Jonathan Klein Interview

Posted on 6/23/2005 by Jerry Kennelly | Printable Version | Comments (0)



June 23, 2005

Getty Will Not Diversify

By Jerry Kennelly

In a rare interview Getty Images co-founder and CEO, Jonathan Klein told Jerry Kennelly, CEO of Stockbyte, that the company does not plan to diversify outside the image business. Despite some speculation that Getty might target companies in other sectors for acquisition, Klein ruled this out.

Even after Getty's recent acquisitions of Amana and Digital Vision (See Story
720 and Story 727) which have cost in excess of $200 million the company will still have a war chest in excess of $500 million by the end of 2005. Armed with this cash pile Klein says that Getty has sufficient resources to meet any marketing opportunity or challenge.

Klein predicts revenue growth of 15% per annum for the next three years, with higher margins giving earnings growth of 25% annually.

Despite stronger growth of royalty free imagery sales, Klein maintains that there is plenty of growth for rights managed imagery too. "We do not subscribe to the notion that RF is in any way taking over. RF will never replace RM as the licensing model of choice for high profile campaigns," explained Klein.

The Getty CEO acknowledges that the company is fortunate to be in a growth business in a growth industry "As the economy becomes more global, images rather than words are being used to tell stories and sell products". But he dismissed the possibility of any "superpower" merger with Corbis as "highly unlikely".

Despite the perception of Getty's influence on the industry, Klein maintains that they are not dominant. "We are far from dominant in any market in which we operate and feel that the overall strong demand for imagery will continue to make this business a very good one for us and others."

Kennelly's questions below are in bold and Klein's answers follow.

Jonathan, what do you think has been the success of integrating the businesses you've bought?

We've successfully integrated nearly 50 businesses and collections over the last 10 years. The integrations have been successful for many reasons, but I would point to three. First, we have always been very respectful of the businesses and people that we have inherited and have treated everyone with openness, honesty, integrity and generosity. Second, we have put an enormous amount of focus on the less glamorous stuff like infrastructure, systems, processes and making sure that the foundations were secure. Third, we have worked very hard to create a Getty Images culture founded on a passion for pictures and a set of principles that unite us all. These principles are called the Leadership principles of Getty Images and are a non-negotiable part of what it is to be a part of the Company. There are seven and they include matters like integrity, trustworthiness and openness; as well as principles like collective responsibility, striving for excellence and the obligation to care about this business and our colleagues. Unlike other companies who have these on the walls of conference rooms and on their web site, we have woven these into the very fabric of Getty Images. We do not always succeed but feel that it is better to try and fail than not to try at all.

When you bought Digital Vision, it was reported that 110 of the 140 staff would lose their jobs. Isn't there a risk that you might be stripping out the heart of the company?

The most difficult part of acquiring any business is making decisions which impact the lives of people. In the case of Digital Vision, we were responsible for much of their sales (on; we had most of their images in our system; we know the business and the industry well, so we had no doubt that the integration would be very straight-forward. It is for this reason that the integration will be completed soon and we have no concerns around the business. We are combining the talents of our people with those of Digital Vision to create a combination that will continue to delight customers and have a major positive impact on the market for royalty free imagery.

At March 31st, your war chest stood at $572 million with all the prospects of that cash position improving even more despite the purchase of Amana and Digital Vision. What sector of the industry do you plan to invest in next - or is it time for some diversification?

I prefer not to call it a "war chest". Yes, it is a significant amount of cash and we have generated it from no cash flow just a few years ago. It has not been "got" from the stock market or banks but is simply the product of a very good business. It was also very hard earned and so will not be squandered.

So, what sector? I think you can bet that it will be pictures; it will be businesses we know and understand; it will be directly in line with our strategy; it will be driven by the areas where we wish to expand - international; editorial; related services like assignment and asset management; it could also be international agents and image partners.

Editorial imagery is a very exciting area for us. In a few short years, we've built a significant editorial business in English-speaking countries. We'd now like to carry that successful model into non-English speaking countries. Small investments made in Germany last year are beginning to pay off, and we continue to look for opportunities to grow in that space. We certainly may diversify, but we have plenty of room to do so using our core competencies. Our recent launch of a digital asset management service is a good example of how we might take advantage of our expertise to grow beyond our core business.

Of course, the cash is not just for acquisitions and we will continue to invest in growing our business.

What are the dynamics between the news and creative businesses?

Our business is based quite simply on generating and distributing the best and most relevant images to business customers. This applies equally to editorial and creative. For our customers, it is about getting the right image with all the related services around that image. This is the case whether the customer is a creative at an advertising agency, or a photo editor at a newspaper. Our understanding of this basic reality has helped us use the expertise we've gained in the creative space to develop a truly differentiated offering in the editorial space. Both aspects of our business are important, and we will continue to invest in both.

What do you think the result of your (low) pricing strategy in the news area will be? Do you expect other players crash and burn?

