Getty's Third Quarter Results

Posted on 10/25/2001 by Jim Pickerell | Printable Version | Comments (0)



October 25, 2001

Getty Images, Inc. has announced its financial results for the 3rd
quarter ended September 30, 2001. Total revenue for the quarter was $107.5 million.
Revenue was down 12.4 percent from the 3rd quarter of 2000, excluding, which was
closed in May 2001. On a currency neutral basis, revenue for the quarter was $112.1
million, down 9 percent from the year-ago quarter, excluding

The company expects to report revenue of between $95 million and $105 million for the 4th
quarter of 2001. If they make the top number their gross sales for the year will be about
$454.1 million, down a little more than 6% for the year. When asked by analysts for an
estimate of how much industry sales are off overall, Getty Images CEO, Jonathan Klein,
would not provide a figure. Selling Stock estimates that sales in North America for 2001
may be down as much as 15% to 20%. Sales in Europe may not be suffering as much. This
would indicate that despite the downturn Getty is still doing much better than the rest of
the industry.


E-commerce revenue in the quarter was $51.5 million, or 48 percent of total revenue, up
from 35 percent of revenue in the 3rd quarter of 2000. This does not include disc sales.
It is worth noting that total e-commerce revenue was down slightly from $52.9 million in
the 2nd quarter. With the October launch of their new that offers search
in German, French, and UK English as well as American English, it is expected that they
will see a big jump in e-commerce sales in the 4th quarter and easily break the 50%
barrier for total e-commerce sales. (For more information about the new web site and the
photographer contract see
Story 436 ).

Klein indicated in the conference call to investment analysts that Getty Images expects to
be able to end the practice of sending analog images to clients by the middle of 2002.
This says a lot about client readiness to accept digital files. Based on their creeping
growth of e-commerce sales as a percentage of total sales, it is hard to see how they plan
to deal with the other 52% of sales when they go to full digital delivery.

The first thing to recognize is that e-commerce sales don't include RF disc sales, or
situations where a digital file, rather than film, is delivered on a custom CD-ROM that is
shipped by traditional means to the customer. These numbers were not revealed, but it
seems likely that this type of digital delivery already accounts for a large percentage of
their total delivery. Otherwise, they would not anticipate eliminating analog delivery by
the middle of 2002. With this type of delivery there is still a lot of work in getting the
image to the customer, but it certainly eliminates any return or re-filing costs, and it
eliminates the need for dupe sets of images.

Royalty Free

Klein said Royalty Free represents about 1/3 of Getty's total revenue. This would be
approximately $35 million in the 3rd quarter. Extended out for the full year this would
put Getty's RF sales at between $140 and $150 million. Their RF brands include PhotoDisc,
EyeWire and Artville.

Back in May 2000 when sales for the 1st quarter 2000 were $104.8 million we were able to
make some estimates about sales of each brand (See
Story 310 ). At that time we estimated
sales of PhotoDisc, EyeWire and Artville at $27 million. Thus, if we were off on the low
side then, and if Klein's 1/3 is really not quite 1/3, it still appears that Getty's RF
sales have continued to grow steadily in the past 18 months, as a percent of total

This aids Getty's cash and profit position because they get to keep a larger percentage of
the total monies collected from RF sales than from Rights Protected sales.

What's Happening To Rights Protected

Given the good news on the RF front, what's happening to Rights Protected sales (including
the film division)? In the past we have
estimated film division sales at about $40 million annually. If we assume that is holding
at a no-growth level through 2001, and we also deduct the lowest RF estimate of $140
million for 2001, Getty's estimated Rights Protected income for still photos for the
entire year will be about $275 million. The 3rd quarter share of this income would have
been about $62 million.

Again, it is instructive to look at our 1st quarter 2000 breakdown (
Story 310 ) by brand.
Our estimates for an income stream that was about the same as in 3rd quarter 2001 were:
Stone, $35 million; TIB, $12.1 million; and VCG, $3.7 million for a total of $50.8
million. (In that quarter VCG was only part of Getty for 9 days. Even with all of VCG's
problems since Getty acquired them, a full quarter of sales should be much higher.) VCG's
revenues when Getty acquired them were about $90 million annually. If we assume those
revenues have dropped to half that amount VCG should still have generated about $11
million in sales in 3rd quarter 2001.

Klein indicated that in the most recent quarter TIB was seeing "double digit growth" (at
least 10% over the previous quarter).
This may be up from a lower number because sales at TIB fell off for a while after they
were acquired until all the other images were re-scanned and uploaded on the new web site. TIB photographers have indicated that their sales have started to
return to normal levels in the last few months. Given how well the brand is doing it is
also interesting to note that Getty has turned TIB into their "classic stock" brand.

To complete our analysis of Getty's Rights Protected images we must also account for the
historical and editorial brands: Hulton Getty, Archive, Allsport, Liaison and Newsmakers.
For the 1st quarter 2000 we estimated that total revenue for these brands was $14.2

When asked to give some indications as to how the various brands were doing Klein
indicated that the news segment of their business had a substantial increase in sales
after September 11th, but that it represented a small part of their total sales. Their
sports brand, Allsport, was hurt by the reduction of sporting activities in September. In
addition Allsport does better in years when there are major sporting events like the
Olympics and there has been nothing like that in 2001.

