Getty Revenue Up In Difficult Market

Posted on 10/26/2002 by Jim Pickerell | Printable Version | Comments (0)



October 26, 2002

Getty Images, Inc. reported revenue of $118.2 million for the 3rd
quarter that ended September 30, 2002. This was an improvement of 4% over the 2nd quarter. "We are

pleased with the results of the third quarter, which exceeded our expectations for
revenue growth and earnings," said Jonathan Klein, Getty Images' co-founder and CEO. The
company expected earning for the quarter to be between $110 and $115 million.

Earnings were $6.8 million, or $0.13 per diluted share and this was up from $4.5 million or $.08 per
diluted share in the 2nd quarter, and the third consecutive quarter with positive earnings.

The 3rd quarter is normally weak for most companies in the stock photo industry due to the vacation
period. However, CEO, Jonathan Klein said sales at Getty increased
steadily month by month during the quarter and that the company is continuing to see the same
steady growth in October. "Our success this year, and indeed this quarter, is particularly meaningful
to our management and
employees as the environment for our customers remains choppy." In explaining
"choppy" he said that in this recession customer use has been difficult to predict. Projects get delayed
or killed overnight as companies make adjustments to their budgets. Often,
there is a spurt in sales at the end of a quarter as customers try to spend their budgets. This
did not happen in the 2nd quarter, but the 3rd quarter ended strong.

Getty's revenue was up 10 percent over the $107.5 million in revenue in the 3rd quarter of
2001, but it should be remembered that 3rd quarter 2001 saw a major drop in sales due to the
9/11 tragedy. Free cash flow totaled $15.2 million for a year-to-date cash flow of $36 million and on track
for $50+ million cash flow for the full year. The operating margin of 12.7% was up from 9.5%
in 2nd quarter and 8.1% in the first quarter.

Klein said several factors were important in achieving the 3rd quarter revenue growth. They

  • Continued progress on our price optimization strategy.

  • Early success with third-party RF provider initiatives

  • Strong progress for both the TIB and Taxi brands

  • Currency benefits due to a weak dollar that accounted for about $2 million of the revenue.

In light of 3rd quarter trends, Getty is estimating 4th quarter revenues at between $112 and $117
million. This would put total
revenues for the year at between $457.4 and $462.4 million, up from $451 million in 2001, but
still below the $484.8 million in 2000.

Share Repurchase

In addition to the above positive results on September 23rd the Getty Board of Directors approved
a plan to repurchase up to $50 million of its common stock over the next six months. Under
the plan, the company is authorized to purchase shares on the open market from time to time. On
September 30, 2002 the company had approximately 53.5 million shares of common stock
outstanding. "This approval reflects our confidence in our ability to continue to generate free
cash flow," said Klein.

Gross Margins

Gross Margins essentially consist of royalties paid to photographers and
3rd party vendors, plus the costs associated with the sale of CD-ROM discs. Getty's share of
total revenue collected was 71.7% during the 3rd quarter. This was down from 73.5% in
the previous quarter and 74% a year ago. The decline was driven primarily by product mix. Specifically,
the results reflect better than expected third party revenues in the RF area. Third-party
revenues contributed $4 million in incremental revenue during the quarter and generate 50%
margins. Next year, Getty expects 3rd party margins to improve to 60% due to expected
contractual changes, many of which are already in place.

Getty intends to expand its relationships with 3rd party suppliers as a way of leveraging its
dominant distribution platform and model. This is beneficial to the company because there are
virtually no incremental operating costs despite the somewhat higher percentage of gross sales
paid to the supplier.

Third-party suppliers are anxious to participate on the web site given its dominance in
the marketplace. The following usage figures for the month of September indicate the degree of
that dominance.

