Technological Advances and Advertising Growth Create Opportunities For Digital Image Providers
Monika Vatali, Research Associate

The advertising industry is growing considerably faster than GDP; since 1990 magazine advertising revenues have expanded at a 9.5% compound annual growth rate.

Communication is critical in today’s complex business environment, and modern communication relies increasingly on images, which are significantly more powerful than words. The constant race to get to the market first and take market share from competitors has increased the role advertising plays in successful business models. In this fast paced environment, creative professionals come under increased pressure to quickly generate powerful ways to convey a message. In addition, due to the economic downturn, low cost has become a key factor in the advertising business. The size of the global advertising industry was $441 billion in 2001, of which US advertising represented $231 billion, roughly 52%. Although growing faster than GDP, the industry is cyclical. Advertising revenues grew rapidly in 1999 and 2000. However, the decline in the economy, the dot.com bust and the September 11th terrorist attacks drove advertising spending down sharply in 2001. Currently, it appears that the industry has started to recover. In addition to the cyclical changes, there have been several structural changes in the advertising industry over the past few years. Primarily, the Internet and direct mail have expanded dramatically, taking share from more traditional print media.

10 years ago, if an advertising agency needed a picture for a promotional campaign, or a magazine publisher wanted to include a picture with an article, they could either hire a photographer to take the desired picture (commission photography) or order the picture from a catalog of one of the numerous image libraries (stock photography). Assigning the job to a photographer provided the desired picture, but took time and was very expensive. Stock photography was less expensive, since those pictures already existed. However, finding the right picture was often a cumbersome process that required thumbing through ten or more thick stock books, and having it delivered took a long time, which made the use of stock photography inconvenient.

Stock photography has changed fundamentally, due to technological advances. Analog images, which earlier were physically stored in an image library, have been digitized and made available on the Internet. Getty Images, a company held in Shaker Investments’ portfolio, pioneered this process by aggregating a large number of famous image collections, building a powerful internet platform and providing their customers with access to approximately 700,000 pictures. By\ digitizing the image delivery process, Getty Images revolutionized the stock photography industry, and created a highly profitable business model. The company is by far the world’s leading imagery provider with the largest market share. The internet platform allows the company to grow revenues, yet the web based business model has significantly reduced its cost of doing business. The company has both pricing and purchasing power, as it not only represents an integral part of its customers’ workflow, but also adds value to its photographers by providing a broad distribution channel for their work. The result is expanding profit margins and high earnings and cash flow growth.

Getty Images also owns the largest stock film library, which they have started to digitize and market through their platform. Although the film industry today is where the photography industry was 10 years ago, broadband technology and the on-line delivery of high quality film at low prices will fundamentally change the film business as well. Getty Images is expected to play an important role in this process.

Executive Insights
Kira Bacon, Vice President
Getty Images, Inc. [NYSE: GYI]

Q: How does Getty Images differentiate itself from other companies that provide images to advertising agencies and other customers?

A: For starters, Getty Images has the industry’s largest and broadest collection of still and moving imagery, both contemporary and archival. Our online platform enables creative and editorial professionals to download images from a library of nearly 700,000 pictures in digital format.

Q: Are online platforms standard in the image retrieval industry?

A: That is certainly the direction in which the industry is moving. Getty Images was the first to digitize analog pictures on a widespread basis, and make them available on a powerful Internet platform. In contrast to the traditional analog image
library, the online platform has transformed the time- and moneyconsuming image selection process into a real time and cost-effective digital cycle. This has proved particularly successful in the news and sports business, where speed is a key element.

Q: Who are the main users of your products?

A: Our customer base is comprised of three main segments. Advertisers and graphic designers use our images in print media, packaging, trade shows, annual reports and other vehicles. Newspaper, magazine and book publishers comprise the second market segment. Television and film producers, our third segment, have started only recently to make use of film and video footage. This market is poised to grow significantly in the coming years as broadband technology improves online delivery of moving images.

Q: How does the film industry use Getty’s products?

A: Footage from our stock film library is employed in numerous ways in the production of commercial films and televisions shows. One application is to digitally composite a product shot with existing footage. For example, in film production it is highly impractical and costly to go on location to shoot a desert image. Such images can be conveniently and quickly downloaded from our platform at a fraction of the cost. The same applies to historical photography and time-lapse photography.

Q: Is this market for images growing?

A: The weakness in the advertising market over the past few years has been challenging to the imagery business. However, overall, we believe that the market for our products has the potential to continue to expand due to the technological enhancements that enable our customers to use images in more innovative and cost-effective ways, as well as the general trend toward greater visualization in our society.

Q: What growth plans does Getty Images have?

A: In 2003, we plan to launch two new initiatives to address our customers’ needs in the areas of commission photography and imagery management. Our commission photography service will help customers select the most qualified photographer for projects that preclude using pre-existing imagery, such as a product shot or a photo of a corporate executive. This leverages the extensive experience we have collaborating with a large pool of talented photographers and cinematographers. With the second initiative, imagery management, Getty Images will launch a new service to provide virtually all of our customers with an effective and affordable solution to catalog, store and organize their digital assets. At this time, only a handful of sophisticated companies posses this
capability.

Q: What is Getty Images’ current market share?

A: The current estimated value of our market is approximately $2 billion, of which $1.5 billion is stock photography and $500 million is news, sport imagery, film and archival. Getty Images currently owns 25% of the overall market and 30% of the stock photography market.

Q: Who are the other major players in your space? What’s their size versus yours?

A: The visual content industry encompasses a large number of very small entities. Getty Images is by far the largest company in this arena. In 2001 we generated $451 million in revenues. Our closest competitor is Corbis, a private company fully owned by Bill Gates, which is roughly a fifth of our size and generates revenues in the $120-130M range. A few other competitors have revenues in the$20 to $30 million range, but the remainder are very small.

Q: What advantages does Getty Images have over the competition?

A: Getty Images has three core advantages over its competition. Brand loyalty is one. Our ability to offer customers an unparalleled collection of high quality, high resolution and ready-to-download images has made our Stone, Image Bank and PhotoDisc brands an integral part of this industry. Second, the robust technological architecture that supports our website has rationalized the image selection process, and enabled clients to quickly, efficiently and cost effectively identify, purchase and download the images they need. Third, the level of creative research that we apply to understanding and anticipating both market trends and customers’ needs for imagery is, in our opinion, unmatched by any of our competitors.

Q: Are acquisitions included in the company’s growth plan?

A: We already have executed the largest portion of our acquisition strategy. Our future growth will be predominantly organic. Any future acquisitions Getty Images may consider will be of small scale, and aimed mainly at gaining access to new geographical or niche business areas. The Asian market, which is the second largest market in the world for advertising, offers significant opportunities. Currently the Asia/Pacific area represents only 7% of our total sales, and we are committed to strengthening our presence there.