What
The Getty Numbers Really Mean
by
Dan Heller
Recently,
Getty Images (NASDAQ:GRTY) recently posted earnings. The company
said that for the three months ended June 30, its net loss was
$30.2 million, or 55 cents a share before restructuring and integration
charges, compared to a loss of $15.8 million, or 47 cents a share,
a year earlier. Revenues more than doubled to $123.6 million from
just under $55 million a year earlier. Of that, $38.3 million
came from online sales, up 20 percent from the first quarter and
triple the level of a year ago.
Understanding
how this relates to photographers requires two things: clarification
on what this announcement "really" means, and looking at their
operating business model for doing business on the web. Gluing
those two items together will help us understand how photographers
can be affected, positively or negatively. I'll get to that, but
let's start with a reality check on the announcement.
Getty lost
$30M in their standard business model BEFORE they spent even more
money on acquiring other companies, but they impressed Wall Street
for other reasons. First, while not related to the $30M loss,
their acquisition costs for Image Bank and others turned out to
be lower than what they "warned" the street about last year, so
when it turned out to be less expensive, they look like winners.
Similarly, the operating costs for those companies was also lower
than their reported expectations. In other words, if you knew
you were going to get straight B's in college, you warn your parents
that you're going to get straight C's way back at mid-terms, so
you could them give them an upside surprise when grades come out.
This is a common technique on Wall Street. "Great!", your parents
say, "so now, which classes got which grades?"
Being a web-company
on the net creating value-added content is to Wall Street as majoring
in computer science at Stanford is the parents. It looks like
money in the bank. Wall Street loves most dot-com-related companies.
If you're on the net, there's an extra premium associated with
the notion that you're on the wave of the future. Accordingly,
losses are more easily tolerated as long as there are statements
about increased growth in web-related "revenue". The idea is that
getting market share is pivotal in the web space, after which
profitability is an easy next step. Once again, the college grades/parents
game is at play, but the nature of the classes being taken isn't
as straight-forward as "Computer Science." Don't tell your parents
that you're going to get a C in that important class that will
get you a job when you graduate, but DO tell them that your overall
GPA went up because you got A's in TWO Phys-Ed classes, and remind
them about how many famous sports figures are millionaires. The
reality is more complicated than that, and it's slowly starting
to hit Wall Street that just being in the WEB business doesn't
necessarily translate into profits. Many dot-com'ers are getting
spanked, but those that continue to surprise to the upside (e.g.,
Getty) are still being given a chance. How long this lasts is
unclear. On the web, companies better start getting better grades
in the disciplines that matter, not just being big on the net.
What happened
with Getty is simple: they took in $123M but it cost them $156M
to get it (that's the $30M loss). On a percentage basis, that's
about 20%. So, for every dollar they bring in, it cost them $0.20.
What they're saying in response to that is that the costs of doing
business the old-fashioned way is what's responsible for the loss,
so they're going to move more towards WEB use, since those costs
of doing business are lower. The problem is, it's more complicated
than that, and few people have demonstrated just how to do that.
And while they're dazzling you with the hat trick on the table,
it's unclear what's going on with the fat lady in the box about
to get sliced. The percentage of their operating costs may be
reduced, but the trick has yet to be done successfully. We're
all watching. We can look to other companies' financials that
illustrate just how much more expensive doing LARGE-scale e-commerce
on the net can be, especially when you're dealing with high-bandwidth
data assets. And, the marketplace is looking for lower numbers
for licensing images as well, which isn't helping the bottom line.
(This is like how people expect to pay lower prices for books
because of amazon.com.) The thing is, the industry is still too
young to know whether or not this model can be profitable. Amazon.com,
as anyone knows who follows it, is not in Wall Street's favor
right now, because the boy is crying wolf too often. Now, how
does all this affect Pro photographers? Several ways come to mind:
first, as most of us already know right now, the deal that Getty
and Corbis and others is pretty bad if you're relying on them
to be your primary source of income, as it used to be years ago.
The rights are limited, and the pay sucks. Sooner or later, the
economy of their model will catch up to them in two directions:
how they deal with photographers, and the reality of how doing
business on the web will REALLY emerge. Both of these things guarantee
that what's going on today will not be going on tomorrow -- whenever
and however that evolves is unknown. As for their relationship
with photographers, two things can and will happen: the bottom
line won't pencil out for the current breed of high-end pro photographers,
who will go elsewhere, most likely on their own. Second, the costs
of doing business with a larger scale of lower-end photographers
may impede Agencies' growth and cost-effectiveness. Does that
mean that Getty will have fewer or lower-quality images? Probably
not, because the new photographers coming into the field today
will have grown up with this model and have learned to cope in
ways that today's photogs are either not prepared for, or maybe
just too resistant to. However, Getty's model may swing the pendulum
back to win back the business of the better shooters.
Regardless
of whether or how Agencies' relationships with photos change,
today's photogs will have to evolve their own business models
as well. Even in direct competition with Agencies, we can be very
competitive. By building our own stock businesses and going online,
we are offering more sources of photo assets to buyers on a level
playing field, thereby competing with the stock houses at the
higher-end image level. (I know from my own personal experience,
that all the stock photography business I get is from people who
simply like my work better than what they can get from Getty that
meets specific image criteria.)
Yet, the most
profound effect that the big stock agencies and the Internet have
had on working photographers is the critical importance associated
with diversification of your revenue sources. You can hate Getty
and Corbis all you like, but the reality is that you MUST have
multiple sources of revenue in today's day and age. Relying on
a single "form" of income, such as day-rates, or the licensing
fees on a particular image for a particular use is fading into
an old-economy model. I'm not saying a photographer should not
fight for those numbers, but it's quite another thing to base
your financial model on unrealistic expectations. Younger photogs
are learning this, and willing to take lower pay for opportunity
that they can use to leverage income and other opportunities down
the road -- they see the *aggregate* income as being the goal
in the big picture, not the historical metrics used in old jobs
or contracts. Your most important assets are your photographs
-- they should be working for you, especially *after* you've taken
the picture. Instead of *just* stock, or *just* headshots, or
*just* assignments, you have to do all of these things...and more.
Getting on the net is much simpler for an individual than it is
for a larger company because we don't have to worry about scale.
Selling stock in its various forms is essential if you want to
leverage your existing assets, but you need to streamline the
process so the costs (time, energy, etc) of doing one sale is
minimized. Lastly, selling images as art is always a great income,
although it can sometimes require more than just setting up a
web site (although I confess that I sell a lot more prints as
art on my web site than I expected, so this might turn out to
be a better revenue model than I expected.)
In the end,
there are some positive things to recognize about Getty's news
as it affects photographers, but just as important, it's time
to recognize the reality of the changing times. Their business
is not going to move as smoothly in the direction they project,
and neither will yours. Flexibility and thinking outside of the
box will allow you to realize there are as many opportunities
as there are pitfalls in today's market, but the one sure way
to lose out is by trying to swim against the tide.
Dan Heller
Photo Gallery:
http://www.danheller.com/