March 2003 Selling Stock

540

MARCH 2003 SELLING STOCK

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Volume 13, Number 4

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©2003 Jim Pickerell - SELLING STOCK is written and
published by Jim Pickerell six times a year. The annual subscription rate is $120.00 to have the printed
version mailed to you. The on-line version is $100.00 per year. Subscriptions may be
obtained by writing Jim Pickerell, 10319 Westlake Drive, Suite 162, Bethesda, MD 20817, phone 301-251-0720, fax 301-309-0941, e-mail: jim@chd.com. All rights
are reserved and no information contained herein may be reporduced in any
manner whatsoever without written permission of the editor. Jim Pickerell is also
co-owner of Stock Connection, a stock agency. In addition, he is co-author
with Cheryl Pickerell of Negotiating Stock Photo Prices, a guide to pricing
stock photo usages.

Thought For The Month

"Become a possibilitarian. No matter how dark things seem to be or actually are, raise
your sights and see possibilities -- always see them for they are always there."

Norman Vincent Peale

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SURVEY RESULTS

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2003 Stock Photographer Income Survey

February 14, 2003 (Story 539) - The results of the survey we posted in mid-December are in and 172 photographers
supplied data. Nearly all the respondents have been selling stock for three years
or more. The combined gross 2002 income of these photographers was $24,244,557
and 67% of this income came from stock photography. If most of
the stock sales were made by agencies and, on average, the photographers receive
40% of each license, then this data represents in excess of $40 million in sales
to customers. Given the size of our industry this is a significant sample.

In many ways the results were not what we expected. We sub-titled the survey "Stock
Industry In Crisis", but based on results there may not be nearly as much
"crisis" as we had anticipated. At Selling Stock we have daily discussions with
photographers throughout the U.S. and the world. Often we hear anecdotes
indicating hard times. Surveys like this one provide a more balanced perspective
on some of that information.

Regularly photographers tell us that their income has dropped significantly in
the last two or three years. Some photographers with very high incomes who
responded to this survey reported that their incomes had dropped 50% and more since
2000. But at the same time there were many photographers who reported a rise in
income over the three-year period. Thus, while there was a drop in average income
year-to-year, it was not as significant as we had expected. On average
there was a drop in total income of 4% in 2001 when compared with what the
photographers earned in 2000, and a total drop of 14% for the two year period
from the end of 2002 when compared with 2000. Of the photographers who earned
more than $70,000 in each year 49% saw a rise in their income in 2001 as
compared with 2000 and 38% saw a rise in 2002 when compared with 2001.

	Total Income	Percent Decline	RM Stock	RF Stock	Total Stock Income
2000	$28,149,000		$17,923,596	$1,052,849	$18,976,445
2001	$27,155,121	4% from 2000	$17,759,614	$980,870	$18,740,484
2002	$24,244,557	14% from 2000	$15,121,066	$1,160,641	$16,281,707

	Total Income	Average Photographer Income	Percent Income From Stock
2000	$28,149,000	$163,657	67%
2001	$27,155,121	$157,878	69%
2002	$24,244,557	$140,956	67%

It is interesting that for all three years the photographer's stock income was
about 2/3rds of total income. In a 2001 survey of year 2000 income 61% of photographer's
total income came from stock (the response rate was smaller for this survey), and for a 1999
income survey stock represented
62% of their total income. Thus, it seems the average photographer is not finding
other sources of income to make up for loses in stock income as we thought might be
the case. We know of some cases where this is happening, but evidently not
enough to affect the averages. In fact the percentage of total income photographers
are earning from stock (and thus their dependence on stock) is slightly higher
than it was in previous years.

Character of Respondents

Many more respondents reported high incomes on this survey than on
previous surveys (I'll provide a breakdown under "Comparison With Recent Surveys"
below). This probably is due in no
small part to the founding since the last survey of the StockArtistsAlliance,
and the participation of SAA photographers in this survey. Ninety-five of the
respondents were SAA members and this is close to one-quarter of their membership.
These photographers are among the most successful stock photographers in the
world and their numbers clearly pushed the averages higher. ( Editors note: Any
photographer seriously interested in the stock segment of this business ought to
consider joining the SAA. You can get more information at
www.stockartistsalliance.com ),

The first chart below shows a breakdown of the Total Income and Stock Income from
the 95 SAA respondents. The second chart shows the comparison incomes from the 77
other respondents who are not members of the SAA.

