Corbis Reports Sales Of $140 Million

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January 17, 2004

At its first-ever annual meeting held in New York on January 15th Corbis announced that
2003 revenues were approximately $140 million. This was a 20 percent growth over 2002
revenues of approximately $116 million.

Bill Gates, who founded Corbis as a private investment in 1989, led off the meeting with a
very short presentation as an introduction to Corbis CEO Steve Davis. Gates said he set out
to build a business that would tap into what he believed would be a huge demand for art,
photos, and graphics delivered in a digital way. "That vision, although there were lots of
twist and turns along the way, is a reality today," Gates told the audience of approximately
250 media and publishing executives, reporters and industry analysts.

In a meeting with reporters prior to the meeting Gates, who has rarely spoken on behalf of
the company, said he is closely involved with the business and meets with Corbis' management
every six weeks or so. "I enjoy what I learn and I enjoy the role I have at Corbis," said
Gates. "My role here is very different than what it is with Microsoft."

Gates declined to disclose how much he had invested in the company over the past 15 years,
but industry insiders estimate it at close to $1 billion. The company has yet to turn a
profit. Reporters also asked Gates about the possibility of an initial public offering of
Corbis shares. In the past year the company has hired Sue McDonald as its new CFO and
replaced several key executives. Many analysts have seen these moves as a precursor to an
eventual stock offering.

Gates said it was unlikely that Corbis would go public within the next three or four years,
but said it was more likely at a later date. "Eventually there will be diversified
ownership," Gates said. "When I say 'eventually' I mean in a 10-year type timeframe, and
we'll have the financial approach that makes that a possibility."

Davis Presentation

Davis attributes Corbis' strong performance to ongoing changes in the ways businesses are
using imagery, which play to the company's founding vision. "Professional communicators are
demanding more sophisticated solutions for their visual storytelling needs, in terms of both
imagery and the ecosystem of rights and permissions associated with their use. While a
traditional photography agency is not positioned to meet these growing needs, Corbis was
conceived and built with exactly these needs in mind."

"As more and more imagery floods the marketplace to meet that demand, our clients need to
cut through the clutter in more arresting ways," Davis explained. "That often means clever,
new combinations of content - from still photography to footage, motion picture clips to the
Mona Lisa, celebrity portraiture to hard-hitting photojournalism - all with varying degrees of
exclusivity. These complexities require greater emphasis on service."

In 2003 Corbis moved away from "just being an online picture library" and greatly expanded
the range of services it offers image users. When it comes to service Davis say Corbis
enjoys a three-to-one advantage over its competition according to global market research.
"And Corbis is the only global provider to combine a world-class collection of images, with
a suite of highly consultative services twenty-four hours a day, seven days a week," he
continued.

Rights Clearance

Two service areas that were greatly expanded in 2003 are Rights Clearances and Media
Packaging. The Rights Clearance division is the largest rights clearance organization in
the U.S. It has offices in Los Angeles and New York as well as a new London office that
will cover Europe. They also intend to establish an office in Japan to cover Asia. There
are several unique aspects to Corbis' rights clearance business. The clearance service is
for all types of rights issues including personality, property, trademarks and logos,
regardless of whether a Corbis image is involved. Approximately 50% of the clearances this
division provided in 2003 were for rights issues that did not involve a Corbis image.

This division's staff of 15 locates the rights holder, negotiates the fee for the rights and
charges a small percentage of the rights-fee for their services. If rights cannot be
negotiated there is no charge for the time Corbis expended. Most other companies who provide
this type of service charge some type of a fixed fee. Corbis also provides its customers
with a written guarantee that the rights have been cleared. As rights issues become more
and more complex for models, personalities and property such a service is of tremendous
interest to advertisers and corporate users.

Increasingly, advertisers find a competitive advantage in associating their brands with
particular celebrities-Tiger Woods, for instance. But getting the necessary rights
clearances can be so costly and time-consuming that creative professionals will often settle
for a less powerful idea than pursue the elusive clearances. Corbis provides both the
imagery and the clearances, saving the advertisers valuable time and money.

The fact that Corbis has an effective rights clearance procedure may make it possible for
some customers to use editorial images they might previously have rejected. It may encourage
some customers to go to Corbis first because they know Corbis can arrange for complex rights
clearances, but it is important to note that to a great extent the revenue generated by this
division does not mean that more still images are being licensed.

Revenue generated by the Rights Clearance division grew by 90% in 2003 and the division was
profitable. It is expected that the Rights Clearance business will continue to grow
dramatically in 2004 and beyond and add significantly to Corbis' gross revenue. However,
while this line of business is a revenue generator, it provides a very low margin for the
company compared to stock photo licensing. Most of the revenue is passed through to the
rights holder.

