Tuesday, April 1, 2008

Fool's Gold - Getty Images' Future

My colleague, Stan Rowin brought to our attention a Goldman Sachs slide about Getty Images (NYSE: GYI), sourced from GYI Management, which projects the future of Getty. Let's have a look-see at these thoughtful projections, and be sure to check out the article on the WashingtonPost.com website -
Getty Images: The Long Road To A Sale; Interest Waned As Process Went On.

In 2008, Getty projects that 51% of their revenue will come from Creative Stills, and that, four years from now, that will plummet 43%, to 29%. So, if you're a Getty image producer in this department, this means that your income over the next four years will drop by 22%, even so as your cost of doing business increases over that same period.

In 2008, Getty projects that the editorial department will only see growth of just 4% over the next four years, for 20% in growth. Not so good when you look at the margins below. Consider that this is one of those departments likely to disappear.

In 2008, iStockphoto accounts for just 15% of Getty's revenue, which will grow about 50% over the next four years, to 22%.

Between 2008 and 2012, the music and footage/multimedia sees astronomical growth - relatively speaking. Music grows by 200%, Footage/Multimedia grows by 50%.

(Continued after the Jump)

Gross Margins
Worse yet, In 2008, the Gross Margin (that is, the gross difference between total income and net sales) will plummet from 53% to 31% by 2012 for Creative Stills as well, a comparable figure. In other words, don't look to efficiencies to apply to your business of creating images that go to Getty to offset your 22% revenue loss, you'll still be on the losing end of a losing proposition.

In 2008, for Editorial, the gross margin will only increase by 5%, comparable to that of it's revenue. In other words, there will not be a substantial leap from revenue to margin for this division. That's not likely to be sufficient for the new owners to keep it around.

On the other hand, there will be a 70% increase in margin for iStockphoto (moving from 13% to 22%), as more and more people contribute, and the costs associated with paying out $0.20 or so per image will decrease. This is remarkable, as Getty will also see that 57% growth in revenue (from 13% to 22%), meaning that iStockphoto will command more and more attention of those rearranging Getty's deck chairs.

Further, there will be a 200% margin growth in B2B Music, and a 50% margin increase in footage/multimedia between 2008 and 2012.

Take a hint from what happened with AOL and Time Warner. Back in the heady days of the dot-com 1.0 era, AOL was the one who bought Time Warner. Now, it's Time Warner who is looking to jettison AOL, or, at the least, the losing propositions/divisions of AOL's from days gone by. Beware the day that Hellman & Friedman trashes everything that does not meet it's margin standard, and sells off iStockphoto/Pump Audio/et al along with much of the wholly-owned Getty imagery as a nicely wrapped up deal under the iStockphoto brand.

Don't think so? 11 months after iStockphoto.com was registered as a domain name, iStockaudio.com was registered - check here. It was renewed January 9th of this year.

You see - PumpAudio becomes iStockaudio.com, iStockphoto.com gets an infusion of the best of Getty Images, and oh, their video footage gets wrapped up in iStockvideo.com, which was registered late back in 2003, but was renewed on the same day as iStockaudio.com was - January 9th of this year. Check the Network Solutions registration information here.

All if it, of course, wraps up nicely and neatly into the iStock.com URL, which will likely serve as the central clearing house for all three. Registered way back in 1995, it was renewed on, you guessed it, January 9th, 2008, as seen here.

Thus, this April Fool's Day the only true fools will be those that fall for the Getty Images line about how great things are, or will be in the future. I see the light at the end of the tunnel, but know enough to lay between the tracks to avoid the freight train that will crush anyone standing in it's way.

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Eric Schmiedl said...

Does this mean that stock photographers should re-evaluate microstock as a revenue source? Instead of focusing efforts on producing high-quality high-end work for rights-managed buyers, should they be booking crews for low-end low-budget shoots with the aim of producing mass amounts of imagery to sell as microstock?

Eric Schmiedl said...

...for that matter, does this mean that PhotoShelter is valiant and admirable, but sadly wrong?

Mark Scheuern said...

Actually, it's worse than that. If the revenue from Creative Stills declines from 51% to 29%, that's a decline of 22 *percentage points*, not percent. The percentage decline is 43%. That is, if you're making $100,000/year now, you'll be making $57,000 if the projection is correct. That's assuming, of course the revenue for Getty as a whole remains the same.

John Harrington said...

Mark & Mark --updated, thanks!

-- John

Anonymous said...

Actually both are incorrect. You are comparing percent of revenue, and should be comparing dollar volume.

Creative Stills revenue is predicted in this slide to drop from $461M to $348M, down 24.5%

Editorial revenue is predicted to rise from $180M to $289M, up 60%

Also there are quite a few different estimates and projections in the filing, created between October and February, and they changed over the months.

The 2012E figure in this chart is an illustrative value from GS, not the later GYI management projection which is a bit higher.

Still the numbers show creative stills down and micro up.

Francis Specker said...

Aren't these numbers just a hopeful guess? I don't think the music industry had any idea that there business model would collapse. Can you really predict the future? Any company can go bankrupt very quickly with bad decisions (Bear Stearns). The bad economy and the decline of publications because of poor ad revenues that have gone to internet- based models, have accelerated the direction of the photo industry. I'm sure many of us will have a chuckle looking back at today in a few years.

Anonymous said...

Lots of doom and gloom... in the photography business it seems the sky is always falling.

One point to note is that this revenue breakdown is of course for Getty images only, not for the stock market in general. For example, the 60% increase in editorial can only come from grabbing a larger share of the editorial market, e.g. by outcompeting Reuters, AP and others.

But I'm surprised by the projected 24.5% decline in creative stills. I'm sure the overall advertising market isn't declining that much over the next four years, so this can only mean that Getty is having difficulty maintaining revenue with the move to online advertising.

Finally, I bet a good part of the increase in microstock revenue will come from price increases. Microstock is clearly still underpriced, and I bet Getty is busy adjusting supply and looking at ways to correct the pricing inefficiencies.

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