Underexposed

SAN JOSE, Calif.--iStockphoto, which helped pioneer the "microstock" market for inexpensive, royalty-free imagery, plans to launch an audio-licensing business Wednesday.

The Getty Images subsidiary already offers photography, illustrations, Flash animations, and video. iStockaudio was a natural extension--one the company's customers had sought, iStock Chief Executive Bruce Livingstone said in a speech here at the User-Generated Content Conference and Expo.

iStockphoto CEO and founder Bruce Livingstone

(Credit: Stephen Shankland/CNET Networks)

"We're introducing iStockaudio on Wednesday this week," Livingstone said. The company announced the iStockaudio plan last May, but the actual arrival was delayed by a suddenly necessary overhaul to the site's search system, he said.

Initially, the audio service--think background music or the sound of a shattering window--will be available through public beta testing. Interface changes are possible before the final launch, scheduled for the South by Southwest conference that begins March 13.

So far, there are about 10,000 audio clips at the site, Chief Operating Officer Kelly Thompson said in an interview. "There's a lot of pent-up demand," he added.

Disruptive
iStockphoto, and the microstock industry in general, is an example of what can be done to harness the power of large numbers of people. Many in the traditional stock art business have been displeased that a bunch of amateurs willing to see their work sold for less than $1 a pop are eroding their business. But the hard economic reality is that microstock companies have put images on the market from photographers who are good enough to sell a few images now and again, even if not good enough--or devoted enough--to quit their day jobs.

iStockphoto now has about 65,000 photographers contributing to the site. Because Getty Images went private last year, the company won't reveal its 2008 financial results. The results were better, though, than in 2007, when the company garnered $71 million in revenue and paid contributors more than $21 million for their work.

The company is, of course, a technological phenomenon. It uses the Internet not only to connect large numbers of buyers and sellers, but also to help them view and distribute digital photography. "When iStock really started to take off is when the Canon Rebel came out," making it "affordable to shoot really good digital," Livingstone said.

Getty Images, which has a more traditional rights-managed image-licensing business, has a program to try to recruit new photographers from Yahoo's Flickr photo-sharing site, a partnership Livingstone helped set up.

Ups and downs
Thompson and Livingstone shared some of the ups and downs of their business' history at the conference. The lesson for companies such as iStockphoto that rely on user-generated content: pay close attention to what users and customers are asking for. They were asking for video, for example, and that now accounts for 10 percent of the subsidiary's revenue.

iStockphoto plans to launch its new audio clip-licensing site Wednesday.

(Credit: iStockphoto)

The flip side is launching something people haven't asked for. Livingstone had the iStock Forumeter idea, for example. It let people label forum contributors as grouchy crabs, helpful superheroes, comedic clowns, and unconstructive trolls.

"The problem with this is, the community didn't ask for it, didn't want it, and it was too accurate," Livingstone said. "People didn't really want to know how they were seen in the forums. It was a flop. We got rid of it in about 30 days."

Another bad idea: the Buy Request program for setting up custom photography shoots. In the company's core business, "99.99 percent of our sales are done unassisted. This little brainchild was the exact opposite. We had to help customers 99.99 percent of the time. It just didn't work," Thompson said.

The company also has struggled to keep up with growth of its computing infrastructure.

"It's important to be wrong as often as you are right, as long as you learn from the mistakes," Livingstone said. And when things go wrong, it's important to tell your users you're sorry. "Sometimes, the community needs to hear you acknowledge that there was a problem and apologize for it."

Once, the site went down after a truck cut the fiber line to the company's headquarters in Calgary, Alberta. "We did manage to get a check out of the company that supplied the fiber optics. Instead of keeping it, we decided to disburse to the community--the people who would have sold photos. It wasn't a lot--maybe $45,000--but I think people really appreciated the gesture," Livingstone said.

Growth strains
"Mostly, we plan for a reasonable amount of growth. Too much bandwidth is costly, but not enough is a disaster, and we know," Thompson said. "Early in our life, we got a bit behind the curve, and it was tough to catch up."

The company pushes what the MySQL database software can do, but this year, it concluded that it just couldn't handle the site's search operation. So in what was something of an emergency, it rewrote it in the C programming language.

"Our search was failing. We had to put everything on hold, surgically extract search from our Web site, and put it back in," Livingstone said.

