Tuesday, January 22, 2008

JDK - Getty Images' CEO and KKR's Track Record - History Repeats Itself?

Crazy how the New York Times can report one thing, and Jonathan Klein, CEO of Getty Images (NYSE: GYI) can be saying something else.

Canon Professional Services (CPS) did an interview - Vision, passion and Bruce Springsteen - with Mr. Klein, and here are a few insights from that interview, apparently done in 2004.

Q: ....we often read that you have a vision for the company - what is that vision?
A: Fron the outset, we had a very unusual approach in that we wanted to build a business over the very long term. There were never any plans to buy and sell or to get out of the business when a certain profit had been made...I was very lucky to find the imagery business as it has become a passion of mine and I could not imaging working in a different area or industry.

What I'd love to know is if this passion came during his time as an investment banker when he was playing around with a prosumer camera and, after a few friends said "hey, you should be a photographer..." (as so many friends of bankers, doctors, and lawyers with their weekend toys - D3/1Ds Mark III etc - say during idle dinner party conversation) and JDK decided he would just roll up the industry?
(Continued after the Jump)

Further, where's that commitment, long term? Seems a move to NYC, coupled with the NYT article suggest that maybe there's love lost, the honeymoon's over, and that ugly, no makeup face of an agency with slashed prices and a plummeting valuation he's waking up to every morning just has gotten the better of him, and maybe, just maybe, he wants to return to being a weekend photographer and uploading to iStockphoto ("...the images have just entered my DNA...") under an assumed name just so he can see his photos in print?
Q: ...what do you see the benefits of being part of the Getty stable?
A: Getty Images will only be successful in the long run with mutually productive and positive relationships with photographers..."
See that, fellow photographers - you're just one of JDK's "ponies" in his stable, according to Canon. And as to Klein's sentiments? Well, with the grousing about the lack of updated gear worldwide, positive is not a word I would ascribe to GYI's relationship with photographers - theirs or any other. This leads me to the conclusion that, in part, he's right - "Getty Images will only be successful in the long run with mutually productive and positive relationships with photographers", ipso facto, Getty Images is not successful, and is being sold to a private equity fund, and the NYT suggests it may be KKR, known to collect all the cash in a business and sell off the assets, to wit:
KKR would often ensure that the target company's management retained an equity interest to create a personal financial incentive for them to approve of the takeover and work diligently towards the success of the investment.
So perhaps JDK, et al, will get that equity, and be a diligent worker for whichever private equity group comes in.

The NYT, generally reporting on organizations like KKR, report, in Wall St. Way: Smart People Seeking Dumb Money:
On Wall Street, buyout professionals are seen as the smart money. But their new shareholders are starting to look like the dumb money. The gilded realm of private equity — in which moguls use private money to buy stockholder-owned companies — has turned into dross for everyday investors this year...Kohlberg Kravis Roberts & Company, which invented the modern buyout industry, is now struggling to get its own I.P.O. off the ground.

From a lecture given at the Wharton School of Business - A Lecture You Don’t Often Hear: How Smart People Lose Money:
... when Kohlberg Kravis Roberts & Co. partner Perry Golkin delivered the Institute of Law and Economics’ annual "Law and Entrepreneurship Lecture" in Philadelphia recently, he only described KKR investments that lost money...Although Golkin didn’t name the companies involved, the facts he presented fit KKR’s purchase of the Regal Theater Chain, in which KKR is said to have lost its entire $500 million-plus investment, and its Alea Group Holdings venture which lately has cost KKR additional capital rather than producing profits. Indeed, last August the New York Times reported that today KKR is "just one of dozens of buyout firms," and not even one of the most successful."
Interestingly enough, Golkin cites Warren Buffet, which I quoted (Getty, The Stock Market, and Warren Buffett) recently:
We have the information that should enable us to make a good decision...That, at least, is the theory. However, Golkin noted, as Warren Buffet once said, "a good management team will always lose the battle with a bad business."
The piece goes on to cite Golkin:
According to Golkin, the theater companies explained this by saying: "We overbuilt after we bought. Regal built in AMC’s territory and AMC built in Sony’s territory. We cannibalized each other. It was too easy to build...But all that, he added, "misses the most important point. What the investment firms had failed to recognize was simply that movie theaters are not a good business. A theater is a commodity.
Sound familiar? Getty Images overbought. JDK famously said "If someone’s going to cannibalize your business, better it be one of your other businesses” as we reported on (Getty's Self-Immolation, 9/12/07). Here too, what an investment firm like KKR, or any firm for that matter, fails to realize is that a stock photo agency, just like the movie theater industry, is a whimsical industry, with ups and downs that don't suit bankers' expectation of easy money and a clear path to profit.

But wait, we're a little off track - back to CPS' interview with JDK:
Q: What impact, if any, has digital photography had on your business?
A: ...the development of digital cameras created a seismic change...
First, why the "if any" qualifier? Who asked these questions - someone who still shoots only film? And as to "seismic change", yes, and your validation/acquisition of the cannibalizing business that is iStockphoto, coupled with $49 images, and so forth are not just GYI-created aftershocks, but their own earthquakes in and of themselves.

Good lock Goldman Sachs, you've got an uphill battle here, with more potholes than an earth mover can fill. And, when you reach the top, it's only downhill from there, and I don't mean that in a good way.

Please post your comments by clicking the link below. If you've got questions, please pose them in our Photo Business Forum Flickr Group Discussion Threads.


Anonymous said...

It will be interesting to see if there is an actual buyer. Or was the leak timed to raise the stock price a few dollars to help JDK and his buy back options?

Anonymous said...

And was the whole $49 thing designed to lower the stock to a point they could do an MBO??

Time to put the old tin foil on the head!

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Anonymous said...

Guess I should take that tin hat off.

No buyer for Getty yet, stock slips
Monday February 11, 5:37 pm ET

The sale of Getty Images Inc. appears to have hit a dead end, according to a report in Monday's New York Times, and shares in the image company dropped more than 9 percent in Monday trading.
Shares in Seattle-based Getty (NYSE: GYI - News) dropped $2.45 to close at $24.17 in Monday trading. On Jan. 22, officials at Getty said that its board of directors was "exploring strategic alternatives," including a sale of the company, and had hired Goldman, Sachs & Co. as its financial adviser.

"There can be no assurance that any transaction will occur or as to the timing, structure, price or terms of any transaction," Getty said on Jan. 22.

The Times reports that Getty hasn't received any offers above its current approximate market value of $1.6 billion.

Anonymous said...

"Tim said...
And was the whole $49 thing designed to lower the stock to a point they could do an MBO??

Time to put the old tin foil on the head!

Told you so...nice management buyout going on here..a

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