We do not have a "low price" strategy in the news area. In fact, in many instances, editorial customers will pay more for our content than that of our competitors. If the competition does falter, it will be because they haven't offered customers the high-quality, differentiated content they require, not because of pricing dynamics.

It should be pointed out that the editorial market needs the right picture in order to beat the competition. Price is a factor but we have never been the low-cost provider in our creative business and we certainly do not have a low-cost approach in editorial. We are new in this market and have created a great deal of buzz in the industry due to many factors, especially the quality of the imagery.

There's a strong British bias in top management at Getty (despite your South African roots, you spent enough time in the UK to qualify!). How has that 'foreign' outlook influenced the development of the company?

This is a very interesting perspective. I run the Company with nine direct reports. One of the nine is British. We are a very global business and this is reflected in the background and experience of the management team at all levels. This international outlook has certainly enabled us to be successful in all markets, from China to the United States to Europe to Latin America. It is a great advantage that we do not see things with a "British" or "American" perspective and are culturally sensitive. I am so proud of the cultural diversity at Getty Images - at all levels - and feel that this diversity is a key contributor to our success around the world.

Your earnings per share multiple of 34 suggests there is a strong expectation of further growth for Getty Images, but some would say that your level of dominance in the creative stock photo business is unsustainable and that the only way for market share is down as other players ready their battle plans. Isn't that the case?

I never comment on stock valuation as we don't control it. We just run the business and let the stock market make its own decisions. In fact, I barely spend any time at all with the investment community as they are the least important of the stakeholders of Getty Images. We have clearly outlined our growth strategy and have affirmed that we will increase our revenue growth rate to 15 per cent - currency neutral - over the next several years and will grow our earnings per share by 25 per cent per annum for the next three years. We are confident in achieving these numbers and in the growth of our business.

The global market for imagery is bigger than we had ever anticipated, and it continues to grow. Newer and more dynamic advertising platforms, like the Web and wireless devices, require large volumes of content. As the economy becomes more global, images - rather than words - are being used to tell stories and sell products. We're confident that there's plenty of room for Getty Images and our competitors to grow in this expanding market. We are far from dominant in any market in which we operate and feel that the overall strong demand for imagery will continue to make this business a very good one for us and others.

Stock photographers have done some world class whining about your policies. Is the day of the lone stock shooter effectively over as production savvy outfits take control?

I do not agree at all. During periods of change or even revolution, there is always uncertainty and doubt and during these periods it is only right for questions to be asked. This is exactly what the photography community did as the industry was consolidated, then moved from analogue to digital distribution and then suffered from the recession that afflicted our customer base. Given the rapid technological changes affecting photography and commerce, this would have happened with or without Getty Images. At no time did I feel that photographers were in any way unreasonable.

Many of those changes are now behind us and photographers are getting back to doing what they do best - making images. I'm of the opinion that talent supersedes all of this, and that there will always be a market for innovative and creative photographers. These photographers, for the most part, would much rather concentrate on photography then on sales, marketing and accounting. "Production savvy outfits" are simply here to enable photographers to do what they do best.

How important is the image today in the Getty machine? With such overwhelming numbers of image uploads can there be time or room for sensitivity to the creative aspects of photography?

One of the first lessons that I had in this industry was from customers and they have always made it clear to me that the right image is always paramount. Over the last ten years, whenever we have asked customers what is most important to them, the answer is always the same: the image! Of course, outstanding search, accessibility and service can enhance the salability of an image but it is the image that counts most of all. That there are now many more images available to customers does not change this issue at all. Our strategy is to have many collections available on while meeting the needs of every customer and every budget.

These factors in no way change the amount of time, effort, innovation and creativity that we and the image makers put into the image. We pride ourselves on maintaining an almost obsessive focus on the creative aspects of photography, and I think our creative teams (creative researchers, art directors, editors, digital artists, directors of photography, etc.) would not have it any other way.

You are reported as saying that wholly owned content like Digital Vision would allow you to enter the subscription market. Does that mean that clients can access 'all you can eat' from the DV team's work for $99 a month sometime soon?

We are exploring subscription-type offerings and plan to make an announcement about our plans in the next few months. At this stage, it would be inappropriate for me to give you all the details, suffice to state that any offering from us would have all the hallmarks of everything else that comes from Getty Images - the highest quality; the best technology; outstanding value for the customer; great customer service and a focus on building value for customers and photographers over the long term.

Small agencies around the world sometimes see Getty Images as the death knell for their businesses. What do you think they need to do to ensure the survival of their species?

It would be presumptuous of me to advise others about their business strategy. Just remember that the customer knows best. They liked royalty-free and no amount of protest was going to stop this customer-friendly model. They love what the web brings to their lives and work flow, and resistance from film and light box devotees was futile. We are fortunate that we are in a growth business in a growth industry where there will be more images needed well into the future. If your strength is in creating content, let someone else handle the distribution aspect of the business. If your content is truly unique and relevant, there will always be a place for it.