Thus, putting all these numbers together and trying to reach the $62 million in sales for
the quarter we come up with the following numbers:


Changes Since 1Q 2000   


Historical & editorial   

level with 1Q 2000   



down 50% from 2000   



level with 1Q 2000   



down from $35 million in 1Q 2000   








These numbers may be off somewhat, but it is hard to come to any conclusion that doesn't
show Stone's sales dropping significantly when compared to 1st quarter 2000, a time when
gross sales of the company were about at the same level they were in 3rd quarter 2001. In
the conference call Klein refused to supply any information about Stone when Peter Appert
of Deutsche Banc Alex. Brown asked specifically about that brand.

Market Share

Klein said the company's goal has been for some time, and still is,
to eventually have a 50% to 60% market share. Based on industry information provided
earlier this year and reported in
Story 410 ) they may already be there.

The statistics from the PACA and CEPIC surveys indicate that gross worldwide revenue from
still photography was about $1.277 billion for year 2000. But, at least $600 million and
possibly more of that, according to the survey information, is for editorial uses, an area
of the industry where Getty Images does not seriously compete. Thus, the commercial and
advertising side of the business is only about $677 million.

Getty acknowledges that they are aiming for the high end advertising side of the business
and that they are not strong in editorial. Based on the numbers above only about 13% of
their annual sales come from the editorial side of the business. Even assuming that their
commercial brands make some sales into the editorial and publishing environment, it is
hard to see how much more than 25% of their total revenue could come from editorial users.

Thus, 75% of year 2001 sales, or an estimated $310 million of Getty's year 2001 revenue,
will be to corporate and advertising customers. This is already 45.7% of the year 2000
number. If sales for 2001 are actually 10% lower than the 2000 figure, then Getty's
portion of the corporate and advertising side of the business would be 51%.

Other Insights

About 56% of Getty Images sales for the quarter were in North America, down from 60% in
2000. European sales represent about 38% of gross revenue up from 35% a year ago and the
remaining 6% is mostly in the Asia/Pacific region.

Average prices have remained constant throughout 2001. Klein feels that the customers are
not price sensitive and that price reductions would not increase demand. He said, "We are
not tempted to cut prices to increase demand."

Prior to September 11th in an effort to cut costs Getty had cut their staff by more than
300 people bringing the total staff worldwide to under 2000 people. They recognized a $3
million savings in the 3rd quarter as a result of these reductions and expect to save
approximately $20 million on an annualized basis. Klein insists that when the economy
turns around it will not be necessary for Getty Images to staff-up in order to increase
sales. We "can handle much more revenue with no increase in costs,"
he said. One example of the cuts that he gave is that VCG, and the various brands they
represented, had 66 sales people when Getty acquired them. That number is now down to 12.

Financial Information

EBITDA was $21.8 million, compared to $27.4 million in the 3rd quarter of 2000. The EBITDA
margin was 20.3 percent, which exceeded the high end of the guidance provided by the
company and compared to 21.6 percent for the 3rd quarter of 2000 and 19.5 percent in the
2nd quarter of 2001. After-tax cash flow per share for the 3rd quarter was 34 cents,
compared to 37 cents per share in the 3rd quarter of 2000 and 31 percent above the First
Call consensus estimate.

The net loss for the quarter was $18.2 million, or 35 cents per share, down 33 percent
from a net loss of $26.4 million, or 52 cents per share, for the same period in 2000.
Excluding a charge of $4.8 million, primarily related to severance costs associated with
the staff reduction in August, the net loss for the quarter was 30 cents per share and 19
percent better than the First Call consensus estimate.

For 2002, the company expects revenue to be between $430 million and $460 million, the
gross margin to be approximately 74 percent and the EBITDA margin to be in the range of 22
to 25 percent. The company expects capital expenditures for 2002 to be about $45 million.

"We were both pleased and encouraged to meet and significantly surpass all of our third
quarter financial expectations despite a weakened global economy and the impact of
September 11th's tragic events," said Jonathan Klein. "Our plan for the fourth quarter and
beyond is not only a continuation of our discipline and vigilance on the cost side of our
business but also a renewed focus on stimulating revenue by gaining more market share in
this challenging economic environment. With our new Website launched
earlier this month and a comprehensive new sales initiative in place, we believe the
company is well-positioned to protect and enhance our revenue objectives and, even more
importantly, to prosper when the market's strength returns."

"Prior to September 11th, we had already taken swift and decisive action to meet the
economic challenges that we faced, reducing our worldwide staff by more than 300 people
and cutting back on expenses throughout the organization," said Liz Huebner, senior vice
president and chief financial officer of Getty Images. "We decreased selling, general and
administrative expenses by five percent over the second quarter of this year, and expect
to continue to reduce S,G&A in the fourth quarter. The combination of a strong gross
margin and tight expense controls enabled us to achieve an EBITDA margin that was a full
percentage point above the high end of the range we provided in July."

Copyright © 2001 Jim Pickerell. The above article may not be copied, reproduced, excerpted or distributed in any manner without written permission from the author. All requests should be submitted to Selling Stock at 10319 Westlake Drive, Suite 162, Bethesda, MD 20817, phone 301-461-7627, e-mail: wvz@fpcubgbf.pbz

Jim Pickerell is founder of, an online newsletter that publishes daily. He is also available for personal telephone consultations on pricing and other matters related to stock photography. He occasionally acts as an expert witness on matters related to stock photography. For his current curriculum vitae go to:  


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