Getty Images (GYI)

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See all Bulls Reasons Bulls: Reasons To Buy "The company is putting itself up for sale, which usually results in a premium" 0% agree "The company is putting itself up for sale, which usually results in a premium" The company is likely to be sold, driving the stock price up. Getty Images announced in January '08 that it was up for sale to the highest bidder, and it is consulting with Goldman Sachs to find a potential buyer. Private equity firms have demonstrated interest in... read more View or Edit Reason 0 votes 0% agree The company is putting itself up for sale, which usually results in a premium 0% agree The company is putting itself up for sale, which usually results in a premium The company is likely to be sold, driving the stock price up. Getty Images announced in January '08 that it was up for sale to the highest bidder, and it is consulting with Goldman Sachs to find a potential buyer. Private equity firms have demonstrated interest in... read more View or Edit Reason 0 votes 0% agree Getty images has the first mover advantage in its industry 0% agree Getty images has the first mover advantage in its industry Getty has first mover advantage in its industry, it is the clear market leader, and it has demonstrated that it will take action to retain this position. With revenues nearly eight times those of its closest competitor, it is clear that Getty is the dominant firm in the... read more View or Edit Reason 0 votes 0% agree See all Bears Reasons Bears: Reasons To Sell The image licensing industry operates on continually decreasing margins 100% agree The image licensing industry operates on continually decreasing margins The image licensing industry operates on continually decreasing margins. Each day, with new internet and digital camera technology, it becomes easier for an amateur photographer or independent distributor to post images on the web. Thousands of sites sell low quality... read more View or Edit Reason 1 votes 100% agree Getty images is counting on success in industries where it has no proven track record 100% agree Getty images is counting on success in industries where it has no proven track record Getty Images is counting on success in industries where it has no proven track record. The Getty name was built through stock photography and distribution of images to newspapers, advertising agencies, magazines, and numerous media outlets. The firm has not proven it can... read more View or Edit Reason 1 votes 100% agree Send the authors a comment or suggestion It's one of the few sites that is been visited by me very often. Kudos of maintaining such a nich... more [Dismiss] [Done] See All Suggestions

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The explosion of digital photography and internet image searches has significantly impacted the stock photography industry. Getty Images has taken advantage of these changes to become the leader in its market, becoming the first company to license imagery via the web and mobilizing the entire stock photo industry to move online. The firm has consolidated its first mover advantage through a series of acquisitions and has taken steps to digitize its entire library. Gettyimages.com attracts large numbers of users, which in turn draws photographers to Getty's platform in order to reach the large population of viewers. These new sources further expand the site's vast library - and attract even more buyers in a cycle that allows Getty to continue building its revenues.

But Getty's successful exploitation of the internet as a distribution platform also has its drawbacks, especially in spawning competition. The widespread use of digital cameras and the ease with which images can be adjusted and displayed on the web has created a wealth of imagery on the internet. A number of competing independent sites have emerged that aggregate content and distribute it at a much lower cost. Getty has recognized this threat to its business model, moving to take advantage of this additional market. Its 2006 purchase of iStockphoto, the largest of its low cost competitors, exemplifies this strategy.

Getty Images was sold to a private equity firm Hellman & Friedman for $ 2.4 Billion at a 55% premium of their January 18 share price.

[edit] Company Overview

Getty Images has 21 offices worldwide and tailors its products and services for customers in more than 100 countries. It uses direct and indirect sales forces to reach its customers, which include advertising and design agencies, publishers, corporate communications departments, and film production companies. Getty offers localized image data and contextual search capabilities in 6 local languages, and its products are seen by millions of people each day in newspapers, magazines, advertising, films, books, on television, and on the web.

Products and Services

CREATIVE OR “STOCK” IMAGERY - Getty sells creative, still images that cover a wide variety of contemporary subjects including lifestyle, business, science, health and beauty, sports, transportation and travel. Imagery is offered to customers through Getty's own creative photography collections as well as through image partners such as National Geographic and Time Life Pictures.

EDITORIAL IMAGERY - Getty covers major world events in order to supply news, sports, and entertainment photographs to customers who are reporting on these subjects. Editorial imagery also includes extensive archival image collections containing iconic and historic imagery.

FOOTAGE - Getty offers film images to customers engaged in producing commercial motion pictures, TV advertisements and programming, web-based advertisements, documentaries and other footage-based media. Getty has its own footage collections and also licenses the collections of image partners including Universal Studios.

