The Future At Corbis

At its third annual meeting Corbis reported gross revenue of $228 million for 2005 and provided more detail about its business and the numbers than ever before. This information allows us to make a much more granular comparison of Getty and Corbis and to identify some opportunities for Corbis.

The business is divided into two segments - image licensing and services. The image licensing piece made up 91% of the total. Corbis further segmented the licensing into Commercial and Editorial, RM and RF, and revenue from the various regions of the world. Corbis provided percentages and I have converted them into dollar figures (in millions) below.

	2005	Percent
Gross Revenue	$228
Services	$20.5	9%
Licensing	$207.5	91%
Commercial	$128.65	62%
Editorial	$78.85	38%
RM	$174.3	84%
RF	$33.2	16%
European	$110	53%
Americas	$87.15	42%
Asia/Pacific	$8.3	4%
Other (less than 1%)	$2.07	1%

Footage sales are believed to be very small but this number was not specified and is believed to be included in the Commercial and RM category.

The Services piece, though small, is important to consider as it shows Corbis' efforts - and success -- in diversifying its business beyond licensing. The major piece of Services (in excess of 50%) for Corbis is Rights Clearance. My guess, although no one at Corbis would confirm this, is that Rights Clearance makes up closer to 75% of the Services revenue, or something in the range of $15 million. Corbis got into the Rights Clearance business in 2003 when it purchased a Hollywood based company that specialized in negotiating third-party clearances for celebrities and for feature film productions. Once a part of Corbis, this division generated a 90% growth in revenue by the end of that year. In 2004 continued growth was in excess of another 100%, and in 2005 the division grew another 80%. Clearly, at this point in time Corbis owns this segment of the market and it is one that shows a lot of promise for continued future growth.

In his presentation to analysts CEO Steve Davis estimated that the total market for Rights Clearance worldwide might be $250 to $500 million. It may be hard to imagine this kind of potential, but it is easy to see that there is potential for some significant growth. For one thing there are many rights clearance projects that have nothing to do with photography. Davis pointed out that one deal in the past year involved helping Hallmark license 500 songs for a line of musical greeting cards.

In 2006 one of the Rights Clearance expansion areas will be Japan. That country has great interest in celebrities and in using celebrity images in advertising. If Corbis' core business -- photography licensing -- is flat (it was 4.3 % for 2005) then it is important to have some other growth driver. For Corbis Rights Clearance seems to be that opportunity.

Assignments and Digital Asset Management

In talking about the assignment market Davis said, "It's just a very small and emerging business opportunity, but we actually see a fair about of growth opportunity there." He then defined the size of the assignment market as "four to six times the size of the market for stock images." (My estimate of the size of the stock photo market is $1.7 billion.) Later in answer to a question he acknowledged that it is tricky to measure the size of the assignment market because you don't want to include wedding photography, most product photography, family portraiture, etc. He never got down to exactly what you should measure and what the real potential market might be, but it is certainly a LOT less than $7 to $11 billion. Based on my experience in the industry I think Corbis is probably generating no more than $2 to $3 million annually from assignments, and if over a period of years they can build that to four to six times its current size they will be extremely lucky. In the best case scenario, assignments will always be a miniscule part of their business and never reach the size of Rights Clearance right now.

Likewise, a lot of emphasis was placed on the potential for Digital Asset Management. With the acquisition of E-Motion in 2005 Corbis has about 60 DAM customers. By comparison Getty has been in this space for several years and has two customers - one of them being General Motors. Based on what we've seen so far I don't see this space being a significant revenue generator for either Getty or Corbis. I can't see Assignments or Digital Asset Management ever providing significant growth for either company.

In 2005 Getty's "Other" category (basically the same as Corbis' "Service" category) generated $21.65 million while Service generated $20.5 million for Corbis. Thus, on a proportional basis Corbis' 9% of revenue for these lines of business is much better than Getty's 3%.

Editorial

The most interesting area is Editorial. There are two distinct categories of uses of Editorial content -- "Breaking News" and "Secondary Use". It is very important to understand how these differ as they reveal a major advantage that Corbis has over Getty.

Secondary Uses are defined as imagery that fulfills a number of needs not at all tied to breaking news. The buyers for such images include: long lead time publications, specialist niche publications, books and marketing materials for small specialized niche products. In nearly all cases the imagery needed for these purposes had little or no breaking news value. Gary Shenk, Senior Vice-President of Images at Corbis, estimates that the Secondary Use segment of the market is larger than the breaking news segment and may generate $400 million in sales annually.