	Total Income		RM Stock	RF Stock	Total Stock Income
2000	$15,948,434		$11,152,562	$22,499	$11,175,061
2001	$16,030,876		$11,456,386	$54,370	$11,510,756
2002	$14,369,565		$10,344,119	$86,041	$10,430,160

	Total Income		RM Stock	RF Stock	Total Stock Income
2000	$12,200,566		$6,771,349	$1,030,350	$7,801,699
2001	$11,124,245		$6,303,228	$926,500	$7,229,728
2002	$9,875,032		$4,776,947	$1,074,600	$5,851,547

The average income for the SAA members is quite a bit higher than for
non-members. The chart below provides a breakdown of the average income of SAA
photographers compared with those who are not members of the SAA. (In the
Averages chart further down in this report we will provide averages for
the SAA members operating in the U.S. compared with those from other countries.

	Income of SAA Members	Average		Income of Non-SAA	Average
2000	$15,948,434	$167,878		$12,200,566	$158,449
2001	$16,030,876	$168,746		$11,124,245	$144,471
2002	$14,369,565	$151,259		$9,875,032	$128,247

Royalty Free Income

Another interesting factor is the percentage of income from Royalty Free
sales. The SAA is very opposed to Royalty Free and in all years its members
had less than 1% of their sales from RF images. While the amount of RF sales
did rise year-to-year in all cases it was less than 1%. The non-SAA members,
on the other hand, showed a small but significant amount of income from RF
sales. The income remained about the same year to year, but due to declining
Total Stock Income RF represented a significant rise to 18% of total income in
2002.

A total of 18 of the respondents had some RF income. Seven of them showed a
rising trend and 11 showed a flat or declining trend over the three years. Three
earned all their stock income from selling RF. Two had RF incomes in excess of
$100,000 a year and for one the income was significantly in excess of this
number. However, the one with the greatest income showed a decline in income
year-to-year.

	SAA Stock Income	Percent RF		Non-SAA Stock Income	Percent RF
2000	$11,175,061	0.2%		$7,801,699	13%
2001	$11,510,756	0.5%		$7,229,728	13%
2002	$10,430,160	0.8%		$5,851,547	18%

Income from photographers based outside the U.S.

We received responses from 40 photographers living and working outside the
U.S and they represented 23% of total respondents to the survey. 35% of these
foreign respondents were based in the United Kingdom. This was the first time
since we began surveying that we have received a significant response from
non-U.S. photographers.

While the average incomes for this group were much lower than for U.S.
photographers, the foreign photographers do not seem to be experiencing the same
drop in incomes that U.S. photographers have been experiencing. In fact, they
had an average rise of 5% in income for 2002 over what they were earning in 2000.

I have a couple theories about this anomaly. First, because the number of
respondents is still relatively low this may not be truly representative of all
photographers living outside the U.S. On the other hand there has definitely
been a push in the industry in the last couple of years to produce and market
more European looking content. This may be paying off in increased sales
for photographers working in that part of the world.

	Total Income		RM Stock	RF Stock	Total Stock Income
2000	$3,387,606		$1,813,027	$19,000	$1,832,027
2001	$3,747,153		$2,163,498	$46,000	$2,209,498
2002	$3,559,125		$2,308,065	$39,615	$2,347,680

Average Income for Photographers

The following are the average incomes for all respondents to the survey and
for various groups within the survey. The first chart is focused on the
U.S. and SAA respondents. The second chart deals with the responses from
those who live and work outside the U.S.

	All Responses	All U.S.	US SAA	US non-SAA
Respondents	172	132	72	60
2000	$163,657	$187,586	$192,295	$181,936
2001	$157,878	$177,333	$187,745	$164,837
2002	$140,956	$156,710	$166,505	$146,188

	All Foreign	Foreign SAA	Non-SAA Foreign
Respondents	40	23	17
2000	$84,690	$91,443	$75,553
2001	$93,678	$109,268	$72,586
2002	$88,978	$106,756	$64,924

Comparisons With Recent Surveys

This chart lists the number of respondents for certain levels of Gross Income.
It includes the total number of respondents to each survey and the number that
had gross revenue above $70,000. The bottom row indicates the percentage of
total participants that earned over $70,000 during the year.

There are two different columns for the year 2000. 2000A was for a survey done
in early 2001 and it measured income for the year 2000 (There was a low response
to this survey). The numbers for 2000B were generated from the survey just completed.

