The Consolidation Shuffle . . . By Ron Rovtar Managing Editor The Stock Asylum September 21, 2005 Everything seemed so much more cordial 15 months ago when The Stock Asylum published its first article about the current wave of stock industry consolidations. At the time, Getty Images sat so firmly atop the stock photography industry that it could afford to be generous with its smaller competitors. And the buyers, all relatively small companies acquiring other relatively small companies, pointed out that they coveted only the part of the market not held by Getty. Why stir up the giant? Getty still holds the top position by a good margin, of course. But, things have changed and the giant now clearly worries about competition from both Corbis and industry newcomer JupiterImages. At the same time, certain long-suppressed feelings about the world's largest stock distributor are bubbling to the surface. Fifteen months ago, things were pretty tame with a21 buying SuperStock, Veer acquiring Solus, PictureArts purchasing Nonstock and Jupitermedia snatching up Comstock. These were relatively small sales compared to some that have occurred since. Comstock was the largest at almost $21 million. (To see our original story, click here.) Things have heated up this year. Along with some smaller acquisitions, Corbis bought European giant zefa for an undisclosed amount of money and Getty Images acquired three collections, Digital Vision for $165 million and Photonica and Iconica for a total of $51 million. JupiterImages picked up Dynamic Graphics for about $60 million and PictureArts for $63.2 million. In addition, Reuters, which had only a minor presence in the commercial side of the industry, recently entered the fray, purchasing Action Images. Reuters did not say what it paid for the sports photo library. As the pace picked up, The competitive juices started flowing more freely. Getty's actions have made it clear that it's not amused by some of the developments. At the same time JupiterImages has responded to the Getty challenge and expanded its acquisition efforts. "It is interesting to see a company other than Corbis giving Getty some agita," said SuperStock's Haim Ariav, referring to JupiterImages. "Watching the 800-pound gorilla dance makes the industry that much more fun," Ariav said laughing, while also noting he still has much respect for Getty Images and its management. This year's activity kicked off the first week of January with Corbis' acquisition of zefa. Zefa adds about $41 million to Corbis revenues, but, more importantly, it gives The Seattle, WA, stock distributor a strong presence in the European markets. The German company was a widely coveted gem. Consistent rumors indicated that Getty was very interested in buying it, and a21 says it participated in talks and even arranged financing for the deal. (A21 owns and operates SuperStock.) Then, in April, Getty bought Digital Vision, a royalty-free supplier, and followed up with the May purchase of Photonica and Iconica from Amana of Japan. The Photonica/Iconica acquisition was particularly interesting because Corbis had been considered the primary suitor until the last minute. From the outside, the Getty deal seemed to come together very quickly. Nobody besides Getty and Corbis seems to know why things changed at the end and they are not talking. At about the same time, Getty started pressuring its so-called "image partners" (smaller agencies for which Getty subdistributes imagery) to stop providing work to Corbis and JupiterImages. Then, Getty ended subdistribution agreements with several brands owned by JupiterImages, including Comstock, Thinkstock, and, more recently, PictureArts. Getty management said it does not want to support its competitors. To a great extent, the pressure from Getty convinced Jeffrey Burke to sell PictureArts to Jupiterimages this July, a move that put JupiterImages firmly into the high-end, rights-managed market segment. "Getty is heavy-handed." said Burke. "That's how they are. The big issue was that we were so dependent on them for a big chunk of our revenue. Every time you think you have a deal in place with them, suddenly there is something else required. There's a lot of jumping through hoops at Getty. They squeeze hard. It always felt very tenuous to me. They have an 'out for no reason' clause in their contract that does not give you a high comfort level." Burke, who is now vice president of product strategy at JupiterImages, added that Getty is "extremely competitive to the point that they make a concerted effort to extinguish their competitors." Interestingly, Jupitermedia CEO Alan Meckler claims that Getty forced JupiterImages to buy PictureArts and move into rights-managed. He said his company, which owns JupiterImages, planned to concentrate on royalty-free and subscription services until Getty stopped selling