the right picture, not the
price."
After his speech several agents commented, "If that's what Davis really believes
then why does Corbis offer deep price discounts so often?"
Jorge Borges of Keystone in Brazil, Masa Takahashi of Orion Press in Japan, Olivier
Ruelle of Chinapix and Alexandre Cordeiro of AEI-Agencia Europeia de Imprensa of
Portugal also offered overviews of the trends in their particular local markets. In
addition there were seminars on Copyright, Standards for Digital Files and Royalty
Free, but there was much more interest in the networking opportunities than in the
speeches.
As has become a tradition at CEPIC the social events were staged in beautiful
facilities that showed the best of old and new Lisbon. The cocktail party on the
evening prior to the beginning of the meetings was staged at the Centro Cultural de
Belem, a very beautiful, modern museum that had an exhibition of pictures taken by
famous Portuguese photographers.
The final gala dinner for 500 was at the Palacio do Correlo Mor, a small palace
situated just outside of Lisbon. The walls were decorated with tapestries and
centuries old azulejos tile. There is very little fine examples of azulejos from this
period remaining in Portugal because much of it was destroyed in the great Lisbon
earthquake of 1755. This palace was far enough from the city center for this striking
example of Portuguese art to survive.
Weak Venue
Unfortunately, the Teatro da Trindade and the Convento da Trindade where the
meetings were held were woefully inadequate for a group of this size, and left quite
a bit to be desired. Facilities like these might have been satisfactory a few years
ago when only a couple hundred people attended a CEPIC Congress. However, as interest
in the Congress has grown it has become very difficult to find older buildings with
European character that will accommodate a convention of 500 or more people and still
reflect the historic character of the host city.
The space allocated for agents to demonstrate their offerings was so cramped that it
was almost impossible to walk between the tables. In order to provide electricity for
light boxes and computers, electric cables were strung across the floor and people
were constantly tripping over them.
An adequate buffet lunch was served each day, but there were very few places to sit
and some found it difficult to cut roast beef while holding their plates and
standing. There was no air conditioning (or it was set at 85 degrees Fahrenheit, 30
degrees Celsius) and the humidity was about 95%, like Washington DC in August. Maybe
Americans like myself are soft and more used to air conditioned spaces in hot
weather, but many Europeans complained as well. To get out of the heat and the
cramped meeting spaces delegates resorted to meeting on the narrow sidewalks in-front
of the buildings with cars and taxis racing along the narrow street. Fortunately, no
one was hit, but there were some close calls.
There were no spaces conveniently available where people could really have private
meetings and the hotels where most people were staying were not nearby.I asked the
organizers why they didn't arrange for the business part of these meetings to be held
in a modern hotel or convention center with adequate meeting facilities? The social
events could still be held at off-site locations affording delegates a flavor of old
Europe, but enabling them to conduct business in a pleasant environment and a more
efficient manner.
It seems the consensus of CEPIC leadership is that attendees want to meet in
buildings with old world character rather than blocky, cookie cutter hotels designed
for efficiency, but with little character or beauty.
A solution to the crowding problems that has been discussed, but so far rejected, is
to place a limit on who and how many can attend. Then small, traditional facilities
like the ones in Lisbon might be adequate and not overtaxed. We certainly hope they
don't resort to this solution as it appears likely that the number of people wanting
to attend future CEPIC Congresses will increase rather than decrease.
Given the rapid changes in the stock photo industry the development of relationships
between various sellers is becoming more and more critical. Even with all its
problems the CEPIC Congress is the single most important annual event where such
relationship scan be developed and fostered.
Despite the inconveniences the Congress is still an event that no one can afford to
miss. The 2004 Congress will be held in Copenhagen and the meetings are scheduled to
be held in a 16th Century Stock Exchange. Sylvie Fodor, CEPIC Administrator said,
"We're going to solve all these problems next year."
Now may be the time for the CEPIC leadership to review their strategies for the
future, and for those who attended the meetings in Portugal to express their opinions
as to whether they were satisfied with the Lisbon event, or whether they would prefer
to meet in more modern facilities with more amenities.
Whatever the leadership decides, I'll see you at the CEPIC Congress next year in
Copenhagen.