Snippets From Getty`s Conference Call: More On The New Creative Workflow Model Called "Open", Photographers Contracted To Individual Brands, and Wholly-Owned Imagery

Jonathan Klein quoted after Getty´s webcast and "Getty Images Q3 2006 Earnings Call Transcript" (Seeking Alpha), accentuation by me:

• Our key initiatives for 2007 have been set, and they are as follows:

  1. Exceed customer expectations with the new gettyimages.com;
  2. Drive extensions and enhancements to current products and services;
  3. Drive our film product;
  4. Monetize our significant assets and traffic beyond the pure image licensing business; and in no particular order, but finally
  5. Evolve and grow iStockphoto aggressively.

• The third key initiative is to grow our film business. Film carries enormous opportunities for future growth, but let’s not forget in all the noise that we are by far the leader in the stock footage market segment, and we have plans to extend that lead. Today, we are formally announcing that we will significantly increase the investments that we are making in our film business in three main areas to drive growth much more aggressively.
  First, we will move to a purely digital workflow. Today, many customers search online for our film clips, and upon purchase, receive those clips on hard goods, tapes or CDs. In fact, a tiny fraction of what we have available is even on our website, and we know that as more and more video production goes purely digital, and as the bandwidth for delivery continues to expand, as well as the software for working with film, the workflow for our film clips will get better and better, making the use of film clips a quick, seamless, and easy process.
  Let’s remember that we invented this workflow process for still imagery. We were the first people to sell an image on the Internet, and we will do something very similar with film. We will get thousands of new clips onto the site every week.
  Secondly, we will continue to build our content. You saw the three significant content deals that we signed for film this quarter. In addition, we added three royalty-free film collections to the site just this last weekend. You should expect us to continue to build out this content, so that we have a broad, deep, and extremely high quality offering for our customers and, of course, our prospective customers.
  Thirdly, we will continue to educate the market and prospective customers about how the use of pre-shot film clips can save them time and money for their projects.

• In film, we continued to build out the content offering and added three significant content partners during the quarter, including Dick Clark Productions, Discovery Footage Source, and AP Archive. Film grew 15% currency neutral, and represented 5% of our total revenue in the quarter.

• The fifth key initiative, and this may or may not surprise you, is to evolve and grow iStockphoto aggressively. It is my belief that the imagery market is underestimating and certain competitors are ignoring the potential of the micro-payment model and the user-generated content for commercial use. Consumer or user-generated content is extremely important. What we can do, better than anyone else, is to make the user-generated content available and easy to access for business users and safe for commercial use.
  Remember, with iStockphoto, we have taken social media or user-generated content and given it an e-commerce face. That is where our revenues come from, not from advertising.
  Volumes are strong and growing for iStockphoto, and we are expanding the business every day. I talked earlier about everything we have done in the short eight months since we have owned the business. We have so many opportunities to evolve this business over time, and you may have to wait to find out a bit more, but what we have done in the eight months so far is an indication of how we feel about this business and the fact that, as I said a moment ago, we have not really started.

• When I kicked off and talked about the reasons for the slowdown in our creative stills business, the first thing I mentioned was alternative models for licensing and creating content. We are extremely fortunate to own the market segment leader and inventor of the micro-payment model. iStockphoto is doing just great. Customers downloaded 2.5 million images during the quarter.

• The micro-payment business is going to get much bigger over time.
  Let’s be clear that the overlap between a micro-payment customer and a traditional customer will continue to grow. One, because the model is going to bring completely new customers to the industry. They were licensed to begin with in the micro-payment model, and then over time, they will license other imagery.
  We also know that existing customers will use iStockphoto. More often than not, they are using iStockphoto at times when they would not have licensed the traditional image at all, and sometimes they are using it when they would have done, and that is that big cannibalization word.
  Now, what we have decided with our fifth key initiative this year is to evolve and grow the iStock business, but I have to stress very strongly -- although micro-payment and iStock can be a big business and will be a big business, it will still take some considerable time, a very long time, for it to even be 10% of our overall business in revenue terms. We plan to push it as fast as we can.

• We say the same thing about iStockphoto and the micro-payment model. It is not going to wash away professionally produced, high-quality, high production based images and imagery, but what it will do is be a terrific growth engine for us. Inherent in that, yes, there will be some substitution, but that is life.

• We are building a new creative workflow where we use, the code word we are using it inside the company is called Open.
  The new system will be easy and efficient. We will open our system to all professional photographers who meet the criteria. This will give us access to masses of content and provide the ability to shape and mold our collections instantly by opening or closing the taps as needed.
  Our content will always be much more fresh. It will not be based around legacy models. The inherent flexibility of this system will enable us to create collections of brands and product and distinguish content almost on the fly.
  This is not based on something we are smoking. This is something we are already doing at iStockphoto, and we plan to use those tools, techniques and approaches in our core stock photography business.
  At the same time as that, we are changing our approach to photographers who contribute photos to Getty Images under the old system. This may be controversial, but it needs to be said -- in the future, our main relationship with the thousands of photographers who are not employees of the company will largely be as a distributor for them. Be under no illusion -- photographers are clamoring to give us more content, not less, and they will embrace this.
  The current system of photographers contracted to individual brands, submitting images where we carry the entire cost of handling the images, will be completely re-worked.

• It is worth stressing very clearly that price is not the issue today and price has not been the issue throughout the year for both our rights-managed and royalty-free products. It is volume that is the issue.

• In the quarter, single image volumes -- and in fact, throughout the year, single image volumes have been suffering for three main reasons.
  Firstly, there are more alternative licensing models and more sources of imagery than ever before.
  Second, the image purchasing patterns of our customers are changing. Look no further than iStockphoto for evidence. Volumes for our user-generated content business have been extremely strong, and higher than even we had anticipated.
  The third factor, which explains the volume declines, is that the business of our main customers, advertising agencies, corporations -- in other words, advertisers -- publishers and the media are all in transition due to the advent of the digital economy, whereby the Internet and other digital platforms are providing advertisers and communicators with new and varied ways to do what they have always done -- advertise and communicate.

• At this point, we have no intention of changing royalty rates with photographers. However, we do intend to continue to invest aggressively in shooting wholly-owned imagery. We find it a phenomenal use of our cash.