Year	1997	1998	1999	2000A	2000B	2001	2002
Total Respondents to Survey	206	185	138	97	172	172	172
Gross Income
Over $400,000	6	6	4	5	12	11	9
$250,000 to $400,000	13	12	11	5	10	10	9
$150,000 to $250,000	14	18	7	7	13	16	15
$100,000 to $150,000	24	11	17	9	16	18	10
$70,000 to $100,000	13	18	23	16	22	10	20
Total In High Income Categories (HIC)	70	65	62	42	73	65	63
Percent of Total HIC Responding to Survey	34%	35%	45%	43%	42%	37%	36%

Click here to review the results for previous Selling Stock surveys for the years: 1997
(Story 125) , 1998
(Story 213) , 1999
(Story 297) and 2000
(Story 399) .

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VEER ADDS RIGHTS MANAGED

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January 22, 2003 (Story 533) - Veer has expanded its offering with the Rights
Managed collections from SolusImages and Pete McArthur. SolusImages is highlighted in
an insert in the Veer monthly catalog announcing the relationship and the addition of
high quality Rights Managed Photography to their growing collections.

According to Arie Kopelman of Solus, "The Veer group rose to fame when they created
Eyewire a few years ago. Their extraordinary success caught Getty's eye and Eyewire was
subsequently purchased. The Eyewire team worked in the Getty environment for a few
years and was released in 2002. Immediately, this intrepid group conceived their next
brainchild, Veer. This is a digital marketing company created to 'veer' off the beaten
stock path with exceptional creative vision - and the knowledge that it takes
extraordinary monetary resources for continuous direct marketing to get attention in
this market. SolusImages caught their eye and the rest is history. Everyone seems to
agree Veer is a world class competitor and we are highly enthusiastic about this
relationship."

Veer is the exclusive re-seller of SolusImages in the U.S. market, but Solus
will also be marketing the collection on its site as well. To see the Solus collection
on Veer go to www.veer.com/products/photography/sip/.

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GETTY REPORTS 2002 PROFIT

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Profit For Year Is $21.5 Million

February 6, 2003 (Story 535) - Getty Images, Inc. reported 4th quarter 2002 revenue of
$117.7 million, down just slightly from the $118.2 million in the 3rd quarter, and a
15.5 percent increase over revenue of $101.8 million in the 4th quarter of 2001.

Getty has definitely turned the corner on the profit picture. After many years of
investing in the growth of the company it moved from a loss to earnings per share of
$0.39. The company had net income of $7.5 million, or $0.13 per diluted share, for the
4th quarter, compared to a net loss of $38.8 million, or a loss of $0.75 per diluted
share, for the same period in 2001. For all of 2002, net income was $21.5 million, or
$0.39 per diluted share, compared to a net loss of $95.3 million, or loss of $1.84 per
diluted share, in 2001.

The company which will be eight years old next month had total revenue for 2002 of
$463.0 million, up 2.7 percent compared to $451.0 million in 2001, but still 4 percent
below the 2000 revenue of $484.8 million. Nevertheless, CEO Jonathan Klein pointed out,
"the fact that they were able to grow revenue on a like-for-like basis by of more than
4% in the worst market in decades for our customers is a demonstration of the quality of
our imagery, our strong, but still expanding leadership position in the market, the
strength of our platform, and our pricing power."

In the past eight years Getty has moved the business from an analog, expensive to
operate and labor intestive business model to an all digital, e-commerce operation.

Milestones For 2002

In his conference call to investment analysts Klein emphasized that the 2002 financial
growth was achieved while still growing the company. He outlined some of the 2002 growth
and development milestones. They have:

• Completed the final steps in the digital migration they began five years ago and
  now have a unified and integrated platform from web site to supporting back office
  systems.

• Successfully re-invigorated both TIB and Taxi (VCG) and got them growing. The
  turnaround in both these companies has exceeded expectations.

• Completed the digital transformation of the news and sports business which is now
  wholly digital from the point of capture to the point of distribution.

• Implemented their brand unification strategy by making Gettyimages.com the clear and
  primary source for visual content. Every day the Gettyimages name and brand is promoted
  worldwide in numerous newspapers and magazines.

• Agressively rolled out their third party distribution strategy which has also
  exceeded expectations. Getty intends to expand its relationships with 3rd party
  suppliers as a way of leveraging its dominant distribution platform and model. This is
  beneficial to the company because there are virtually no incremental operating costs
  despite the somewhat higher percentage of gross sales paid to the supplier.

