Great Quarter For Getty Images

633

April 23, 2004

Getty Images, Inc. reported record first quarter revenue of $156.5 million, a 20.1%
growth over the $130.3 million earned in the first quarter of 2003, and 16.4%
growth over the $134.4 million in sales in fourth quarter 2003. They
benefited significantly from the currency exchange rates, but even excluding
this currency benefit revenue still grew by 11%.

While the first quarter has often been much stronger than the quarter
preceeding it, this result was much higher than expected. In January Getty
had told analysts to expect revenue in the range of $141 to $146 million
for the quarter.

"Our strong results in the first quarter underscore the leverage in our
business model and reinforces our optimism for 2004. The sales momentum and
positive market trends we began to see at the end of 2003 continued
throughout the first quarter of this year, with revenue improving
consecutively each month," said Jonathan Klein, Getty Images co-founder and
CEO.

During the conference call Klein said the company had "record revenues in
February and again in March" and that there was no end-of-quarter pull back
in purchasing as has often happened in pervious quarters. "Every day there
is more evidence that our customers are beginning to spend again on
marketing and communications. Our customers continue to describe their mood
as cautiously optimistic. The flow of work is becomming more consistent and
their clients are beginning to take a longer term view -- talking again
about annual budgets instead of quarterly budgets."

Operating income for the first quarter of 2004 grew 79.5 percent to $42.9
million, or 27.4 percent of revenue, compared to $23.9 million or 18.4
percent of revenue, in the same quarter last year as the company held
operating expenses near year earlier levels.

Net income almost doubled to $26.1 million or $0.43 per diluted share, from
$13.2 million or $0.23 per diluted share a year ago.

Business Outlook

The company's outlook remains positive about business conditions for the
second quarter and the remainder of the year. Changes in currency exchange
rates and seasonally lower sales typically experienced in the second quarter
may negatively impact the company's second quarter revenues compared to
first quarter revenues. The company expects to report revenue in the range
of $148 million to $151 million. Excluding the effects of currency, this
revenue guidance implies approximately 11 percent year over year growth.
The company expects to report earnings per diluted share of $0.37 to $.40
for the second quarter of 2004.

The company is raising guidance for all of 2004 to the range of $600 to $610
million and earning per diluted share of $1.55 to $1.65. Just three months
ago revenue for the year was estimated to be between $560 and $580 million.

Revenue Breakdown

In the previous quarter Getty Images created new categories for Editorial
usages and Footage that varied from what they had been reporting
previously. Among the advantages of the new divisions are that it will be much
easier to track Footage and Editorial growth in the future. However, for our
historic charts we no longer have accurate percentages for Q2 and Q3 of
2003 and I have left those blocks blank. In the revenue chart below
I have estimated revenue for these periods based on other figures that
are available and I have put those estimates in parenthesis.

It should also be noted that the Editorial segment of revenue still does
not cover all the revenue that is earned from Editorial customers. These
customers also buy imagery from the Creative section of the site and no
breakdown is provided that would give us an indication of how much of that
type of imagery these editorial customers purchase.

It should also be noted that "Creative" revenue (RM and RF) has represented
83% of Getty's total since the beginning of 2003. The other categories
combined remain at a stable 17% of total revenue.

The above percentages translate into the following dollar figures for the last
seven quarters (in millions of dollars).

Revenue Growth

Royalty Free revenues grew 39% in the quarter compared to Q1 2003, and about
16.5% over Q4 2003. Sales of RM were up 8.4% when compared to Q1 2003, but there
was a 16.4% increase when compared to Q4 2003.

Average Price Per Usage

CFO Liz Huebner said, "The average price-per-image (ppi) worldwide rose
significantly in the quarter. For RM the average ppi was $605 compared with $550
for Q1 2003 and $552 for Q4 2003. For RF the average ppi was $193 compared with
$131 for Q1 2003 and $165 for Q4 2003. The agerage pice for a film
clip for the quarter was $627 and this was down from $641 in Q4 2003."

Image Used Chart

Volumes

**** Note: In the past we have been told that RF revenue from CD's and Virtual
CD's was "about 20%" of the total RF revenue. This quarter we were told that
the CD and Virtual CD revenue was 18.3% of total RF revenue. Thus, I have
used this figure for Q1 2004. All the other figures on this line are based
on 20% of revenue. This skews the number-of-images calculations somewhat.
Nevertheless, I believe it is useful to have numbers to get some idea of
trends.

Single images volumes for RF collections were down just under 3%. "This is
not surprising as, consistent with previous quarters, the decrease was due
entirely to a decline in volume from credit card customers. As we have said
before, losing these customers has had no impact on revenue. In fact revenues
from credit card customers continue to increase. We are working on a plan to
turn around decline in volumes from this segment of our customer base and
are confident that it will be addressed over the coming quarters," Huebner said.