Despite the company's growing emphasis on consultative service-and given that Corbis is
owned by Microsoft Chairman Bill Gates-it is no surprise that technology plays an important
role in Corbis' business. "From the beginning we forsaw a marketplace where technology would
enable unprecedented access to the world's most powerful images." said Gates. "Of course,
unfettered access opens a Pandors's box of challenges with regard to intellectual property
rights, so Corbis pioneered the use of technology to manage and control rights. Without this
control, clients could never be sure that the rights they've licensed will be protected."

Media Packaging services consist of working on customer projects that require a large number
of images and a complex array of other services. These projects involve what might be
traditionally thought of as picture research, but they go quite a bit beyond that. A
researcher will find images but may go to many sources other than Corbis to locate the right
content. In many cases customers are looking for film clips and music as well as still
images. Corbis will then handle all the clearances for actors and third-party rights
necessary for the licensing. In addition they will produce an end product in the format
needed by the customer. For example for some of the sports leagues Corbis has produced
multi-media content that is used in the stadiums all year long. They have also produced
DVD's and CD-Rom products for publishers that are delivered with a textbook series.

"On its own, the old vending machine model - insert coin, remove image - cannot deal with these
growing complexities," Davis explained. "There has to be an additive layer of expertise and
service. Today's professional communicators need more than a vendor. They need a partner."

Other Emerging Markets

In addition to the Rights Clearance and Media Packaging there are other emerging markets
that Corbis is looking to for growth. They include Wireless use of images and the use of
images on Digital Devices like plasma screens -- one of Bill Gates' original visions for
Corbis.

The use of images on Wireless devices is growing rapidly. This market basically started in
Japan where cell phone users like to constantly access images using their phones. Japanese
subscribers pay a fee of 300 yen per month for access to the Corbis Gallery of images. This
Gallery is updated regularly with news images. Corbis has about 100,000 subscribers to this
service. The gross revenue of approximately $30 million yen per month is equivalent to about
$282,000 or $3.4 million a year. However, Corbis only gets a small percentage of this as the
bulk goes to the cell phone company providing the service.

In Europe customers do not subscribe to the service, but pay a fee of between 1 and 2 Euros
per download depending on the country and with a slightly higher rate in the UK. Again, the
share of this revenue that Corbis receives for image use is a small percentage of the total
collected. I was unable to obtain any information as to volumes except to say that they are
somewhat lower than in Japan. The market for such imagery in the U.S. is just taking off,
but the expectations are that there will be significant growth in wireless usages in all
markets in the years ahead.

The market for images on plasma screens is also expected to grow rapidly in the near future.
But it is still in its infancy.

It is believed that the combined 2003 revenue for these emerging markets was less that $14
million despite their very rapid rate of growth. This would mean that the licensing of
Corbis images grew at a more modest rate than 20%.

Copyright Infringement

Another aspect of the image licensing business that grew dramatically for Corbis in 2003 was
the aggressive pursuit of copyright infringement. In 2003, Corbis began to pay a lot more
attention to unauthorized use of imagery than had been the case in previous years.

[ Note: Some photographers might say Corbis should have been doing this all along,
but in order to police infringements on a large scale it was necessary to first put in place
a very complex system for registering images and tracking unauthorized uses. In my opinion
no other organization is this industry is doing anywhere near the job of policing
unauthorized uses that Corbis is doing and every photographer should applaud them for their
efforts.]

By using Digimark and other image tracking techniques they were able to uncover a
significant number of image uses where people had downloaded a file for comp use, but never
licensed rights to use the image. When such users were discovered the customers were
offered the option of paying the normal fee plus a penalty for the usage. Many availed
themselves of this option and the payments they made were counted as part of the normal
revenue stream because it was not necessary for the legal department to get involved.

But a significant number of customers thought they could ignore Corbis' demands (as they are
inclined to do with many other agencies). When customers fail to respond favorably to
Corbis' initial request Corbis legal gets involved. Given that Corbis has copyright
registration on virtually all the images on their site, that legal department was able to
collect approximately $1.5 million in 2003 for various copyright infringements. In addition
there are a number of actions started in 2003 that are ongoing. In a high profile action
last summer Corbis sued Amazon.com Inc. for allowing movie poster retailers to sell
copyrighted material on its web site. This case is ongoing.

Davis said, "Our business model-the broadest, deepest combination of world-class imagery and
expert services under a single global brand-was a long-term play from the beginning. To grow
twenty percent in a flat economy is an unmistakable validation that our investment and
perseverance are beginning to pay off. It is a pivotal moment for Corbis."

According to Davis, the demand for imagery is at an all-time high - and growing - as
end-users find more and more applications for it in their daily lives, not only in
traditional media like newspapers, magazines, and television, but also in emerging
technologies like cell phones and plasma screens.

When I asked why he feels demand is growing when one considers that Getty Images' figures on
the number of Creative images licensed have shown a steady decline over the last six
quarters Davis attributed what he sees as growth to their strategy of aggressive pricing and
a focus on emerging new markets. This position differs markedly from the one I outlined in
Story 603 and readers might
want to review that story and draw their own conclusions.