Content Is King at Corbis

Bill Gates' photo agency squares off with Getty Images, as it tries to reach profitability in the $2 billion digital-image market

Bill Gates' main company, Microsoft (MSFT), seems to be emerging from the blahs, with a string of important products on the way. But his other company, photo agency Corbis, still has some sorting out to do.

A series of acquisitions and a sales-force reorganization put a damper on Corbis' organic growth last year. Founder and Chairman Gates believes the Seattle-based outfit is now well positioned to take advantage of the digital convergence -- where all sorts of content is captured and presented digitally and distributed over the Internet -- and resume the fast growth of recent years. "This will be a milestone year," Gates predicted at Corbis' annual marketing meeting in New York on Mar. 14.

Corbis is the No. 2 player worldwide, after Getty Images (GYI), in licensing and managing photos, video, and other imagery for advertising and publishing markets. The company offers soup-to-nuts services, including photo and video licensing, assignment photography, publishing-rights services, and digital-content management. "Our promise is we've got it, we'll get it, we'll make it, and we'll manage it," says Wil Merritt, senior vice-president of sales and service. "It's the creative supply chain, and we're in the center of it."


  A year ago, finishing off a year when revenue rose 20%, Corbis' leaders confidently predicted that they would turn the company profitable. That didn't happen. Instead, organic revenue growth slowed to 4%, though overall growth topped 34%. The total take was $228 million, thanks to the company's mergers and acquisitions spree. (Getty Images grew 17.9% to $733.7 million, mostly organically, and pulled in $150 million in profits.)

Corbis Chief Financial Officer Sue McDonald said at the meeting that the goal is to become profitable this year, and that additional acquisitions won't be necessary to achieve growth goals. When asked about the possibility of an initial share sale, Chief Executive Steve Davis said the plan is to diversify ownership. He and Gates are considering strategic investors as an alternative to taking the company public.

Because Corbis isn't public, Wall Street analysts don't cover it. But analyst James Ballan of Bear Stearns, who follows Getty, says, "Corbis is obviously going through a restructuring, and [it's] doing a lot of work internally." While he expects the $2 billion market to grow in the mid-teens percent this year, Corbis' prospects aren't clear. Still, he says the company seems to be doing the right things to strengthen its hand in the faster-growing segments of the market.


  Corbis' acquisition spree was partly aimed at placing bets in emerging markets. For instance, last July the company bought eMotion, a provider of hosted digital-asset management software. Yet image licensing remains a dominant part of its business. To boost profit potential, Corbis is beefing up its own collections and the custom-photography service, which involves assigning photographers to capture images.

To boost sales, Corbis is making additional investments in the royalty-free business, where clients pay an up-front fee to obtain wide latitude to use images, rather than paying to license each use. In this market, Getty and Corbis have been facing tough competition from fast-rising Jupitermedia (JUPM).

Gates launched Corbis in 1989 to provide artwork for what he imagined would be a new generation of digital display screens for the home. That market never took off, but in the mid-1990s, Corbis shifted from addressing consumers to dealing with advertisers and publications. Its big turning point was the purchase of the famous Bettmann Archive of historic photos.


  During an exclusive interview with BusinessWeek before the Mar. 14 meeting, Gates said he was hopeful that the digital convergence -- together with the proliferation of new consumer devices -- will give Corbis a boost. "It's really speaking to the breadth of things people want to do and the processes now being very digital," he said (see BW Online, 3/15/06, "Bill Gates Pictures Corbis' Future").

"Many of the companies that were bought to create Corbis came from an industry where people were digging around in photo drawers to find things," Gates explained. "Now it's very much an online activity. You can navigate through the pictures according to exactly the characteristics you want."

Gates says he doesn't feel threatened by photo-sharing site Flickr or video-sharing site BitTorrent. Some advertisers and publishers have begun using images from those sites or other so-called micropayment sites, where images can be licensed for as little as $1 a pop. So far, these sites haven't made a noticeable dent in Corbis' business, and Gates is betting it will stay that way.


  "It will be like it is with e-zines and bloggers," he said. "In photography, you'll have the whole array of stuff that's just up there free, and then increasing levels of quality. The whole spectrum is being figured out. We're at the highest-quality end of the spectrum."

During their presentations at the meeting, Gates and Davis talked up Corbis' prospects. Gates sees high-definition technologies on PCs and TVs as a boon for his company. Davis pointed to a picture of the digitally rendered King Kong on the cover of The Economist magazine, and harkened back to one of the rallying cries of the '90s by quipping: "Indeed, content has become king."

That prediction does seem to be coming true, and -- if Corbis can get its operations running smoothly -- Gates' other baby stands to win big because of it.

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