Klein also mentioned that an important factor contributing to their current success has
been getting staffing to the right size for an all digital business. In March 2000,
Getty Images had 3,200 employees. They ended 2002 with just under 1,700 people and
believe they will not need to add people, at all, to grow their revenue. "Quite simply
we can now add significant incremental revenue against a largely fixed cost base and
declining capital expenditure," Klein explained. They have also reduced their offices
around the world from 88 to 44 according to a London Sunday Times interview with Mark
Getty.

Business Outlook

For the first quarter of 2003, the company expects to report revenue in the range of
$120 to $124 million and diluted earnings per share of $0.15 to $0.19.

The company has established "agressive, yet achieveable goals" for 2003 according to Klein
and expects to report revenue in the range of $485 million to $515 million. This
would be between a 5% and an 11% growth for the year. It is worth noting that at the
beginning of 2002 Getty Images estimated that their revenue for the year would be
between $430 and $460 million and their actual revenue at the end of the year exceeded
the top end estimate by $3 million. They expect diluted earnings per share for 2003 to
be between $0.70 to $0.90.

Gross Margins

Gross Margins essentially consist of Getty's share of revenue after they pay royalties
to photographers and 3rd party vendors, plus the costs associated with the sale of
CD-ROM discs. Getty's share was 70.6% of total revenue collected in Q4 2002 and this was
down from 71.7% in Q3 2002. The decline is primarily attributed to increased sales of
material from 3rd party vendors. Some of the 3rd party vendors receive 50% of sales, but
due to contractual changes most will be getting no more than 40% in 2003 and beyond.
This should cause Getty's margins to rise despite expected increases in 3rd party sales.
Getty's goal is to reach 75% gross margin for the company in 2004.

Percent Of Revenue

In the 4th quarter stock photography (a combination of RM and RF image licensing) was
84% of total sales, the same as Q3 2002.
However, the RF proportion rose to 30%, up from 28% in Q3, and RM revenue was
down to 54% from 56% in Q3. The majority of the rise in RF sales was from 3rd party
content (read Digital Vision). The trend for the entire year is as follows.

	Q1 2002	Q2 2002	Q3 2002	Q4 2002
Rights Managed	56%	57%	56%	54%
Royalty Free	26%	26%	28%	30%
News & Sports	9%	9%	8%	7%
Archival & Footage	9%	8%	8%	9%

It should be noted that there has been a steady rise in the RF share and a steady decline
in the RM share for the year. This difference may be accentuated in 2003 given the
added marketing push and the price restructuring Getty intends to give to RF in 2003.
Another factor that makes RF sales attractive for Getty is that according to Klein
"85% of all RF sales occur on the web, at list price, unassisted by a human being."

The above percentages translate into the following dollar figures for the 2nd, 3rd and
4th quarters.

	Q2 2002	Q3 2002	Q4 2002
Rights Managed	$64.58	$66.192	$63.56
Royalty Free	$29.46	$33.096	$35.31
News & Sports	$10.20	$9.456	$8.24
Archival & Footage	$9.06	$9.456	$10.59

Average Price Per Usage

The average price per image, worldwide, for Rights Managed Images was $539 in the 4th
quarter a drop from the $560 in Q3 2002 but still well ahead of the $500 for Q2 2002 and
$490 for Q1 2002. One of the reasons for these big jumps is that this average figure
can be very heavily influenced by a few large sales. A more interesting figure, we believe,
is the actual number of units sold which can be easily calculated by dividing the
average price into gross revenue. We have provided that analysis below.

The average price of an RF image in the Q4 2002 was $120, up from $103 in Q3 2002 and
$99 in Q2 2002. This was due to selected price increases and the strength of sales of
the 3rd party content (mostly Digital Vision images) that are priced higher than those of
PhotoDisc. Despite this price increase RF volumes were down about 10% sequentially when
compared to the previous quarter. This was attributed to an expected seasonial slowdown.

CFO, Liz Huebner said, "Bear in mind that our reported revenues for Royalty Free
collections include CD sales which represent about 20% of our RF revenue. The
price-per-image numbers that we provide are for single images only and as a result take
no account at all of CD sales so it is not possible to get a 'precise' measure of overall
Royalty Free volume using price-per-image data."

Selling Stock believes that while we can not determine a "precise" number of single
images sold by deducting 20% of revenue for CD sales we should be able to get a ballpark
figure which we believe provides useful trend information.

