Growth Of Stockbyte

4

September 12, 2005

Many of my readers know that Stockbyte is now the fourth largest supplier of royalty free images in the world, and that it is owned and operated by Jerry Kennelly. But how did the company get to where it is today. Recently Ian Kehoe of The Sunday Business Post Online, Ireland's financial, political and economic newspaper, interviewed Kennelly and provided a detailed look at how Jerry got his start and ended up focusing on producing and selling royalty free imagery. This copyrighted story is re-printed with permission of The Sunday Business Post.

In 1975, RTE (Irish Public Service TV) dispatched journalist Sean Duignan to Tralee in Kerry to report on the fortunes of the Kennelly family. One year earlier, freelance photographer Padraig Kennelly and his wife Joan had launched a new weekly newspaper, Kerry's Eye. The national broadcaster wanted to check on their progress.

Duignan soon realized that the paper was a classic family operation, with the couple's three teenage boys selling advertisements, shooting photographs and writing articles. In one scene, Duignan asked Joan Kennelly how the paper impinged on her family life. If the children were not in, she responded swiftly, then they (the parents) were out.

"I was reared in a darkroom," said Jerry Kennelly, 30 years on. "School was a part-time gig for us all. While I was in school, I was writing and developing pictures all the time. It was part of the effort that was needed to keep the boat floating. Failure was never an option." Today, he is the only one of the four Kennelly brothers (another one arrived after the RTE report) not involved in the family newspaper.

There was no acrimony or bitterness in his parting. He simply explained to his brothers that he wanted to stake his own claim in the world. "I wanted to do something in photography, and I wanted to do something on an international scale," he said. Both of Kennelly's ambitions have long since been realized.
His company, Stockbyte, is now the fourth-largest supplier of royalty-free photographs in the world, behind global giants such as Getty and Corbis, the stock photo agency owned by Bill Gates.

Kennelly's philosophy is the same as that of his parents -- get in and get it done. "It is a core competence that is at the heart of this organisation," he said of Stockbyte. "We are quality-focused and we strive to be the best we can be. If that means working 24 hours straight, so be it." The firm, which employs 35 people, made an operating profit of more than EUR1 million in the year to the end of April 2004.Things have since moved on. "We have had serious growth since then, and the figures are now much more significant,' Kennelly said. The Stockbyte business model is simple. The company takes thousands of generic images from around the world and sells them at high volume and low cost. The client pays for the photograph once and can then reproduce it as often as desired with no additional cost.

Stockbyte has about 60,000 images on file, and has a blue chip client list ranging from Saatchi & Saatchi to AOL. The firm's pictures are used in everything from advertising campaigns to company brochures to magazine illustrations. Last year, Stockbyte pictures appeared on the cover of two issues of Time magazine, one illustrating a feature on the brains of teenagers, the other a lead on methods of treating pain.

The origins of Stockbyte stretch back to 1981 when Kennelly launched his first business at the age of 21. The company, Newsfax, was originally established as a photo agency, but soon started supplying a large amount of articles to newspapers in Ireland and Britain.

In the early 1990s,Kennelly started toying with AppleMac computers, which were to lead a print and design revolution. He spotted a niche in the market and set up a pre-press company in Tralee to provide color scanning, film and proof services for publishers and design firms.

Although the company was quite profitable, Kennelly knew that the business had a limited lifespan. He realised that pre-press was going to be outstripped by digital technology and that he would need to reinvent his business once again. His pre-press days had introduced him to a host of designers and publishers, and Kennelly knew there was a market for high-quality generic pictures. He also knew that most of these publishers could not afford copyright-protected images.

"They were caught between a rock and a hard place," he said. "That is where we got the idea for royalty-free photographs. It was a no-brainer to me that this was going to be a great business." Kennelly created 10 different CD titles showcasing his pictures. A few months later, he went to a trade fair in San Francisco to launch the company. It was a big gamble, but Kennelly returned from California with his first sales and a distribution network.

"I was working from the gut the whole thing was about belief," he said. "You can't flinch in this business. If you spot an opportunity, you work your ass off to meet your deadline, and you make it happen." Kennelly knew he needed more finance if the firm was to shoot more pictures and generate more sales. He approached the main banks, who were not interested. There was no bricks and mortar involved. Thanks, but no thanks.

But ACT Venture Capital in Dublin appreciated his idea, and took a 25 percent stake in the firm in 1997 for EUR300,000 and a working capital loan of
EUR600,000. The funder increased that shareholding to 30 per cent in 2000.
ACT stayed on board for seven years before Kennelly bought them out. "We had a frank discussion in 2003, where I told them that if they wanted to stay in, they had to put in more money without getting any more equity," he said. "They accepted the logic of the argument, and we bought them out."

The amount paid to ACT for its stake has never been disclosed, but Kennelly said the venture capital firm "did well on its initial investment'. He said the buyout had enabled the company to grow aggressively. No longer accountable to external shareholders, he could chart his own preferred course for the company. No expense is spared for any photograph, no destination too far to go for the right backdrop.

"The accountants might have a different view, but this is my way," he said.
"When you are into photography, it is like having a sense of art or of music. You are looking at a shot, figuring how you are going to take it, crafting it in your mind. "It is visual literacy. There is no compromise and there can't afford to be. Our success is down to our standards and the fact that our pictures are better than our rivals'. We refuse to compromise on our pictures. If that means renting a 747 aircraft for one picture, we will rent it. Simple as that."

Kennelly and his team travel extensively building up their stock of photographs. A team of six recently returned from the US, where they were shooting for three months. In addition to the core Stockbyte team, the payroll for the shoot included an auxiliary staff of 20 and another 30 models each day. The company outsources its post-production operations to India and Hong Kong, but retains its creative process at its Tralee headquarters.

That process is a blend of science and gut instinct. The company closely monitors which images are selling well, and in what geographic areas. For example, how are pictures of single Caucasian women selling, as opposed to single Afro-American women? How many pictures of Asian women are being sold in the US? "It's not rocket science," Kennelly said.

"There are only so many criteria. We are not sending men to the moon. But you do have to make sure you are balancing the library." Earlier this year Kennelly launched another company aimed at the lower end of the market, called Stockdisc. The pictures are not as sophisticated as those of Stockbyte, and sell for a lower price. Stockdisc now has a library of 15,000 images.

"We are debt-free and self sustaining, so we can move forward and look at other things. We want to be in different ends of the market, and this enables us to do that," he said. Although it is based in Kerry, Kennelly prefers to present his company as a global business. He does not want to be perceived as the small Irish guy in the industry dominated by multinationals. Presenting ourselves as a purely Irish business would be a disadvantage," he said. "You have to take the barriers away from doing business.

"We stay light on our feet and operate as a virtual business. We have 130 distribution partners around the world, so we are global and local." Stockbyte recently signed a partnership deal with Getty, under which its images will be available to Getty customers. The deal is likely to result in a huge sales uplift for Stockbyte, and has also fuelled rumors that the business will eventually be sold to Getty. "I suppose people would say that all right. But I want to keep the business while I am still adding sustainable value to it," said Kennelly.