OTHER - Getty also provides assignment services, where it handles all aspects of a custom photography project for a customer. This might include photographing executives for an annual report, producing product shots for a brochure or documenting a news or sports event. The firm also offers media management, a hosted service that allows customers to manage their portfolio of digital assets, including images and other marketing materials.^[1]

Getty's operating margin reached a high of 31% in 2005, but decreased to 24% in 2006. Causes for this decrease include a rise in professional fees, stock-based compensation, and expenses related to their acquisitions (including iStockphoto). As seen above, however, revenues have increased every year since 2002 as Getty pursues its strategy of acquiring new image libraries and forming partnerships with photographers. New acquisitions in 2007 included MediaVast, Inc., which licenses film footage through its website wireimage.com, and Publisher's Toolbox, Inc., a leading distributor of stock photography to design and communications firms through its Punchstock brand. The below chart demonstrates the large amounts of capital that Getty Images devotes to the acquisition of competing businesses and image libraries.

Getty Images incurs significant cost of revenue, in the form of royalties owed to contributors, such as photographers, filmmakers and image partners. Getty pays royalties ranging from 10-50% to manage the licensing rights to these images. Getty also owns the copyright to certain images in its collections (royalty-free imagery) for which it does not pay any third party fee. The company incurs royalty costs in the licensing of editorial and film content as well. Acquisitions of new businesses and their image libraries reduces cost of revenue for Getty, as it gives the firm royalty-free rights to this content. Below are average cost of revenue percentages for each type of image:

[edit] Trends and Forces

• The company is up for sale. Getty Images announced in January 2008 that it is on the auction block, hiring Goldman Sachs Group (GS) to advise it on a potential sale. It has attracted interest from several buyers, mostly private equity firms including Bain Capital, Kohlberg Capital (KCAP), and others. However, a sale is not assured because equity firms are suffering from the tightening of the high yield debt/junk bonds market and are finding it difficult to finance deals. Media reports have Getty's potential asking price at $1.5 billion or higher.^[4]

• Getty depends on the government to protect and enforce its intellectual property rights. Getty's profits depend on the exclusivity of its license agreements, which are a response to government trademark and copyright law and protect the intellectual property of photographers and distributors. The firm takes steps to protect its I.P., but this may not be enough to stop third parties from circumventing license agreements and using imagery illegally. Getty may also be on the receiving end of an infringement lawsuit, which would cost in opportunity, legal fees and potential damages.

• Low quality and unlicensed images are gaining in popularity. The proliferation of images on independent websites, and the rise of image internet search engines like Google (GOOG), lessen demand for copyrighted images and crack the foundation of Getty's business model. Recent public events, from the assassination of Benazir Bhutto to the lewd public behavior of celebrities like Britney Spears, have raised visibility and demand for uncut, on-the-spot photos taken by amateur photographers with cameras as basic as those on a cell phone. The company has made some efforts to capitalize on this new sector, purchasing iStockphoto.com and several like competitors, but the deep pool of smaller rivals continues to undermine Getty's prices.

• The company is moving aggressively to maintain its position as the market leader and diversify its portfolio. Getty has made several moves to consolidate its competition, as mentioned above. Other notable moves within Getty's traditional focus on stock photo are the purchases of Punchstock and WireImage. The company has also moved into two new industries - film footage and music. The purchase of Pump Audio, a music licensing company that sells work by unsigned musicians, gave Getty its first interest in the audio industry. Getty has offered stock footage for some time, but it continues to acquire new licensing agreements with studios and production companies in order to expand this part of its business as well. Notable film partners include Universal (UVV), Discovery FilmSource and AP archive.

[edit] Competition

Getty Images competes with just two major firms in its industry - the publicly traded Jupitermedia Corporation (NASDAQ: JUPM) and the Corbis Corporation, a private company owned by Microsoft (MSFT) founder Bill Gates. As seen below, Getty's revenues dwarf those of its rival Jupitermedia. Corbis Corporation's revenues are not publicly available, but its image library of over 100 million falls far short of Getty's collection of 3.2 billion.

Getty's stiffest competition comes not from its corporate rivals, but instead from independent websites and bootleg distributors. The widespread use of digital cameras and cell phones with camera features have made it easy for amateur photographers to produce their own content, and blog sites, social networking sites, and cheap web hosting platforms make it easy to post pictures publicly, where anyone can view and download them for little or no charge. This drives down the prices that Getty can charge for its licensed content.

Getty Images has recognized this trend, moving to purchase some of the larger sites that distribute stock photography at low costs. The company also continues to maintain relationships with professional advertising and design firms that are not likely to switch to low quality, low cost images. Last, it continues to purchase its smaller competitors and their image libraries, while branching out into new industries. In this way it hopes to retain its large market share and advantage over its competitors.

[edit] References

1. ↑ GYI 2006 10-K, Item 1, p. 7
2. ↑ GYI 2007 Financial Results, January 31, 2008.
3. ↑ GYI 2006 10-K, Item 6, p. 31
4. ↑ NY Times, January 21, 2008.
5. ↑ GYI 2006 10-K, Item 6, p. 22
6. ↑ JUPM 2007 10-K, Item 6, p. 22