Taking this into consideration I think we can divide the market for still stock imagery into
into four segments: Commercial RM, Commercial RF, Breaking News and Secondary Editorial. In the chart below I have shown the amount of revenue I believe the three Majors generate from each of these segments. Some of these numbers are extrapolations based on the publicly available numbers.

I have also included Alamy in this chart because given the eclectic nature of its collection it is the single most serious competitor to Corbis in the "Secondary Editorial Uses" space. Finally I have included the Wire Services revenue to emphasize what's happening in the "Breaking News" space.

	Getty	Corbis	Jupiter	Alamy	Wires	Total
Commercial RM	$286	$104	$15	$5		$410
Commercial RF	$252	$25	$50	$4		$327
Breaking News	$85	$9			$180	$274
Secondary Editorial	$50	$69	$15	$18		$152

Getty sells some of the imagery it reports as Commercial RM or Commercial RF into the Secondary Editorial space. Thus, I have allocated $50 million of their RM and RF sales for this purpose. This number may be generous, but if I am incorrect the difference should simply be added to Getty's Commercial RM and RF totals further enlarging the company's percentage share of the total existing market.

In the Wires category I have grouped all of the major wire service including: Associated Press, Reuters, AFP, European Pressphoto Agency, etc. There are virtually no small players in this market and I believe Getty will have great difficulty taking much more market share in this segment of the market. Corbis has some sales, mostly as a result of its Sygma, Saba and Tempsport offerings, but the company does not intend to expend any effort to expand their position for three reasons. First, it is very costly to produce and deliver the imagery this market segment needs (2) most sales are by subscription at very low price points and (3) the extreme competitiveness of this segment of the business.

The next chart shows the proportional share of the entire $1.7 billion stock photography market that is dominated by these five sources.

	Total Market	Majors Share	% Majors Share
Commercial RM	$625	$410	$66%
Commercial RF	$375	$327	87%
Breaking News	$300	$274	91%
Secondary Editorial	$400	$152	38%

This chart clearly demonstrates that the Secondary Use Editiorial segment offers by far the greatest opportunity for growth for the big three. In the other areas if growth is to be had it must come primarily by taking share from one of their major competitors. That may be very difficult to do.

But in the Secondary Use area Corbis not only has the lead, but they have much more of the type of imagery this segment needs. Getty can not easily expand their sales in this segment by additional marketing because they don't have the necessary imagery. Jupiter has shown virtually no interest in this area of the market.

The companies with saleable imagery are all small specialists, and in nearly all cases they do not own the content, but represent photographers. Alamy is the only company that has shown an ability to consolidate a huge number of specialists under one brand. They have imagery from over 300 agencies in addition to thousands of individual suppliers. Given the difficulty of bringing together such imagery, and the low volume of sales per-image due to its specialist nature, it has been necessary to give these specialists suppliers a much higher royalty than Getty and Jupiter prefer to offer.

For the two public companies giving a higher royalty share is undesirable because it reduces their gross margin. Even setting up an Alamy type subsidiary seems unlikely because of the effect it would have on gross margin. Producing the images themselves as wholly owned would in almost all cases be too expensive to justify based on the potential return.

Getting back Corbis it has the advantage because it is not publicly owned and may not feel it has to produce the margins other companies seem to be locked into so long as it produces profits. It has the sales force in place and is already making strong sales into this Secondary Editorial market. And finally, it might be easier for it to expand on its already existing file of specialty content than to basically start from scratch as the other two leaders would have to do. All that said, from the people I talked to while at the annual meeting in New York there were no indications that the company intends to make any serious moves in this direction.

Royalty Free

Corbis does intend to make a serious push into Royalty Free and expand their collection by more than 180,000 images in 2006. In the first two months they added more than 50,000 images. Much of this will be wholly owned imagery. As the above chart shows if they are going to grow revenue in this segment of the business it will have to take share from Getty while maybe taking some from Jupiter.

Improving Search

Corbis is making a continued effort to improve its search return results. In 2005 Corbis had a team look at each of its 3 million Editorial images and apply a rating system in an effort to bring the best images up first. They refused to supply an detail as to what categories or how many are in the rating system, but certainly they would look at images that have sold as well as those where preview images has been requested. This year they are doing the same thing with the Commercial images.

In the next year expect Corbis' emphasis to be on creating wholly owned images rather than acquiring companies. Gary Shenk said, "At current valuations it is better to spend money to create wholly owned content than to acquire companies." There is a short term advantage, but long range you stand to get a lot more for your money.

One continuing questions is if or when Corbis will go public. Bill Gates told Reuters, "We are a private company and will stay that way for the next two or three years. We will look at various options for diversifying ownership."