5
REVENUE GROWTH?
February 8, 2007
PACA recently released the results of a survey of its U.S. based member companies (not including Getty, Corbis and Jupiter) that was conducted in collaboration with Deutsche Bank. The survey shows significant revenue growth for stock agencies between 1H2005 and 1H2006. 28% of the respondents had revenue growth between 10% and 20% during the period and 30% had growth greater than 20%. The average increase year-to-year was 11%. Respondents also expected an average 13% increase for the second half of 2006.
There were 54 total responses out of a possible total of 102 which would seem to give these statistics a lot of validity.
Sounds great! Sounds like a healthy industry. However, it doesn't seem to mesh with what I've been hearing happened, and the publicly available numbers, for the last half of 2006 . If we look at Getty's gross revenue the company actually lost 1% in the last half of 2006 compared to the first half of 2005, and if we just look at the "creative" revenue (RM, RR and RF) they lost about 2.9%. If you take iStockphoto out of the mix the loss is even greater.
If we take a little longer view of things the whole picture may not be quite as rosy as the PACA survey indicates. Stock agencies that did not reach 13% average increase for the second half of 2006 should not be too disappointed because they may not be alone.
It turns out that by the accident of the two half-years that were picked to survey they may have caught the industry during a period when it was rising, but missed the fact that it had started to level off in early 2006, hit its peak in about June of 2006, and then began a steady decline. The numbers may have also failed to recognize the impact micro-payment is having on the industry as that pricing model has started to gain traction in 2006.
I have talked to a couple small agencies (gross revenue under $1 million) that responded to the PACA survey and saw an increase between 1H2005 and 1H2006 placing them solidly above the average of total respondents. For one the increase between 1H2005 and 1H2006 was 16%. In fact, the increase between 2H2005 when compared to 1H2005 was also 16% showing that this year-over-year growth occurred entirely in 2005. Then 2006 arrived. Revenue for 1H2006 was flat and almost exactly the same as revenue for 2H2005 and revenue for 2H2006 was DOWN 14% from 1H2006. The revenue for the second half of 2006 was almost exactly the same as for the first half of 2005 making total revenue for 2006 up only a slight 2% over 2005.
The important factor, however, is to look at the trend as we move into 2007. Is the trend up as the PACA survey might indicate, or is it headed down? Did some of the PACA agencies that had such promising results between 1H2006 and 1H2005 have similar results in the second halves of these years?
Even at Getty we see a slight downturn. And it should be taken into account that Getty made three major acquisitions -- Digital Vision, Photonica and Stockbyte -- during the period. These should have added significant additional revenue.
This analysis is not meant to fault PACA or Deutsche Bank. At the time they chose to do the survey it was logical to compare 1H2006 with 1H2005. Unfortunately, they just happened to catch the market as it was peaking after a steady rise and they were unable to look into the future and see the downturn that was coming. Now, with an additional six months perspective it is possible to see that the trends are very different.