Reuters Purchase of Action Images Directly Targets Getty Images Commercial Sports Business, But Can Reuters Escape the Getty Perception That Its Commercial Ties with the NHL, NBA and Others Adversely Affects Its Media Sports Coverage

About 80% of Getty’s business comes from the marketing and advertising industries and the company made a smart decision early on that there was big money to be made in the commercial sports business. In 1998 it bought the largest and best known international sports pictures agency, AllSports, for $27 million plus 1.11 million Getty shares that in those days were worth around $20 each meaning the total deal was around $50 million (this week Getty shares are around $94 each – big killing for the AllSports people if they held on!).

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Reuters at the time was asked to bid on AllSports but because its media management in those days wasn’t really into commercial sports photography it showed little interest and if it made a bid at all it was purposely low. Big mistake that it came to regret afterwards.

But all was not smooth sailing for Getty and AllSports from media clients. As Getty signed commercial deals with the NBA and the NHL some newspapers, particularly in Detroit and Los Angeles, said they did not like the perception that those commercial ties could affect the media pictures delivered. There was a belief that “bad” pictures about the NBA or NHL: would not make it to the Getty media service.

“Hand on heart, we do not spike pictures that are not favorable to our commercial clients,” says Nick Evans-Lombe, Getty’s senior vice president for Imagery and Services. “We do not allow our media editorial policies to be dictated by our commercial partnerships.”

Evans-Lombe says he knows that competitors spread the word that Getty has been unduly influenced by commercial relationships to kill unflattering pictures, “but from our perspective Getty Images has pioneered a way of running a successful commercial and editorial sports business. And we could not do that if we had been unduly influenced to kill pictures.”

Evans-Lombe says that in the early days there were one or two occasions when a stringer photographer made decisions at a sports site not to transmit an unfavorable photo because the photographer also had a business relationship with the sports team, but once this was recognized stringent editorial policies were put into affect to ensure such conflicts could not happen again.

“It’s not that we didn’t retransmit the picture to our clients, but rather the photographer didn’t send it to us in the first place. We now ensure our media stringers don’t have such a conflict of interest.”

When Getty bought AllSports the sports agency had a very positive global brand. And considering the price paid, Getty therefore took one of the more courageous decisions a couple of years later to kill that brand and have the pictures credited as Getty Images.

“It was one of the most difficult decisions we have ever had to make,” Evans-Lombe said. “But we wanted to show Getty as a full service agency and we didn’t want multiple brands. We lingered over that decision for a long time.”

Meanwhile, over at Reuters they were trying to figure out how to make some money in the media news pictures business. Reuters had bought the UPI news pictures service only in 1985 and its first 10 years or so saw big financial losses; indeed there was often talk – more outside the company than within -- whether Reuters would close news pictures down. But when it adopted a business model of charging when clients reused archived pictures the financial scene turned around somewhat.

It has been concentrating on growing its magazine business over the past few years, but even that doesn’t produce the “real” money.

So with an eye on what Getty has achieved, Reuters has made a bold move to greatly expand its pictures base from just the media to corporate entities by purchasing Action Images – an archive that contains some seven million sports images from the past 50 years. It’s not as big an operation as AllSports was, but it gives Reuters a toehold into the commercial business with such customers as HSBC. The price paid has not been released, although it is said to have been at several multiples of Action Images $4.5 million turnover last year.

But whereas Getty killed the AllSports brand, Reuters plans very much to keep the Action Images brand alive, and one reason for that is to ensure there is no possibility that anything Action Images does in any way influences the media service’s editorial decisions.

Monique Villa, Reuters global head of news, pictures and graphics, says, “Reuters is running Action Images as an entirely separate operation to ensure the integrity of the Reuters News Pictures Service is ring-fenced against any possible commercial pressures on the editorial process – an accusation that has frequently been leveled at Getty Images.”

Evans-Lombe says that Reuters keeping the two brands apart “is nothing more than smoke and mirrors.”

Villa agrees it is possible that pictures taken by Action Images for its commercial clients may well be offered to Reuters, Getty, or the Associated Press if those pictures have potential news value. “In such cases Reuters editorial operations are under no pressure to distribute such pictures. And, when they do, they are clearly marked as “HAND OUT” and credited to Action Images, “ she says.

Reuters says it is assigning Steve Crisp, a former global pictures editor, as managing editor at Action Images and part of his assignment is to ensure that commercial and editorial operations do not mix.

No doubt sports pictures taken by Reuters own photographers will end up in the Action Images archive, as will Reuters Television sports coverage, and news graphics to produce a multimedia product.

How well Reuters does with Action Images depends clearly on how much investment Reuters is willing to put into the business, having already paid what it has to buy it. Reuters has a habit of supporting businesses that meet their business plans and losing interest rather quickly when they don’t.

Villa, who joined Reuters in 2001 after a lifetime of senior positions with Agence France-Presse, is taking the chairman’s role at Action Images and is the sort of senior manager not afraid to crack the whip as much as necessary to ensure success.

It should be interesting to see Getty and Reuters, eh, Action Images, go up against one another as they compete for official photographer status at various events or with various sporting organizations. Getty, for instance, is the official photography agency for the International Olympic Committee, and has many agreements with national Olympic federations and national sporting organizations around the world. It has just been named the official photographer for the Melbourne 2006 Commonwealth Games.

Getty Images Shares Nose-Dive – Down 13.75% In One Day - April 24, 2006

Getty Images reported Friday its net up 15% in the 1st quarter based on higher international sales, but the results were just shy of Wall Street expectations and analysts also didn’t like the forecasts for the second quarter so they dive-bombed the shares -- down 13.75% for the day on 5 _ times the normal trading volume to a new one-year low of $65.66. The shares easily stormed through the previous 52-week low $70.58 hit last July.

Analysts didn’t appreciate higher sales and administrative costs coupled with the US royalty-free unit having weaker than expected numbers. Also the outlook for Q2 was soft -- revenue was estimated at $205 - $210 million but the earnings projection of between 64 – 66 cents a share is less than the 69 cents analysts were forecasting, and more reason for a sell-off. But for all that the company is still forecasting 2006 revenue of between $830 million to $850 million.

The US royalty free numbers -- down some 6% -- combined with the higher costs and forecasted lower earning per share in the next quarter apparently sent the fear that some parts of the archive digital picture business are getting even more competitive. Higher sales costs, lower sales fees are not a healthy combination.

Piper Jaffrey and Bear Stearns both downgraded their “outperform” ratings on the shares to “market perform”.