Getty Images and its brands have all but abandoned print advertising and direct mail. Is this bid for cost savings creating a chink in your armour by might be exploited by those who would relish your throne?

It is worth stressing that we will do whatever we think will benefit our photographers and our customers and which will also build our business over the long term. The reasons we changed the customer contact strategy and mix had nothing to do with cost savings, and the fact that we are now stepping up various marketing initiatives has equally got nothing to do with our balance sheet. We do what is right for the business... always. We are also in the fortunate position of having sufficient resources to meet any marketing opportunity or, for that matter, challenge.

You've started focusing considerable efforts on the Asian marketplace. When you, or your successor, look back in 2010 do you think this will have been the big win of the decade for Getty?

I had no idea that a successor was being contemplated. Thanks for the heads up in this regard.

The way I look at our business is not so much in terms of "big wins" or the "next new thing". We have built the business by sticking very closely to an original strategy and then executing as well as we are able. The same applies to the established market of Japan and the emerging large markets of China and India. It is certainly impossible to ignore the enormous potential of Asian markets, and we are devoting significant resource to tapping into that potential (in Japan, China, India, Korea and other emerging markets). They will all contribute to our growth but it is hard to think about any single issue or initiative as the "big win of the decade."

If you asked me the same question of the last ten years, even with the benefit of hindsight, I would struggle to point to one thing - there has been the web, royalty-free, the image partner strategy, the foundation and growth of our editorial business, our strength in Europe, film... the list goes on.

If I had a hope for the industry and the business it would be that the big win of the decade will be the broad recognition of the power of imagery and the importance it plays in the world as it finds its way into the many new media places where imagery will be increasingly viewed and enjoyed.

How likely is it that Bill Gates and yourself work out a deal and create the ultimate superpower (regulators permitting)?

You would need to ask him for the next issue of your publication. My view is that it is highly unlikely.

In what timeframe do you see footage selling in volume in the creative marketplace?

It is doing so already. Pre-shot footage is finally coming into its own. We've invested a good bit of energy into educating customers about the benefits of stock footage to help them deliver quality work on time and on budget. This investment is paying off as our film business has experienced more than 20 per cent growth for the last several quarters. The increasing penetration of broadband points to further growth for film.

Is there an 'acceptable level' of piracy of imagery and what do you do to control it?

We are in the intellectual property business and our industry depends on enforcing these rights. As such, copyright infringement is never acceptable. We have a very aggressive program in place to ensure that copyright is protected. This includes leveraging the latest technology solutions as well as dedicated staff who identify infringers and work to turn them into paying customers. In the first half of this year we have already recovered more money in unauthorized use fees than in the whole of 2004 and have done so without having to resort to litigation.

Do you feel there's a point at which RF will stop eating RM's lunch?

We do not subscribe to the notion that RF is in any way taking over. We saw healthy RM volume growth in 2004 and have seen very strong RF volume growth in the last quarter of last year and the first quarter of 2005.

The recent growth of RF is at largely tied to the growth of Web marketing and also the increased appetite for this product in Europe. The dynamic nature of the Web prompts a need for large volumes of data with frequent updates. RF's ease of use and ease of purchase make it ideal for that medium. However, RF will never replace RM as the licensing model of choice for high-profile campaigns. Both RM and RF have room to grow in today's imagery market.

Does market quarterly statements dominate strategy or do you decide strategy and let market follow?

The quarters and being public does not impact our strategy at all.

We are aware of the fact that we have obligations to the people who own the Company - our shareholders; and we are committed to integrity and the highest standards of governance in how we run the Company. We are most focused, though, on having the best employees in the industry working with the finest image makers to delight our customers. If we do this well, we will build a valuable business over the long term. We have done this so far and hope to do so in the future.

What's your favorite image?

Hey, I am a husband, a son and a Dad so the images of my family are my favorites. Other than the family, there is only one other image on the wall of my office - a photo of Nelson Mandela.

We rarely hear about Jonathan Klein the man. What absorbs you when you're not running the world's biggest provider of imagery?

You learnt a bit about me in the previous question. This business is not about me or what I do in my spare time, if there is such a thing as spare time.

Your dream in 1993 was to buy a business to allow you pursue your entrepreneurial leanings, are you still living the dream? Does a public company vehicle stifle your entrepreneurial spirit somewhat?

Entrepreneurship is very much alive and well at Getty Images. We've created an environment that nurtures innovation and creativity, and unlike small entrepreneurs, we have the resources to bring those ideas to life. As an aside, the assumption that being public somehow gets in the way of entrepreneurialism could not be further from the truth. The following facts are not unrelated - quite the contrary: the US has the most advanced, dynamic and sophisticated capital markets and there is more entrepreneurial endeavor, spirit and success in the US than anywhere else.

If you were to do it all again would stock photography still be your preference?

There is no greater pleasure and privilege than working with imagery and the people who create it and make it accessible to others. I remind myself of this every day, how truly fortunate we are to be able to earn a living doing what we do.

Copyright © 2005 Jerry Kennelly. 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


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