Sub-Agent Shake Up

411

June 15, 2001

The industry consolidation is beginning to present some major problems for sub-agencies that
have represented catalogs for some of the major brands. Many agents that earn a large share of
their revenue from licensing rights to images produced by major agencies are becoming
increasingly nervous about their future.

In the past an agent in one of the smaller markets might have represented catalogs from
several of the major brands like Stone, FPG, VCG, SuperStock, Masterfile and Zefa as well as
catalogs from a lot of smaller agencies.

As part of Getty's consolidation of brands they seem to be trying to accomplish four things:

• Insure that all their brands are handled by the same agent in a particular
  territory,

  
  

• Insure that the sub-agency is not representing catalogs of competing brands. The theory
  here is that if a company representing Getty also represents Image State, SuperStock or
  Masterfile then customers might buy an image from a competitor rather than one of Getty's,

  
  

• Insure that the sub-agency will promote the Getty brand rather than their own brand,
  and

  
  

• As soon as possible, based on existing contractual relationships, bring all selling
  in-house and directly under the control of Getty.

Some sub-agencies have tried to point out that when they can offer material from several
companies it enriches their offering to their customers and keeps the customers coming back.
In addition, representing many catalogs enables the sub-agent to do a larger volume of
business and, as a consequence, provide a better and more comprehensive service to their
customers. So far these arguments don't seem to be winning many points.

Getty is not the only company doing this. Other major suppliers such as (Corbis, Sheldon
Marshall's Image State, Zefa, AGE, Masterfile, SuperStock, etc.) are engaged in the same
strategy, depending on the leverage they have.

This has meant that certain agencies that have worked hard to represent a particular supplier
are now suddenly being told, "You can't represent any of our new work in the future."

In some cases the sub-agency has been allowed to represent one book per year from a competing
agency, but not everything the agency produces. They also may be required to implement certain
marketing strategies and meet certain sales targets or they will lose the right to represent
the work of the major agency.

In some countries one agency might have been representing Stone catalogs, another FPG
catalogs, and a third VCG. Most of these agreements were for long time periods on a catalog by
catalog basis. Now, as Getty moves to consolidate all these products under one seller two of
these agencies are going to lose out.

In some cases an agent representing certain Getty brand catalogs, must get prior clearance
before they can represent catalogs from a long list of other brands. In 2000, one agent with
this type of contract made the mistake of not checking the list carefully enough before
signing a contract with a new supplier.

The minute Getty heard about the new contract, they immediately cancelled their contract with
the sub-agent on grounds of material breach. In an effort to correct his mistake the sub-agent
immediately cancelled his contract with the new supplier. No images had been licensed, no
catalogs had been distributed and there had been no advertising promoting the new
relationship. Despite this good faith effort by the sub-agent to correct the error, Getty
proceeded with the termination.

The good news for the sub-agent is that despite the loss of the right to represent images from
Getty, sales for his company have been steadily increasing since the termination. It appears
that this agent's customers have more loyalty him than to the big name brand. The fact that
this agent is no longer representing a Getty brand has also benefited the other independent
agencies and photographers the agent represents.

When Getty acquired International Photographic Library (IPL) in Australia last summer, among
the catalogs that IPL represented were several from SuperStock. Getty immediately cancelled
their agreement with SuperStock and stopped representing the SuperStock catalogs that were
already in the hands of IPL customers. SuperStock had to scramble to find someone else to
represent their work in Australia.

Through all of this, customers are left wondering who represents what. They have a catalog on
their shelf that says the images are represented by a certain agency, but when they call that
agency they are shunted off somewhere else with a new telephone number and a new sales person.
Will customers keep using that catalog, or will they turn to one of the hundred's of others
that are sitting on their shelf?

It is understandable that Getty wants to restrict competition for their products, but this
approach may end up costing Getty sales.

One of the reasons so many catalog suppliers have tended to gravitate toward certain agencies
within a particular country or market is that there are often one or two agencies that are
head-and-shoulders above everyone else in terms of reputation among the customers. The big
question is whether the buyers have more loyalty to the local brand and the local people
servicing their account, than to the big international brand that, in theory, has the hottest
images. The answer to this questions is likely to be sorted out in the near future as the big
brands consolidate their position.

Difficult Choices

Sub-agencies that have represented catalogs from several companies up to now have some
difficult choices. The catalogs of any single supplier are unlikely to generate enough revenue
to sustain their operation at its current level of sales. To lose any one of the majors may
cause an immediate and substantial drop in the sub-agent's revenues.

However, choosing to ally themselves with one major supplier also has risks. One day that
supplier may say, "We've decided we want to have our own wholly-owned office in this country.
Goodby!"

After the majors get finished fighting over the top agencies within each country, others will
set up operations to represent many of the other smaller agencies that want to market images
within that country. This may lead to a downsizing of companies that have been the leading
sellers in some markets, but it may strengthen companies that choose to represent multiple
catalogs and images from companies that do not require exclusive contracts.

Many sub-agents may be forced to put more effort into building direct relationships with
photographers, and smaller agencies. Given the number of major stock photographers currently
unhappy with Getty and Corbis, now is certainly a good time to be recruiting new image
providers. In addition, the digital environment is likely to make it a lot easier to manage
this new content and quickly build a new file than it has been in the past.