Getty Buys Wireimage: An Analysis

Today, Getty Images announced that they are buying the celebrity photo agency Wireimage for $202 million.

The rumors about Wireimage selling out has been around for a while. Mediavast, the parent company of Wireimage, is made up investors who raised many rounds of venture capital to create a large entertainment and sports photo agency. The conventional thinking was that the investors would finally realize a profit by cashing in.

How much profit will the founders of Wireimage get? $202 million sounds like a lot of money to split up 8-10 ways. But first they have to pay off the money they borrowed to get the company off the ground.

There was talk of Wireimage filing for chapter 11 bankruptcy. Was that the motivation for Wireimage to finally sell out to their rival? And if Wireimage was doing so well in the business why would they sell?

The Wireimage photo credit and its sister service, Film Magic, dominate magazines. The only problem is that doesn't mean you are making money. Wireimage had a very high overhead. Over 200 employees, offices in New York, Los Angeles, Las Vegas, Atlanta, Miami, London, Sydney, Tokyo, Germany, Spain, The Netherlands and even Shanghai. Add to that expensive band-width and computer server costs.

Wireimage was known to gain market share by heavily discounting the price of photos. You have to sell a lot of photos at discount prices to recoup the high overhead. All in a time period where publications are retrenching, not expanding.

With all the focus on celebrity magazines, the irony is that the celebrity photo business is very fragile. There are many forces that are putting pressure on photo agencies. First and foremost is the internet. Why wait around for your favorite magazine to publish when you can read about it online today? Photo prices for the web are half to one-third of print prices. And that's if people actually download and pay for the photos, most celebrity bloggers are stealing photos.

Wireimage core business was shooting celebrities at official red carpet events that are star-friendly. The public likes those photos but has even a greater appetite for street photography of celebs, which the paparazzi have fulfilled. More and more of celebrity driven magazines and even mainstream media are using photos from the paparazzi. Which photo will drive more newsstand sales, Britney Spears shaving her head or Britney on the red carpet? The public votes everyday with web traffic.

What is Getty getting out of the deal? The elimination of their largest competitor, like Microsoft buying Apple. Wireimage has been a thorn in Getty's side for the past few years as they both bid on league contracts for major sports like the NFL and PGA Golf tours. Now they can own that market.

Getty has similar problems as Wireimage. They too have a high overhead and the added pressure of being a publicly traded company who shareholders demand profits. Most of their profits have come from licensing commercial images for advertising use. Their editorial side of things has a lot of prestige but doesn't generate the same revenue. Editorial prices for images have been on a downward spiral. Buying Wireimage, which is basically an editorial service, is an attempt to shore up Getty's weakness.

I don't think Getty really will increase their market share significantly to make up for the price they paid. Magazines like to have an array of photos from different agencies. They are not going to put out a publication full of photos from one agency, otherwise they lose any exclusivity factor. Why buy People when US Weekly has the same photos?

Most photo agencies will look at this buyout as an opportunity to fill a large void that Wireimage has left. The only problem is that for now, it will be Getty and a lot of niche players.