It is certainly encouraging that the price-per-image used keeps going up,
but the volume of uses seems to indicate that there are few, if any,
new users out there, despite the improvement in the economy, the
theory that the Internet is creating more demand, and very aggressive
marketing by Getty Images.

Photographer's Choice

Klein said the year-over-year sales growth of the Photographer's Choice
Collection (PC) has been more than 260%. Photographer's Choice was introduced in
late 2002 and in the Q1 2003 Klein said that the PC images had generated
over $1 million in revenue. The 260% growth would mean that in Q1 2004
revenue for this collection was probably in excess of $3.6 million.

Today there are 9,310 images in the Photographer's Choice collection meaning that the
average return per-image for the quarter was $386. It is also interesting
that there are a total of 375,004 RM images on site and they earned $79.8
million in the quarter. This would mean that the average return per-image
for all RM images being licensed by Getty was about $212.

The fact that the average return on PC images is 82% better than the average return on all
images is surprising for a couple of reasons. First, the search results are
weighted very heavily against PC. As I pointed out in Story
578 last
September, in the first 90 images of any search only 6 PC images appear
while 20 of Stone, 18 of TIB and 15 of Taxi appear. Somehow, customers are
finding the PC images anyway -- and buying them. One other possible
conclusion from these figures is that photographers are better a picking
images that will sell than Getty's picture editing staff.

Klein noted that, "there is significantly more interest (in PC from photographers)
than we have been able to accommodate," and that the company has struggled
to keep up with the photographer demand to add images to this collection.
Nevertheless, clearly, the company is very pleased with the results from
Photographer's Choice.

Editorial

The editorial segment of the business grew by 38% year over year and
Klein attributed an important part of this growth to the partnerships they have
developed with Time-Life Pictures, AFP, the NBA, and recently Manchester
United, and Major League Baseball. He also made note of the two small
Entertainment photography companies they acquired last year and the
importance of celebrity imagery in the overall Editorial revenue.

Klein pointed out that most of their Editorial content comes from three major
countries -- U.S. UK and Australia -- and that to expand sales in other
geographic markets they need to expand their content from these markets.
"You will see more geographical expansion in the editorial part of our
business as we focus on increasing our presence outside of our core
countries," he said, and indicated that to get this content they will
pursue more partnerships and in some cases small acquisitions.

In Q2 2004 they intend to launch a major upgrade of the editorial web
site that will give customers a far greater ability to search, purchase and
download imagery across all creative and editorial collections. This is
expected to make it easier for Editorial customers to find the images they
need and to further accelerate growth of the Editorial customer base.

Partners

The 3rd Party providers are now being called "Partners" in recognition that
they are much more than 3rd Parties. "We have seen that the ability to
bring together a broad range of content on one platform has benefits far
greater than any of us had originally imagined," Klein acknowledged.

"We hear from customers that they do want to go to one site, but they need a
broad and deep variety of imagery at the site. This is true of all
customers -- editorial and creative and in all geographies."

"Of course it is particularly helpful for Editorial customers who have very
specialized needs. Because our editorial customers require a broad range of
imagery, the breadth and depth of the imagery on our web site -- and that
provided by both us and our partners -- is very important to us increasing
our penetration into the editorial and publishing market segments."

One thing Selling Stock would like to know is the percentage of images on
the site that belong to "Partners", and the percentage of revenue these
images generate. We think that number is significant, but so far Getty
isn't sharing that information. On the other hand we must thank Getty for
all the statistics they do share because their numbers are very helpful
in getting an understanding of the industry.

SGNA

Gross margin for the quarter was 72.0 percent, up farom 71.4 percent in the
first quarter of 2003. Selling, general and administrative expenses (SG&A)
totaled $54.7 million, up $1.4 million from the first quarter of 2003. As a
percentage of revenue, SG&A declined substantially to 35.0 percent in the
first quarter of 2004 compared to 41.0 percent in the same quarter last
year. Excluding the effects of changes in currency exchange rates, SG&A
declined $2.1 million from the first quarter of 2003.

Cash and short-term investment balances were $356.6 million at March 31,
2004, up from $307.6 million at December 31, 2003.

For the first quarter of 2004, net cash provided by operating activities
nearly doubled to $43.7 million from $22.0 million for the same period of
2003. The acquisition of property and equipment amounted to $9.1 million,
compared to $8.1 million in the first quarter of 2003.

Geographic Breakdown

The percentage of revenues from the Americas continued to decline and that
from Europe increased due mostly to the continued weakness of the dollar
relative to the euro rather than a change in buying habits.