Getty Adjusts Search Results Weight

578

September 10, 2003

Getty has made dramatic changes in the results they deliver when customers do searches on
gettyinages.com. This is likely to lead to a dramatic increase in RM sales for the 3rd
quarter and a corresponding decline in RF sales for the same period, as well as a decline
in the sales of 3rd Party images.

For photographers contracted to Stone, TIB and Taxi this is great news because it is likely
to mean increased revenue from their images already on the site, given that many more of these
images are now likely to be seen. The Photographer's Choice photographers should also do alright
because they will be getting about the same number of images shown as was the case before.
The big losers are the 3rd Party suppliers.

During the 2nd Quarter conference call Klein acknowledged that the company had overbalanced
their site in favor of Royalty Free and 3rd Party images but said, "This is not difficult
to fix." Now, the fix is in and it is a major change.

Previously, one image from each brand was shown before a second image from any brand was
shown. This was great for the 3rd parties and not so great for some of the Getty brands,
particularly the RM ones. Now democracy has been thrown out the window and the emphasis is
clearly on RM and the three major Getty brands.

In Story 569 on Getty's 2nd
Quarter financial results I provided the following explanation of how
search results were delivered.

To provide a little more illustration of the problem, I did a search of "man (or men)
with phone" on the Creative section of the site. Of the 21 brands only 14 had anything on
this subject matter. ...The 14 brands in order of appearance were: Stone, Photodisc-Red,
Taxi, The Image Bank, Photodisc-Green, Digital Vision, Brand X, Photographer's Choice,
Hulton Archive, Time Life Pictures, Illustration Works, Thinkstock, Photodisc-Blue and
Rubberball.



Half of these brands are RF and half are RM - and the first 14 images as well as the first
90 images were split exactly 50/50 RF and RM. If the buyer happened to be looking for
contemporary photographs the Hulton Archive and Illustration works image would not be
appropriate and that would increase the dominance of the RF images for this particular
search.



At one point in his explanation Klein told the analysts, "Put simply there are
significantly more RF images in the search results than was previously the case" (before
they added 3rd Party suppliers and split PhotoDisc into three brands). While
this may be true, it does not seem to be a problem created by 3rd party providers, rather
it is a result of splitting Photodisc into three brands. Now the Gettyimages.com site shows
three times as many Photodisc RF images as the images of any other brand - RM or RF. In the
search above, by the time the buyer had reviewed 90 images Photodisc had shown 20 and Stone
had only shown 7. Digital Vision also got to show 7 images, but some of the other brands at
the bottom of the list only got to show 6 in the first 90. It would seem to me that this is
not a 3rd party problem, but an accidental, and probably wholly unintended, favoritism that
Getty has given to its own RF brand when it
divided it into three parts.

Now, doing the same search for "man with phone" I got images from the following brands:

• There were 22 images of Stone, TIB, Taxi and Photographer's Choice before we get
  anything else and image 23 is a Hulton Archive images. The first 3rd party image is image
  24 belonging to Time-Life.

  
  

• There are no RF images until image 30. Then there are 12 RF images before they jump
  back to delivering RM images again.

  
  

• The first 8 images are Stone, TIB and Taxi with Photographer's Choice being images 9
  and 10.

  
  

• In the first 90 images we have the following breakdowns: Stone (20 images), TIB (18),
  Taxi (15), Photographers Choice (6), PhotoDisc Red (8), Digital Vision (6), PhotoDisc Green
  (4), Hulton (4), PhotoDisc Blue (3), Time-Life (2), Illustration Works (1), Brand X (1),
  Thinkstock (1), Rubberball (1). The Illustration Works image was 26th in the sequence, the
  BrandX image was number 35, Thinkstock was number 40, Rubberball was number 83 and the
  first PhotoDisc Blue images was number 41.

  
  

• PhotoDisc now gets a total of 15 images, the same as Taxi, not three times as many as
  Taxi as it used to be. The other 3rd party RF companies get a total of 8 out of the first
  90 images.

