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Getty's Pics: Worth 1,000 Words—and $3.3 Billion

First responders on 9/11

Photograph by Jose Jimenez/Primera Hora/Getty Images

First responders on 9/11

Many companies are founded on inspiration or imitation. But Mark Getty, a grandson of the billionaire oilman J. Paul Getty, and Jonathan Klein, an investment banker who had been Getty’s boss, started theirs with a checklist. Tired of crafting deals for others, the pair came up with strict criteria for their own dream business. It had to be global, operating in a fragmented industry ready for consolidation, and on the cusp of change. And the less risk the better. “We didn’t want to fix something that was broken,” says Klein.

Although the business they started in 1995, Getty Images, didn’t have a big idea behind it like a Twitter or Facebook (FB), it’s proven just as revolutionary. If Google (GOOG) is essential to navigating the Web, Getty has become essential to visualizing it. Cobbled together through acquisitions, Getty is the world’s largest photo and video agency, and its database of 80 million images is the raw material from which many of the Web’s slide shows and photo galleries are made. A search for its images of happy people, for instance, turns up 626,317 results. That depth allows Getty to license its image trove online to all manner of bloggers and websites, businesses small and large, advertisers, newspapers, and magazines (including this one).

With annual revenue approaching $1 billion, according to Getty, it’s become a media business too important to ignore. Carlyle Group (CG) certainly took notice: On Aug. 15, the private equity firm agreed to buy majority ownership of Getty from another private equity investor, Hellman & Friedman, in a deal that values the company at $3.3 billion. The Getty family and Klein will own the rest.

Mark Getty and Klein, a native of South Africa, were working at Hambros Bank in London when they stumbled upon the stock photo business. “It was a cottage industry, it didn’t have any business discipline,” says Klein, now chief executive officer (Getty is chairman). “It was run by and for photographers.”

They began by acquiring the premier photo library in Britain, Tony Stone Images, for $30 million. Since then, Getty has bought more than 100 other photo collections and companies. It went public in 1996, and three years later moved its headquarters to Seattle to be closer to the tech community and many of its customers. “They came in with a super-simple strategy and held to that,” says Stephen Mayes, who had worked at Tony Stone, stayed at Getty until 1998, and is now managing director of the photographer-owned VII Photo Agency. “They are not inherently entrepreneurial. They take good businesses and make them better.” Giorgio Psacharopulo, CEO of Magnum Photos, the cooperative started by Henri Cartier-Bresson and others, says: “We’re in awe of what Getty Images has been able to accomplish. But, like Wal-Mart (WMT), they operate at a scale that makes it difficult for smaller agencies to exist.”

Getty was early in recognizing the digital revolution’s impact on photography. In 1998, Getty acquired PhotoDisc, the first company to figure out how to sell photos in a digital format. “They always recognized the business eating their lunch and bought it,” says David Walker, executive editor of Photo District News, a trade publication. By 2001, Getty’s entire business was digital.

The bigger disruption came once digital cameras, and then mobile phones, began producing high-quality images—making everybody a potential photographer. By 2005, a company called iStockphoto emerged as the leading source of crowdsourced (otherwise known as amateur) images. Its average price for a photo was $2 to $3. Getty bought it for $50 million in 2006. “A lot of people thought we were cannibalizing our business,” Klein says. “But sometimes it’s perfectly legitimate to use a $5 picture.”

A $4.99 royalty-free Web image of a Tuscan villa

Getty’s move into the microstock business, as it’s called, came as the media and advertising industries were contracting and the Web was expanding. Soon Getty’s business model was turned upside down: While it started out providing expensive images for limited use to a small group of customers, now it also provides cheaper images for broad use to a big group of customers. Explains Klein: “The fundamental change is how and where pictures are being used.” Before Getty bought iStockphoto, it had some 150,000 customers a year. Now it has 1.3 million. “About 900,000 of them are small and medium-sized businesses, many of whom weren’t using images legally or at all,” Klein says. Fifteen years ago, Getty uploaded a few hundred photos a day; now it uploads tens of thousands. Getty used to license or sell 100,000 images a year; today it’s 30 million to 40 million.

General David Petraeus salutes Iraqi soldiers in 2008

Getty offers customers different licensing arrangements, including a subscription service. The more exclusive a customer’s rights to an image are, the more it costs. The average price of a royalty-free image, which allows any customer to use it in any way, is $208. A rights-managed image, generally of better quality, is priced depending on use and exclusivity. One of Getty’s most popular photos this year is a dramatic shot of a man surfing a huge wave. A customer using the image in a TV commercial less than 60 seconds long and airing for a month in the U.S. would pay $2,050. If the image was used in an online ad for one month, the fee would be $465. A blogger who has fewer than 1 million readers would pay $220.

Customers get good images for lower prices. Professional photographers, though, get the squeeze. Their licensing fees fell as the marketplace changed and competition from amateurs increased. “Everyone has figured out how to make money from photographs but photographers,” says Eugene Mopsik, executive director of the American Society of Media Photographers. Klein concurs—with no apologies. “It is much harder to be a professional photographer,” he says. “Yet we’re the major engine putting money in photographers’ pockets.” Getty employs 115 full-time photographers.

Getty has left rivals, including Bill Gates’s Corbis photo archive, behind. Yet challenges loom from photo-sharing sites such as Instagram. “It is for individuals now, but inevitably it will make its way into the professional industries,” says Bill Rosenblatt, president of GiantSteps Media Technology Strategies. Klein remains wary. “I worry about the speed of change and our ability to adapt to that change,” he says. “We have to keep looking for what’s next.” Of course, Instagram isn’t for sale: Facebook bought it this spring for $1 billion.

The bottom line: Getty Images, which was just sold to Carlyle Group at a value of $3.3 billion, has grown by feeding the Web’s insatiable desire for pictures.

Berfield is a writer for Bloomberg Businessweek in New York. Follow her on Twitter @susanberfield.

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