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/

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