Getty 2003 Summary

Given that they have now identified Film as its own revenue division, instead of grouping
it with other things, it is hard to determine the total revenue for film sales for 2003,
but I estimate it at about $26.63 million. At the Analysts Day in December Getty said
Film clips generated 6% of its revenue in 2002 which would be about $27.78 million. While
sales may be higher in Q4 2003 when compared to the same quarter a year earlier, sales for the year may
not. On the other hand, my estimates of the Archive share of the old "Archive and Film"
category may be too high. I could not get clarification from Getty on this point. As we
see sales in these new categories in future quarters we will have a better understanding
of these trends.

Klein said, "that film or moving imagery over the medium and long term will be the
biggest growth business at Getty Images."

They also substantially expanded their archival offering through an agreement with
Time-Life Pictures. Their Editorial business grew by more than 15% in 2003 with the
second half being much stronger than the first.

Given the new way of breaking out Editorial revenue with the addition of Archive to the
mix, it is difficult to be precise about the total revenue for this division in 2003, but
I estimate it to be about $56.65 million.
Getty estimates that it has just 10% market share in the editorial space.

At the Analyst Day it was pointed out that the Discovery Channel paid Getty $30,000 for
assignment photography in 2003, but will likely do $350,000 in 2004, and that it will
continue to grow. Assignment photography is also popular with corporate customers and
often acts as a lead-in to other services.

Getty has just begun to grow this line of business and believes it can get significantly
larger. However, one thing that has not been explained are the costs related to this
business, and thus the margins that can be achieved. Normally in assignment work, a
significant portion of the revenue generated is eaten up in expenses of the operation.
For individual photographers it is not uncommon for operating expenses to exceed 50% of
the gross revenue collected, not counting any fee for the photographer's time.
Getty may benefit by using its staff photographers on many of these projects because the
salaries the company pays them are much lower than freelance photographers would need to
earn for doing such assignments. Nevertheless, the costs of this line of business are
probably much greater that the costs of licensing stock imagery. As this line of business
grows in importance it seems likely that the gross margins for the company will begin to
decline.

Goals and Objectives for 2004

Klein outlined five key initiatives for 2004. Getty's goals and objectives for 2004 are:
(1) Grow revenues, (2) increase penetration of the Editorial market, (3) establish larger
presence in Japan, (4) continue to develop new revenue streams, and (5) achieve a 25%
EBIT margin.

Getty recently commissioned an independent study of over 300 creative professionals at
advertising agencies and corporations to benchmark its performance and perceptions.
Initial results showed that 77% of customers go to Getty Images first for their imagery
needs. In addition over 90% of respondents were "highly satisfied" with Getty's performance in
the areas of: (1) ease of use of the web site, (2) quality and variety of imagery and (3)
timeliness of getting the right image.

Two recently launched initiatives in response to customer requests are:

• Virtual CD's so RF collections can be downloaded instanteously.
  
• Flexible License Packs (FLP's) bundle multiple uses into one licensing package. (See
  Story 610 for more
  information on FLP's.)

Klein said, "Editorial Customers - Book Publishers, Magazines, Newspapers - make up a
large part of the markets we serve and we know we are currently under penetrated in
servicing this customer base. Furthermore, this market is a natural extension of our
News/Sports/Entertainment/Archival photography which has been growing at a very good
clip."

They have recently streamlined the search process for editorial images, simplified
licensing categories, and established new price points specifically targeted to the
editorial market which is more price sensitive segment than are advertising customers.

Klein gave some examples of situations where their National Account Managers have been able to
negotiate deals that will generate significant increases in revenue. One large UK
publisher spent only 700 pounds with Getty in 2002. They have been able to negotiate an
agreement for 2004 with that publisher for a minimum guarantee of 200,000 pounds that will
not only involve the licensing of substantially more images, but also doing photo
assignments.

In the U.S. a major global publisher increased their purchase of Getty images by 40% in
Q4 of 2003. During the Analyst Day in December the company mentioned another
customer in Europe that did $7,000 of business with Getty Images in 2003, but expects to
do $200,000 in 2004.

It was also pointed out at the Analyst Day that many large book publishers are trying to
dramatically reduce the number of vendors they deal with while at the same time using
more images and diagrams in their books. Pictures and diagrams are now filling roughly
50% of textbook page space. Despite the increased use, Harcourt has set a goal for 2004
to get down to 20 to 30 image vendors with two to four providing the bulk of the images.

At the Analyst Day in December Getty estimated that it's Japan revenue would be about $5
million in 2003. Sources in Japan say the market for stock images in Japan has become
smaller in the last few years and they estimate it at between $210 and $220 million.
Getty has estimated it at $250 million.

Getty's two biggest competitors in Japan are Orion and Amana. U.S. analysts have
estimated that these companies generate about $50 million each in revenue. I believe
these figures are high and about 70% of Amana's revenue comes from doing advertising
assignments, not library sales.

The Japanese say Getty has asked foreign photographers to shoot some Japanese subjects in
order to have content suitable for the launch of their Japanese language web site in the
Q2 or 2004. People familiar with the market point out that Japanese photographers have a
very unique way of approaching Japanese subject matter. These sources feel it is questionable
whether "foreign" photographers can produce the type of local imagery Japanese editors
will want to buy. This is part of the reason why Western produced photography has never
been a strong seller in Japan.

Getty forecasts that its Japan revenue will grow to $8 million in 2004. The Japanese I
talked with are skeptical that Getty will reach that number and don't seem to be overly
concerned with Getty as a threat to their market.

It is not clear whether Getty intends to hire Japanese photographers and attempt to get
involved in the assignment business in Japan as Amana has done.

While the Internet would certainly appear to be an emerging market, the question remains as
to where they are getting this volume of imagery and what rates they are paying for it.

Geographic Breakdown

The percentage of revenues from the Americas continued to decline and that from Europe and
Asia/Pacific increased. However, these changes were probably due more to the continued weakness
of the dollar, relative to the euro rather than a change in buying habits.

Gross Margins and SGNA

The gross margin for the quarter was 72% up from 71.7% in the 3rd quarter, and 70.6% in the
fourth quarter of 2002. CFO Huebner said, "Selling general administrative expenses for
the quarter were %53.3 million up about $1.8
million over the fourth quarter of 2002. The increase in SGNA for the quarter was due
entirely to currency. As a percentage of revenue SGNA was about 40% in the fourth quarter
down substantially from 44% of revenue in the fourth quarter of 2002. For all of 2003
SGNA was $210 million compared with $208.5 million in 2002. Taking into account the
negative currency impact in 2003 of over $8 million there was a material reduction in
SGNA which again demonstrates our ability to grow revenue without adding any costs."