<

	Q2 2002	Q3 2002	Q4 2002
ROYALTY FREE
Gross Revenue	$29.46	$33.096	$35.31
80% - online sales	$23.568	$26.477	$28.25
Price Per Image	$99	$103	$120
Number Images Licensed	238,060	257,058	235,400
RIGHTS MANAGED
Gross Revenue	$64.58	$66.192	$63.56
Price Per Image	$500	$560	$539
Number Images Licensed	129,160	118,200	117,922
Total Images Licensed	367,220	375,258	353,322
Percent RF	65%	69%	67%
Percent RM	35%	31%	33%

By setting aside 20% of the RF revenue for CD sales (close to $7 million in the Q4)
for the last three quarters we have made some estimates of the total number of
images licenced and the percentage of these images that were RF or RM. While the
RF numbers may not be as "precise" as some others in this report they may
provide useful trend information. According to these figures the number of RF
images licensed is about double the number of RM and clearly RF use is rising
while RM use is falling. A very high percentage of customers are finding what
they need in RF imagery.

Geographic Breakdown

The geographic breakdown of sales worldwide remained roughly the same as the previous
quarter, with the Asia/Pacific region showing the strongest upward trend for the
entire year. The numbers were:

	Q2 2002	Q3 2002	Q4 2002
North America	58%	57%	56%
Europe	37%	37%	37%
Asia/Pacific	5%	6%	7%

Goals for 2003

The top priority for 2003 is to grow revenues according to Klein. With high gross margins
and relatively fixed costs most of the increased revenue can drop to the bottom line as
profits. Revenue growth will come from a broad range of initiatives aimed at maximizing
the current business opportunities as well as expansion. Six key areas of focus in 2003 are:

Near the end of the first quarter all RF offerings will be consolidated under the PhotoDisc
name with a new brand and logo, new imagery, differentiated pricing and an innovative
approach to marketing the collection. They will also be a new segmenting of categories and
re-pricing some of the categories at both the high and low end.

Klein points out that RF has been slow to be exported to Europe and he believes that is mostly
because of the lack of relevant content. Getty will be adding much more content designed
specifically for the European market as they believe the split of the RF business between
North America and Europe has for some time been a function of focus and content. In order
to get appropriate European content the research staff that determines what the customers
want is being beefed up in Europe and art directors to work with European photographers
are being added.

To leverage their distribution system Getty has always focused on offering a full
range of the products and services their customers need and value. They will be augmenting
the range of content on their site by adding more 3rd party image providers. 3rd party
providers are responsible for all the sourcing of the imagery, the digitization and
preparation of the images for online and CD delivery, and most of the marketing. Digital Vision,
the 2nd largest seller of RF images in the world is already making significant sales on
Gettyimages.com and Getty has signed up many more 3rd party image providers whose work
will soon be infront of there customers. These providers range from additional
RF collections, to film partners to other 3rd party relationships like Time-Life.

Getty expects 3rd part sales to go from approximately $20 million in 2002 to around
$40 million in 2003.

In the 4th quarter they began a film digitization project that will revitalize the
film business. The entire core collection is now digitized. It will be available for
customer search and download by the end of March and a new marketing campaign for film
called "No Compromise" will be launched. This greatly enhances the customer experience
because they will be able to view footage online and make immediate buying decisions,
rather than being faced with the current system of having a tape shipped to them for
their review. At the moment 15% of final fulfillment of motion picture footage is being
done online.

There will be new product offerings for editorial customers to drive the News,
Sports and Entertainment business. The recently acquired a small Entertainment photography
business.

They will leverage the data and knowledge that the new back office and tracking
systems now offer. They now have a full year of data on customers and sales and can
leverage the current customer base as well as identify new customers and business
opportunities. Klein said they are already seeing how this can help Getty "better optimize
pricing, increase efficiencies and provide better customer service."

They will begin to develop two new revenue sources designed to enhance their partnership
with their customers. These are:

• Hosted media asset management services. These are a natural extension of Getty's
  core capabilites. Some examples are the hosting of Boeing's Photo Store and an agreement with
  FIFA (the governing body of World Cup Soccor) for Getty Images to host their digital assets
  including all logos, marks, photography and video clips for all events through 2006.

• Assignment services. When customers need to hire a photographer they want them to
  come to Getty Images to fulfill that need. There will be a simple directory of assignment
  photographers and in some cases Getty will directly manage assignment shoots for their
  customers.

They do not expect significant revenue from either of these sources in 2003, but believe
they will grow as lines of business.