case study : Design Army

Read the case study on Getty Images at http://www.businessweek.com/innovate/content/sep2007/id2007095_157992.htm

Then answer the following:

1. Since Getty Images owns 40% of the stock photo market, they face a major challenge to continue growth. Describe two factors you think Getty Images should consider as they develop long term strategy for growth.

2. If Getty Images were to build a balanced scorecard, what two objectives do you think should be included in the learning and growth perspective? You may use examples from the balanced scorecard institute's website, www.balancedscorecard.org

FULL TEXT OF CASE STUDY:

Say you work at Design Army, in Washington, D.C., and you need a photo. If you asked your co-workers for help, they'd probably trill, "Just Getty it." "Same as when some people say, 'Just Google it,'" explains Pum Lefebure, the design firm's co-owner. "We use the photos, but we also browse Getty for inspiration." When Design Army needed photos of bamboo shoots for a Ringling Bros. installation, Getty had more high-quality images than anywhere else. If the firm is hunting for images that inspire the tone for a piece of branding, Getty has the richest cache of pictures, all a single keyword away on one of the industry's most comprehensive, user-friendly websites. When it comes to visuals, Getty is Wal-Mart and the New York Public Library rolled into one.

Lefebure's remark sums up the trend among many design firms like hers. Over the past few years, Getty has gobbled up so many smaller stock houses that it now owns 40 percent of the market, large enough to have become the subject of the kind of regulatory, pre-merger antitrust investigations usually associated with banks and airlines. In recent months, the U.S. Department of Justice finished its review of Getty's proposed buyout of MediaVast, which owns the party-picture agency WireImage. Stock has become big business in a remarkably short time. But that status seems precarious-and Getty and its photographers are straining to adapt.

Getty was founded in 1993 by two investment bankers: Jonathan Klein and Mark Getty, an heir to the Getty oil fortune. At that time, the stock photo market overflowed with small agencies-a classic opportunity for an industry "roll up," in business school parlance. Getty Images was formed to buy up those mom-and-pop companies and digitize all their collections.

It's a story that has unfolded again and again in other fields: Some emerging player, on the wings of a new technology or business practice, becomes dominant by scooping up small enterprises. Size pays: Photographers who might once have gained better fees in a more competitive marketplace now find themselves with limited leverage against a monolithic negotiating partner.

It's no wonder that photographers and stock buyers gripe that Getty grabs profits where it can, leaving everyone else a skinny slice. A number of art directors and stock buyers contacted for this article-many of whom asked to remain anonymous-pointed out that Getty has much more rigid pricing than its predecessors. Says a former Getty agent who now works at a smaller photo agency, "[Getty is] very strict with licenses. I left because my relationships with clients became just processing orders." Carol*, an art buyer for an established New York firm, bears witness to that shift: "Agents used to take into account the little details about how you were using an image, but not Getty."

Photographers have felt Getty's influence in the way they work and in how much money they take home. "There are a lot of strong-arm tactics involved in getting lower fees from photographers," says Lucy, a photo producer who works alongside her husband, a veteran stock photographer. Partly as a result of Getty's increased bargaining power, the money photographers make from rights-managed photographs-which give a buyer exclusive image rights-has dwindled. "The industry standard cut for photographers used to be 50 percent," Lucy adds. "It's now 20 to 40 percent. People sign with market leaders like Getty to make it up in volume." For rights-managed images, the average commission at Getty is now closer to 33 percent, according to the company's latest annual report.

Not surprisingly, Getty resists being characterized as an industry heavy that slashes fees at will. "There is a misconception that Getty Images controls the stock industry," says Andrew Saunders, Getty's vice president of imagery. "We are the market leader, but there are far bigger forces at play. With digital photography, it's now possible for many more photographers to get involved in selling stock images, making the industry far more competitive."

Stock was once a reliable sideline for many photographers subsidizing their commissioned work, but Getty's cutthroat marketplace doesn't favor part-timers. "Getty has been getting much more selective, focusing on the most productive relationships that provide the greatest return," says Betsy Reid, executive director of Stock Artists Alliance, a nonprofit group that represents stock photographers. And yet even for committed shooters, the company's mammoth database makes for daunting competition. "There are so many pictures that your work becomes a needle in a haystack," says one longtime photographer for Getty's 2005 acquisition, Photonica. Jim Pickerell, publisher of the trade magazine Selling Stock, adds, "The collections will likely grow larger and larger, so the odds of any images being licensed have become less and less."