Now, though, instead of 30 overtaxed search servers, the company has a single machine handling the chore, with four backup machines to handle potential problems.

The company hopes that new software called Dexter, which lets customers license images directly without using the Web site, will offer further help. A Mac OS X version is in private testing with people who license many images now, and a version running on Adobe's AIR software foundation is under development.

Apparently, it wasn't as easy to launch a microstock site for lower-cost photography sales as Corbis thought it would be.

Corbis, one of the established powers in licensing stock photography, launched SnapVillage in 2007, arguing that the microstock market was still young. But on Thursday, Corbis announced that it will phase out SnapVillage by the end of the year.

Contributing photographers and illustrators, along with customers and existing imagery, will be moved to a new microstock part of Corbis' existing Veer property called Veer Marketplace. Veer, a stock art agency Corbis acquired in 2007, offers both royalty-free and rights-managed imagery.

"We recognize that as the market has rapidly evolved over the past two years, we need a bigger, better offering to achieve success in microstock," Corbis said in a blog post. "In the months ahead, we'll be inviting SnapVillage contributors and customers to Veer Marketplace. Once Veer Marketplace is launched and fully operational, it will become Corbis' only microstock brand."

SnapVillage competes with a host of microstock competitors that arrived on the market earlier. Those include iStockphoto, acquired by Getty Images; StockXpert, acquired by JupiterImages; Fotolia; Dreamstime; and ShutterStock.

In one of the larger consolidation moves that have been sweeping the stock art business, Getty Images has agreed to acquire Jupiterimages, a subsidiary of Jupitermedia, for $96 million in cash, the companies said.

Getty will keep the Jupiterimages brand and will augment its collection of imagery with Getty stock, the company said. It's unclear, though, what will come of the two companies' royalty-free microstock sites, iStockphoto and Stockxpert.

"We'll be able to discuss questions like that when the deal closes," said Kelly Thompson, iStockphoto's chief operating officer, in a forum posting after the acquisition plan was announced.

The consolidation reflects tough times sweeping the stock-art business--times that led Getty to go private earlier this year in a $2.4 billion acquisition by Hellman & Friedman.

And the times aren't getting any easier. Gary Shenk, chief executive of Getty's top rival, Corbis, said Saturday at the PhotoPlus Expo that it will cut the royalty rate it pays photographers for rights-managed images, according to Photo District News.

For the first time, iStockphoto has revealed how much money it pulled in by licensing large numbers of photos, videos, and other imagery for relatively small fees, and how much it paid out to the producers of that content.

In a forum posting Tuesday, iStockphoto head honcho Bruce Livingstone said the Getty Images subsidiary had 2007 revenue of $71.9 million, and it paid $20.9 million to those who contributed the imagery it licenses.

That's a pretty interesting illustration of what user-generated content can sell for, at least in one context.

"We are now selling an image every 1.4 seconds through this industry-changing marketplace," Livingstone said in the posting.

Getty is in the process of going private in a $2.4 billion deal announced in February.

"One thing we've always had to keep close to our chest is our financials. Maybe it's our Canadian background, but we've always found it a bit cheeky and rude to discuss money," Livingstone said. "With the recent announcement that Getty Images is going to be a private company owned by management, employees, and Hellman & Friedman, you'll see lots of numbers floating around about iStock's financials."

Hellman & Friedman is acquiring Getty Images for about $2.4 billion in a deal that would make the powerful but financially troubled seller of stock photography into a privately owned company, the companies said Monday.

Getty shareholders will receive $34 per share, and Hellman & Friedman will assume the company's debt under the deal, the companies said. That price is a 29 percent premium over Friday's closing price of $24.45; on Monday, the stock closed at $31.67.

Getty's board has approved the acquisition and resolved to recommend the transaction to shareholders; the deal is expected to close in the second quarter. The Seattle-based company confirmed in January it was "exploring strategic alternatives."

Getty Images, a major seller of stock photos and other licensed media, confirmed on Tuesday a New York Times report that it's for sale.

Or at least that its board is "exploring strategic alternatives to enhance shareholder value," according to a company statement.

The company didn't comment on the Times' report that the most interested buyers were private-equity firms such as Kohlberg Kravis Roberts and Bain Capital, or that its price could go as high as $1.5 billion.

Getty hired Goldman Sachs as financial adviser and Weil Gotshal & Manges as legal adviser, the Seattle-based company said.