  • 90 million page views,

  • 1.2 million unique visitors and 3.2 million visitor sessions,

  • 40,000 new registrants, and

  • served up almost 1 billion images in search results

Percent Of Revenue

In the 3rd quarter stock photography (a combination of RM and RF image licensing) represented
84% of total sales, up slightly from 83% in the 2nd quarter.
There was an important increase in RF sales and this change was due almost entirely to Getty's
3rd party provider strategy. The major change in the RF strategy in the quarter was the
inclusion of Digital Vision images as one of the brands offered on the site.
The breakdown by business segments is as follows:


Q1 2002   

Q2 2002   

Q3 2002   

Rights Managed   




Royalty Free   




News & Sports   




Archival & Footage   




The above percentages translate into the following dollar figures for the 2nd and 3rd quarters.


Q2 2002   

Q3 2002   

Rights Managed   



Royalty Free   



News & Sports   



Archival & Footage   



It should be noted that there was very little growth in RM revenue while there was a 12%
growth in Royalty Free revenue. More than 80% of the RF revenue was generated from sales on the
site meaning that less than 20% of RF revenue in todays market comes from selling the more
expensive discs.

Average Price Per Usage

The average price per image, worldwide, for Rights Managed Images made a dramatic jump in the
quarter. In Q3 2002 it was $560 and this compares with $500 for Q2 2002 and $490 for Q1 2002.

"We are particularly gratified by the success of our strategy to optimize price and to leverage to bring our customers the best visual content available on a worldwide basis.
Despite the continued weakness in the advertising, media and publishing markets, our
investments in technology, imagery and the establishment of the Getty Images brand are now
beginning to yield returns as we expand our content, extend our reach and increase our

There was also a slight improvement in the average price of an RF image. In Q3 2002 it was $103
up from $99 in Q2 2002 and $85 in Q1 2002. Getty increased RF prices for single images in the
2nd Quarter and the addition of the higher priced Digital Vision images was probably
responsible for a lot of the rise in the 3rd Quarter. Klein believes that Getty can
increase prices further and said, "We have
experienced no pricing pressure and continue to believe that there is further scope to optimize
price per image in 2003 and beyond."

However, while the total number of images licensed is huge, when we look at the trends in
numbers of RF and RM images licensed Rights Managed producers and sellers may have some
cause for concern.


Q2 2002   

Q3 2002   






Gross Revenue




80% - online sales




Price Per Image




Number Images Licensed



up 18,998









Gross Revenue




Price Per Image




Number Images Licensed



down 10,960





Total Images Licensed




Percent RF




Percent RM




As a ratio of the total number of images used, the number of RM uses is FALLING and RF is RISING
with the RF at 69% of total images used in the 3rd quarter. In addition there were 7.9% MORE RF
licenses sold in Q3 than in Q2 and 8.4%
FEWER RM licenses sold during the same period. While there was a 2.2% growth in the overall
number of licenses sold more and more user are finding what they need in the cheaper RF
offerings and consequently are using FEWER RM images. The recession may have something to do
with this. When companies have more money to spend
they may start buying more RM images. But, if art director can find what they need in cheaper
RF why would they want to pay more?

Rights Managed Brands

It is also important to look at the brands that are doing well and those that might not be doing
quite so well. Klein mentioned both Taxi and TIB as brands that did extremely well in the quarter.

He acknowledged -- not for the first time -- that since its acquisition in March of 2000 the VCG
brand has struggled. In the most recent quarter Getty re-branded VCG as Taxi, with, for the
most part, wholly new imagery. Klein said, "The initial
reception in the market has been outstanding. Our Customers first look at Taxi came through a
new combination magazine/catalog which we produced in 5 languages and distributed to over
100,000 companies in more than 50 countries. The response
was both immediate and extremely positive."

He also noted that in addition to customer feeback a key competitor of Getty in Germany
congratulated them on the stunning images and admitted that the launch of Taxi was "Great for
Getty Images and very bad for us."

Sales performance for Taxi was up 40% worldwide over the 3rd quarter 2001 VCG sales, and by
almost 50% in the major European markets where VCG has always had an important presence.