That process is self-perpetuating: Fresh photos that appear in the first pages of search results on Getty's site become all-important, and photographers must shoot new images to stay visible. Though many buyers and photographers (even among those not enamored of the company) note that Getty's keyword system is useful and fast-the site is searchable both by content and by conceptual themes tagged by editors-the flood of images has meant that the useful life of stock images has declined drastically. Pickerell gives the example of a stock photographer he knows who made more than $200,000 in 2005 through Getty. In 2006, says Pickerell, "He added 400 new pictures, at great cost, and almost doubled his collection. But his income stayed the same."

As it becomes harder for photographers to make a living, the industry's vitality may be sapped. "We see seasoned photographers leaving stock because of reduced opportunity, but also because of reduced enthusiasm. They're unlikely to be replaced by a new generation of pros, nor will their level of imagery be replicated by amateurs," says Reid. "Those photographers who stay had better be delivering high-value imagery." David Walker, who has covered Getty extensively for Photo District News, concurs: "Getty's about volume and efficiency. That naturally drives their collection toward images that are going to sell the best."

It's debatable whether this state of affairs necessarily leads to blandness in photos' style and subject matter, though it's a belief a few hold dear. "There was a time in the '80s and '90s when there were lots of young, new stock agencies interested in unconventional stock," notes Stephen Frailey, chair of the photography department at New York's School of Visual Arts. "Some people think those have been consolidated and diluted." Among those critics is Joe Marianek, a New York-based graphic designer whose former job at a large design firm often entailed visits to the Getty website. "With Getty I'd tend to find a certain tone of voice," he says. "There's a Pleasantville aspect. If you look for a young group, it'll be biracial, and they'll be kind of doing something together and laughing about it and they'll all be beautiful. You can almost see the big-idea tagline. Getty caters to an American East Coast design culture that's attempting to describe the world for a lot of national corporations." Getty's Andrew Saunders thinks that logic is a bit too simple. "I think it's fair to say we've worked hard to avoid homogenization," he says. "Perhaps demand for pre-shot imagery has at times outpaced the producers' ability to innovate. Trying to persuade photographers to evolve when they've had financial success is difficult. It's our biggest challenge. Getty Images has always championed-and, I would argue, enhanced-the creative direction of the agencies and collections it has acquired."

Photographers and art buyers who don't agree are finding increasingly varied ways to avoid working with Getty. Says Reid, "A lot of photographers have gone back to marketing themselves directly, discovering other ways to put their images onto the market." One such option is Digital Railroad, a website founded four years ago that allows agencies and photographers to self-publish work.

It returns 80 percent of sales to the photographer. "We're not an agency, we're a marketplace. We let anyone publish, and the best get voted to the top," says Evan Nisselson, the company's founder. "The holy grail is a community that'll replace the need for gatekeepers. They [are the ones who] keep the best images from being seen by buyers."

The creation of alternative photography venues coincides with a transition in the types of projects art directors are working on. Web projects can support stock that would never be viable for print: low-res, relatively small, and sometimes free, non-copyrighted images often suffice. And since users of those sites, and of cell phones and other portable small screens, are already accustomed to such pictures, an upswing in demand for more polished (and more expensive) photos seems unlikely. "Getty was founded to sell images for print, but buyers are using images in different ways, figuring out new sources, and expecting to pay less," says PDN's Walker. As video takes over the web, buyers may even start turning away from still images altogether.

While Getty appears to be unshakable, its future may well be at the mercy of such changes in the business. Perhaps the most significant threat the company faces is the rise of so-called microstock agencies, like BigStockPhoto and Shutterstock, which accept images from nearly anyone and sell them for as little as $1. As one industry veteran puts it, "Just like if you put 100 monkeys in a room with a hundred typewriters and one would eventually type Shakespeare, some of these photos are decent based on sheer volume." Getty reacted by buying iStockphoto, an industry pioneer, in 2006; Corbis, Getty's much smaller rival, announced last June that it would create its own microstock site. Those are flank-protecting moves. "If someone's going to cannibalize your business, better it be one of your other businesses," said Getty's Jonathan Klein last year. It's still a potentially dire situation for both agencies. Even Design Army's Pum Lefebure notes that she prefers the steep discounts offered by iStockphoto and others: "If we want an image of sky or grass, I'd rather spend $10 than $350."

That said, Getty's understanding of its foes and its own shortcomings puts it in a formidable position-one that it is defending through expansion into new territory. In June, Getty bought Pump Audio, which licenses independent music for commercial clients. After the move, Klein sounded a familiar note: "Today there is wide agreement in the music industry that the market for commercial music licensing is fragmented, inefficient and confusing, just as the imagery market once was." Klein sounds ready to Getty it.