8
RANDOM THOUGHTS 130
January 16, 2007
Analysis Of World Market For Stock Photos
Tim McGuire recently wrote and said,
"I'd like to hear your analysis of the world wide revenue generated by stock image licensing. I keep hearing about these expanding markets and yet there never seems to be more world wide revenue being generated. Is that due to dilution from ever lower priced licensing models giving more and more rights away at rockbottom price points or what? Are the low price point RF business models such as subscription RF and Microstock diluting the world revenue from stock or are the markets not really expanding like I read about all the time? Does Getty's participation in these new stock licensing models dilute their potential future income and the prospects for their stockholders? I'd be interested to hear your comments."
I think I've answered all these questions in previous articles, but let me try to give some short answers.
The most important thing to recognize in such a discussion is that growth in the number of units licensed does not necessarily translate into revenue growth.
In the industry as a whole there is little or no growth in revenue. The only place we find growth in the number of images used is in the micro-payment area. Unfortunately, because the prices being paid by these users is so low, the growth in revenue micropayment generates is being offset by a moderate loss in images licensed at the higher price points. So far from a revenue point of view it seem to be pretty much a wash. But it also seems likely that as more and more customers are able to find the images they need on the micropayment sites there will be a more dramatic falloff in the use of traditional RF and maybe RM.
Some figures from Getty are instructive (See Story 885). Since Q2 2005 the total number of images licensed has been very flat. And when considering these numbers it is important to remember that Getty acquired DV in April 2005 and Stockbyte in April 2006. Both of these acquisitions should have given them a significant jump in the number of images licensed.
In the last four quarters Getty licensed a little over 1.6 million. Meanwhile iStockphoto licensed 5 million in 2005 and 11 million in 2006. Clearly, many more images are being used by micropayment customers than by traditional stock customers. The micropayment sites are generating significant additional usage. Much of it comes from new customers who had not purchased images before. But, a significant part of these sales are to higher end customers who are now able to replace higher priced images with cheaper ones. Or another way of putting it is that microstock is on a course to begin diluting the worldwide revenue from stock.
The trend lines indicate that most photographers trying to earn their living from producing stock have a problem. It is not hard to believe that the situation could turn downhill much more rapidly in a very short period of time.
So "Does Getty's participation in these new stock licensing models dilute their potential future income and the prospects for their stockholders?" I don't think so. The micropayment model has a life of its own. There was absolutely nothing that Getty, or anyone else, could have done to stop, or slow down, the growth of this model - anymore than all the complaints by photographers stopped RF back in the 90s.
Given this fact I think Jonathan Klein was right when he told Wired Magazine, "If someone is going to cannibalize your businesses, better it be one of your own businesses." By owning iStock Getty has gained a lot of valuable intelligence about who the iStock customers and their buying patterns. They are also learning about what motivates the iStock photographers. They may also be able to push the whole micropayment industry to raise prices much faster than might have happened otherwise. But that doesn't mean they will ever be able to totally overcome the impact micropayment is likely to have on the industry.
Getty Stock Downgraded
Kaufman Bros. Equity Research has downgraded Getty Images stock from Hold to Sell with a new price target of $36, down from the previous target of $40. GYI was at $44.34 yesterday. (A SELL rating indicates that Kaufman Bros. believes that the stock will underperform its peer group over the next 12 months due to overvaluation, deteriorating fundamentals and/or negative near-term catalysts.)
Kaufman expects revenue for Q4 to be about $195.63 million, down from the previous quarter. Revenue for Q1 2007 is predicted to be $205.60 million and for the full year $827.33 million for a 3.4% growth over 2006. This growth figure is driven primarily by the expectation that editorial and footage sales will continue to grow. There was no indication that they believe Creative revenue will grow.
The three factors contributing to the downgrade are:
- The changing stock imaging market that favors lower-cost, user-generated content models.
- The fact that Getty Images already has a commanding share of the market and it will be hard to grow volumes without reducing prices.
- The informal inquiry by the SEC into the company's stock option grant practices that was first announced on November 9th and appears not to be near completion.
iStockphoto Sees Great Demand For Video
At MacWorld in San Francisco iStockphoto has announced that its user-generated stock video collection has well over 12,000 user generated video clips from more than 350 contributors worldwide. IStock began selling clips for as low as $5 each on Sept. 5, 2006.
A large-scale survey conducted online by iStockphoto, which garnered 18,000 respondents, showed that nearly 29 percent purchase stock video monthly, while nearly another 12 percent purchase it weekly. The most prominent recent searches have been for relatively simple themes: water, people, business, clouds, background and fire, as well as seasonal holiday items.
Currently the prices for the following royalty free clip sizes are:
"2006 proved to be the year that people understood that the consumer has become his/her own brand manager and social networks built around common interests are here to stay," said Bruce Livingstone, founder and CEO of iStockphoto. "The iStock community has grown tremendously this year because contributors are able to express themselves creatively while actually profiting from their work and our clients can always find an image or a video that looks cutting-edge and current at affordable prices."
iStock also reported that by the end of 2006 they had 1.2 million global customers who collectively downloaded nearly 11 million images and videos in 2006. The vast majority of these downloads were for still images. Sources indicate that the average price for a still image download in 2006 was $1.85. iStock has announced that it intends to raise prices for still downloads in March.
iStockphoto has turned community into commerce, transforming the digital imagery market by encouraging passionate dialogue and education, while making imagery affordable to businesses that may not have licensed imagery otherwise. iStockphoto is headquartered in Calgary, Alberta, Canada, and is a wholly-owned subsidiary of Getty Images.
Acquisitions Update
If you are interested in knowing which stock photo brands have been acquired by other companies we have updated our list that was first published in Story 801.
Digital Refocusing
Some are predicting that 2007 could become the year when out of focus pictures will become a thing of the past. You'll be able to refocus your images - after the fact - in your computer.
A technology developed at MIT, has been patented and is being sold to camera makers. The more image data t better the system works but 16 megapixels appears to work pretty well. Developers indicate that 8 megapixels will still work but with a narrower computed focus range.
When this technology arrives be prepared to buy new equipment, and to be saving larger image file sizes, but also being able to save images that were rejected in the past because the critical point of focus was a little off.
If you want more technical information on this technique do a search on Google for "digital refocusing" and check out some of the 307,000 items on the subject.
Photos.com Emphasizes Community
Jupitermedia has launched a new home page on Photos.com that incorporated two new features that are designed to attract customers and build on the community aspect of the Internet. Designers Showcase at www.photos.com/en/spotlight/index allows designers to show how they are using images from Photos.com in their design work, and a new blog area at http:// blog.photos.com/ gives customers a chance to communicate and show all types of examples of how images are used in different fields.
Such features have been widely used by micro-payment sites to attract customers and increase customer loyalty to the site. This may be the beginning of the roll out of "dramatic micro-payment options" that Alan Meckler talked about in Story 913. Since Jupiter wholly owns virtually all the images on Photos.com it would be easy for the company to begin offering the same images as both available for subscriptions, and at single image micro-payment prices.