27Feb 2015

chronicle of a death foretold

by pmelcher

Suddenly, out of nowhere, Bloomberg started spewing articles after articles on the sorry state of Getty Images. Three in a row, which is more than they did in the last 3 years combined. Fresh from insider knowledge, it reported Getty Images having poor ratings on a debt secured when purchased by the Carlyle Group as well as a 17% decline in revenue this past year. As posts after posts are now announcing the final demise of Getty Images and some are already dancing on its tomb, we thought it would be a good time to shed some light on this tea-cup storm.

Bloomberg: call me paranoid but there is something very suspicious when a financial publication suddenly publishes redundant articles on one company, especially if they never had paid any attention to it previously. Either they have a hidden agenda or they just saw clicks/sharing go through the roof and tried to capitalize on it. Either way, it is not a very ethical approach.

One of the article refers to Shutterstock and Fotolia as the reason for Getty’s gloom. While it is certain Shutterstock has taken market shares from Istock via intensive marketing, Adobe’s Fotolia, as they call it, certainly not. For one, Adobe has just finalize the acquisition a few weeks ago and has not remotely started to integrate Fotolia. Second, Fotolia, while certainly doing well is not even close to Shutterstock or Istock’s revenues. It has a strong footprint in some european countries but is hardly a player in the US for example. Let’s be serious, Fotolia has nothing to do with Getty’s 17% decline in revenue.

If the journalist of those pieces had done a little more research, he would have found that the editorial market, a big part of Getty’s revenue, is dramatically decreasing, due mainly to publishers shutting down or restructuring. ( see Time Inc). Everyone in that space ( see Abaca’s recent insolvency protection or AP images recent layoffs) is hurting.

In the commercial space, it is more likely that the proliferation of free or cheap source of content is hurting Getty. From Flickr to 500px, along with companies like Alamy, Scoopshot, EyeEm, ImageBrief, and just yesterday, Twenty20, the internet is bursting with alternative options to license images. It’s causing distraction in the marketplace.

But let’s compare apples and apples. Getty Images revenue is estimated at around $800 million a year, Shutterstock, its closest competitors, $328 Million. More than double. They are not playing in the same league.

Another point to keep in mind, and something we wrote about previously, a debt is only an issue if you have to pay it back. Getty, and Carlyle, have no pressure to reimburse this debt and it can continue delaying for decades. The reason? There is a market ( very lucrative) for buying and selling debts and the debts holders capitalize on it. Furthermore, debts can be re-negotiated. No one wants Getty to fail, otherwise they will not be able to repay the loan. Instead, they prefer to re negotiate so that at least they see some payment instead of nothing. Happens all the time.

Offering 35 million images for “free” is not the reason Getty is suffering. It is not eating at their core customer base. They have yet to turn on the monetization faucet and when they do, a lot of people will be surprised at its returns.

Finally, Getty Images shutting down will not see the market return to pre XXI century pricing. While Getty might have been responsible for its acceleration, it is not the driving force of this decay. They just surfed the wave. In fact, it is quite possible that if Getty Images shuts down, we will see a complete collapse of the Rights Managed market ( besides so very niche outlets). As well, in an effort to steal away from each other the remains of Getty’s massive market share, competitors in this space will open a price war the likes of which has never been seen before. Not a cosy perspective.

Regardless, Getty Images is going nowhere. If anything, they will aggressively restructure the company, maybe shedding some overweight units and look to dramatically cut operating costs ( lay offs). As we also previously wrote, Getty is pushing very hard to becoming more of a tech company and less of an image licensor. It has it eyes on Silicon Valley, not Wall Street.. While they will certainly bring the war back to Shutterstock, they will probably not do it by trying to reclaim territory but opening new ones where Shutterstock cannot follow. Being a public company, Shutterstock has its hands ties ( Getty knows that too well) and has to play a careful balancing game. Getty, even with billions in debt and poor credit rating, doesn’t care. It can forge along, experience, fail and repeat until it exits the tunnel. They have, in fact, much more to fear from an efficient Adobe, or the next smart startup than from traditional companies like Shutterstock.

The beast is not dead, just having a slight indigestion. Let’s suspend the partying.