North America woke up with the news that golden boy photo agency Shutterstock acquired no less than 2 companies in what seems as one swoop. One, in the music category, the other, in the photo licensing world. Obviously it is the latter that interests us here.

Shutterstock’s announcement that it has acquired 60 years old UK base photo agency Rex Features for $33 million is certainly good news for Rex ( at least, their share holders) and not so much for Shutterstock. And here’s why:

Rex is a 100% rights managed company almost entirely focused on the editorial market. It is also one of the oldest in existence, family owned and operated until recently. It strength is its premium position in the UK editorial market. Thanks in big part to an extremely faithful staff ( most have spend their entire career there), it has built what is probably the strongest bonds between a photo agency and pro image buyers. Because of its prominent position,  it has attracted the UK distribution rights for some of the most important contributors in the western world, be it agencies or independent photographers, outside of Getty, Corbis, AP, Reuters and a slew of others. It also has an incredible archive of images accumulated over the years.

For Shutterstock, this has little value.

Staff: Because it was a family owned business, the staff felt protected and cared for, enhancing their willingness to contribute to the company’s success. Corporate america, as cool as they might seem at first, has no love for employee faithfulness and no patience for individual grievances and personal needs. They will probably not stay and some will take their precious relationships with them. Unlike microstock, with its online, automated, credit card/ subscription model, editorial is all about relationships built over years and repeated single image sales. The competition will certainly lure them  away with very attractive offers. As REX’s staff leaves, so will its core competency.

Content: Rex content is in great majority representation deals. They do not own the content, nor can they guarantee that these relationships will survive the transition. Here again, the competition will have a field day in ripping apart long-held agreements, facilitated by the fear that Shutterstock will apply microstock pricing to right managed editorial. If Shutterstock does want to integrate some or all of its content to its microstock offering, they will have to proceed with long, complicated , one on one conversations that will, for the most part, probably fail. Producers of editorial photography have little love for microstock pricing. They could have, by the way, have had these conversation without buying REX.

Currently, Rex boast 8 Million images with 1,5 M online. A lot of Rex’s content and most of what it owns outright ( no commission to pay out) is archival/historical. In order words, in analog format. That’s about 6 Million print, slides and other format that Shutterstock will have to thoroughly  edit, scan and catalog if it hopes to recoup its investment. Both Corbis and Getty have abandoned this years ago after they realized how costly and unprofitable it was. They now only scan prints if they have a strong demand.

Structure: There will be a massive culture clash. Putting aside the inevitable UK/USA differences, REX is not an easy fit for Shutterstock. REX is an old mom and pop shop that has grown slowly over the past 60 years. Shutterstock is a young tech start-up that has quickly rose in the last 10. Rex has some technology but its value relies sits deeply in human experience and knowledge. Not easy to transfer it into data sets.  Managing servers is not the same as managing people.

Process: While microstock is all about numbers, scale and efficiency, editorial is still very much ruled by gut feeling, inspiration, relationship and lucky shots. One scales with more hires, the other with more software development. Trying to force one workflow upon the other will make one break and it’s not going to be Shutterstock’s.

While the UK market remains one of the most healthy one, it is also a central battle for mighty competitors like Getty, Alamy  or the Press Association ( UK version of Associated Press) that have and will continue to put huge efforts to make it their own. Any and all signs of weakness from Rex post acquisition will be an opportunity for them to grab more market share. As an important side note, Getty knows everything about REX ( numbers, salaries, processes, relationships, etc) since it almost acquired them in 2010, retreating after being faced with a monopoly investigation by an UK official agency.

While REX was certainly doing well , it’s public numbers show  they were bringing in $1.8M/year in profit from $16.11 M/year. Not an impressive profit margin. Part of the acquisition price might also  include the real estate owned by the company in London. That could be the best part of the investment. Rex depends on third-party partners for worldwide sales, besides in the USA where they have owned offices in LA. Those 3rd party representations will probably be shut down as Shutterstock moves to consolidate the offering to their own offices. While this makes sense, those relationships are often bilateral, meaning their represent REX’s photos in their country, REX represents their photos in the UK. You shut one, you shut down the other. Thus the more Shutterstock moves to consolidate, the less content REX will have to license in the UK.

Finally, and not least, the overall editorial market is suffering, primarily from print publications worldwide diminishing revenues. While the remaining publications would certainly welcome a microstock pricing on editorial images, there is no growth opportunity for Shutterstock to expand market share to compensate for diminishing revenue. They would have to offer editorial content to a much wider audience, something Getty, Corbis and others have failed to convert in any sort of revenue. In other words, where does Shutterstock see the growth opportunity here?

The last piece of the puzzle is that with this acquisition, Shutterstock enters with its two feet inside Getty’s fiefdom. Editorial is the Getty queen and they have years of very strong experience, based on failures and successes, in that field.   While they took a beating with Istock, they will certainly seek for an opportunity  now that Shutterstock has entered their arena. They can, and they will make Shutterstock’s life very difficult.

About the same time last year, Shutterstock stock was above $100 a share. Soon after, Getty released 60 million of its images for free, in an embed format, and the stock dove down to around $70. A month ago Adobe, announce the purchase of Fotolia and Shutterstock took another hit. Today, as we are writing this, the stock has already lost 2%. Apparently Wall Street does not see this in a very cheerful perspective either.

It is comprehensible that as a publicly listed company, Shutterstock has to show external signs of aggressive growth. The best and easiest way is certainly via acquisitions. However, in this case, it is uncertain that this was the right move. Does this acquisition show that Shutterstock has no growth opportunity left in the microstock space and their only chance of growth is in expanding in unfamiliar territory ? Or is it just to show that they too can be like Getty and offer the whole spectrum of images ? Either way, it seems that the company is entering the higher paid level of photo licensing to increase their revenue per image, a key matrix of their quarterly report.

Here are few scenarios Shutterstock might have in mind :

Do nothing : Leave REX as it is. Update and modernize its tech infrastructure with existing Shutterstock technology, reduce operating costs where possible but otherwise let it continue independently from the rest of Shutterstock. It would bring an additional $2M/year profit. Eventually migrate some of its content to higher end royalty free OFFSET.

Follow suite : Use a large part of REX’s content to follow Getty into the pay-per-audience photo licensing market. Create an embed solution for REX’s content, offer it for free at first and slap advertising on it once the numbers get high enough. With more than a billion hits after a few month, Getty has already proven its viability. Its doubtful Shutterstock would want to be left behind. REX content, with its large amount of celebrity content would quickly find a large audience of users.

Hail Mary : Shutterstock acquired REX to make itself even more appealing to a Getty acquisition. After all, Getty would finally get its hands on REX without risking another UK monopoly investigation. A lot of cash/shares would be exchanged but Getty would come out the supreme master of the photo licensing space.

Whatever the approach, this is probable the last major stock photo acquisition we will see.


Author: pmelcher


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