JupiterImages' brands from the Getty Images web site. "It's all on their side. It's not on our side," said Meckler. "Getty forced us into all these decisions. They forced us to become a competitor. They sort of created us. They actually created a good sized competitor." And, competing is exactly what Meckler plans. "I'm ready for a fight," asserted the Jupitermedia CEO. "It's going to get more competitive and we are prepared for that." In an effort to fund growth and additional acquisitions, JupiterImages recently sold its profitable trade show division and ClickZ.com network of web sites, raising $43 million. In addition, it has strengthened its relationships with Corbis and Adobe Stock Photos, both of whom market JupiterImages' royalty-free photography. Meckler promises more acquisitions and a more sophisticated internet presence that integrates all of the JupiterImages brands into a single state-of-the-art web site. "Getty gives excellent service off their web site," said Meckler. "But we may have more bells and whistles by the end of the year. We've got a lot of people working on it. We keep adding more and more. We're having a good time on top of everything else." But, Getty and other stock distributors are not standing still, either. Getty CEO Jonathan Klein has said that his company is interested in buying more collections. "We clearly have the wherewithal to acquire anything in our industry," Klein told industry analysts in July. "But," he added, "more importantly, we have the discipline to 'just say no.' We will not pay crazy prices for businesses or collections -- no way." And Getty recently started a subscription stock photography service, which is an area JupiterImages currently dominates. JupiterImages responded with a new service called JupiterImages Unlimited. With 330,000 images from a number of brands, JupiterImages Unlimited is without question the largest subscription offering on the market. A21 also is interested in buying, according to Ariav, president and chief creative officer at SuperStock. "We're very specific about what we need," said Ariav, noting that a21 is only interested in libraries that fill weaknesses in the existing collection of about 1 million images. "We're looking. We're talking to companies." said Ariav. He suggested that there could be an acquisition announcement from a21 in the next few months. Finally, there is Reuters, whose plans remain a question mark. Before the purchase of Action Images, Reuters had a web page for selling its editorial images to commercial clients, but nothing that competed strongly with any major commercial stock distributor. Reuters is playing it close to the vest about any future plans, saying It does not discuss acquisition plans in advance. "The acquisition of Action Images is part of a wider expansion of our picture business that has taken place over the last year or so," said Susan Allsopp, global head of public relations for Reuters' media and editorial division. "We have hired a number of additional photographers and expanded our product range." Allsopp's statement leaves a lot of room for interpretation. But, with 2004 revenues of $5.2 billion, Reuters' entry into the commercial stock photography industry could be a nightmare scenario for all of the big stock distributors. (By comparison, Getty Images forecasts 2005 revenues of $728 to $735 million. The best estimates put revenues for the entire stock industry at $2 billion, or less.) Whatever happens, it is likely this round of consolidations will taper off sometime in 2006. There are a number of quality traditional collections left, but many are very small. A few companies, most notably Alamy, are exploring new business models that take greater advantage of internet automation. However, none of the current buyers seems interested in these approaches, even if the companies were for sale, which they do not seem to be. "There's not a lot left," said Burke. "JupiterImages is actively looking for other properties to acquire in order to build our position in the industry. We think there are seven or eight royalty-free collections and maybe five rights-managed collections left to consider." Probably true, unless the buyer has the financial muscle of a Reuters. In that case, there are three large stock distributors that could be plucked from the top of the tree. But that's not likely to happen . . . is it? Getty Images is at: http://www.gettyimages.com Corbis is at: http://www.corbis.com JupiterImages is at: http://www.jupiterimages.com Reuters Pictures is at: http://about.reuters.com/pictures/index.aspx PictureArts is at: http://www.picturearts.com SuperStock is at: http://www.superstock.com JupiterImages Unlimited is at: http://www.jiunlimited.com Action Images is at: http://www.actionimages.com Alamy is at: http://www.alamy.com Veer is at: http://www.veer.com © Stock Asylum, LLC