  
  

• In the first 90 images there are 66 RM images and 24 RF, or 2.75 times as many RM
  images as RF.

  
  

• In the first 90 images there are 72 Getty brand images and only 18 3rd party images,
  and that counts the Photographer's Choice images as 3rd party. This gives the Getty images
  4 times as much exposure as the 3rd party suppliers.
  

The 3rd Quarter results that will be available at the end of October should provide some
interesting insights as to how this strategy is working. Photographers should carefully
examine their September sales report and the trends for the next few months compared with
sales earlier this year.

Given the emphasis on RM images we should see a big jump in RM revenue for the 3rd Quarter
(probably even
greater than the RM revenue in Q1), and a significant drop in RF revenue as well as the
number of RF units sold. If that doesn't happen if may be because the change occurred late
in the quarter, but traditionally September is the stongest month in the 3rd Quarter so
their should be enough time to get some sense of the impact this change is likely to have.
The 4th Quarter report should be particularly revealing, assuming Getty does not make
other major adjustments in the search parameters during the quarter.

If RF sales don't drop dramatically, that would indicate a couple things. Either customers
are willing to search much deeper in a collection than many have thought, or many are
searching for RF only and not even looking at RM images. It is generally believed in the
industry that most customers use the default search that is offered and don't customize
their searches for either RF or RM or for specific brands. It is also believed customers
tend to buy the first image they find that works. Thus if images aren't near the top of
search they won't be found.

If RF sales continue to be strong, despite the weight Getty has given RM in the search
results, it would tend to indicate that customers don't operate in one or both of the ways
described above. Getty has never supplied detail on customer search habits relative to
these issues, but given this dramatic strategy shift the numbers themselves should give some
strong indications.

Another key indicator that will be important to watch is the total number of single images
licensed -- both RM and RF.
While Getty's revenues are likely to increase significantly as a result of this strategy
change, and the expected shift of customers to buying more higher priced RM rather than RF,
that may not mean that stock photo industry is recovering or growing. The total number of
individual images licensed have been steadily dropping over the past 18 months. With
everyone talking about and hoping for recovery it will be important to determine if
customers are actually using more images, rather than making a recovery judgment solely on
the basis of a revenue increase. In this case, the fact that revenue may go up, will not
necessarily mean that the number of images used is increasing..

3rd Party Impact

In the last few months there has been a rush of 3rd Party suppliers to try to get their
images on gettyimages.com. With this new strategy expect that rush to slow down.
Companies like Brand X, Thinkstock, Rubberball and Illustration Works now only get 1/6th
the number of images seen as was the case earlier this summer. Even Time-Life (if these
percentages are consistent throughout all searches) only gets 1/3rd what was shown before.
It will be surprising if 3rd Party revenues, as a share of total revenues don't drop
proportionally.

The big losers with this new strategy are the 3rd Parties. On the other hand, to keep their
costs down, Getty needs the 3rd Party suppliers. Without them, Getty will be required to have
a larger staff of production, editing, scanning, and keywording personnel in order to maintain
the same level of new imagery in the database. Getty has several delicate equilibriums to try
to maintain. To increase revenue they must increase the proportion of RM sales, but if that
results in lower RF sales it may demoralize the RF suppliers. To keep their contract
photographers happy they need to increase the number of RM sales they make for them, but if
that results in less revenue for 3rd Parties it may reduce 3rd Party supply. If 3rd Party
supply is reduced Getty's costs of getting new imagery are increased.

This change underscores the huge risks of being a stock photo supplier and the near
impossibility of the image suppliers making economically viable production decisions. They produce
products entirely on speculation with no guarantee of any payment for the products once
delivered. Their only hope is that sometime in the future enough sales will be made of the
products for them to realize a profit for their time and capital invested. But the
producer has no control over how their products will be marketed, or offered for sale,
and the sellers can easily make frequent marketing strategy changes that can have
dramatic positive or negative impact on the eventual income of individual producers. Making
a living shooting craps offers much less risk.