Klein also said the TIB has been a strong performer and is, "showing very similar growth
rates to those I have just quoted for Taxi." This begs the question as to what is happening
at Stone. If TIB and Taxi are showing such great
growth rates, and the total increase in revenue for all the RM brands was only $1.6 million,
sales of Stone images must be down. In an effort to determine what customers are looking for
these days photographers producing for these various brands, and competitors, may want to
consider the relative styles of the Taxi, TIB and Stone images.

Royalty Free Strategy

Klein outlined the following plan for agressively growing Getty's RF business.

  • It will expands the quality and depth of its imagery. In 2003 Getty Images will re-launch the
    PhotoDisc collection with new content, new imagery categories which better meet the needs of
    the various customers across different price and budget categories.

  • It will innovate to expand both the category and our share. One of the innovations was the
    launching in the 3rd quarter of a completely new approach to marketing which they call the "Web
    Companion". Klein says this is unlike any other catalog or magazine that has ever been produced
    in the industry and is designed to support the online work world of the customer.

  • In 2003 it will expand its reach into Europe and Asia/Pacific with new content and targeted
    marketing campaigns.

  • Getty will bring to its customers the best and most relevant RF photography available, "including
    from collections and companies that are not owned by us." Klein pointed out that because there
    are very few SG&A expenses when they represent collections
    from other companies they are able to increase revenue with minimum incremental costs leading
    to very attractive operating margins. "Over the next year we will continue to add 3rd parties
    to our web site," he continued.

Geographic Breakdown

The geographic breakdown of sales worldwide remained roughly the same as the previous quarter,
with the Asia/Pacific region showing a substantial increase. The numbers were:


Q2 2002

Q3 2001

North America









Direction for 2003

In speaking of their direction for 2003 Klein said that in 2002 their objective was to produce
significant cash flow and that has been accomplished. In 2003 the primary objective will be to
grow revenue. To accomplish this they intend to build their core business and look for new sources of
revenue. The two areas that offer a potential for new sources of revenue are Asset Management
and Assignment Services.

In the Asset Management area they will offer a fee based service through which they will manage
the customers assets. Klein says, "this is an ideal extension of our core competancy. It
leverages our expertise in managing digital assets and our track record of successfully
monitizing digital content." There are multiple ways this might work. Getty could manage all
aspects of a customer's content,
or as they do for the NBA, Getty manages the site, the NBA drives traffic to the site and they
share revenue. Other methods may be developed.

They also intend to develop a system for providing Assignment Services for customers. This will
range from a providing a simple directory to actually managing assignments for customers.
Because their is a large addressable market for assignment work (Klein believes it is $4
billion annually) Klein believes that now is the time for Getty to make some investment into
these new revenue sources. However, he cautioned investors that, "revenue in the next two years
(from either Assignments or Asset Management) will not be meaningful as a percentage of total

Getty and Corbis

Finally, is there likely to be any kind of agreement between Getty and Corbis? After further
conversations with sources, I believe the meetings I reported on in Story
511 may have
had nothing at all to do with an acquisition or management arrangement. It is clear that representatives
of the two companies have met together from time to time to discuss various issues of mutual interest
and to see if they could find ways to cooperate for their mutual benefit. This may have been a
continuation of such meetings. Photographers have been told by various people at Corbis that
the talks were related to trying to find ways for the two companies to work together to
strengthen the copyright laws.

In addition, during the conference call in response to a question from an analysts as to whether
Getty might use their abundance of
cash for purposes other than retiring debt, Klein indicated that in the next 12 to 18 months
there might be some "small tactical acquisitions, but they would be very small." This statement
would seem to rule out acquisition of even parts of Corbis as they could not be considered "small".
In addition various people at Corbis
have told photographers that the discussions had nothing to do with a "merger or sale".

With Getty's emphasis on growing revenue through asset management in 2003, the possibility of
some type of arrangement to manage certain of the Corbis assets can not be totally
ruled out. However, it would probably be difficult for the Corbis managers to accept such an
arrangement, even if it made good economic sense. There is no solid indications that such a
deal has ever been discussed or considered.

What seems most likely is that no changes in the relative status of the two companies will take place
in the foreseeable future.

Copyright © 2002 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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