What is interesting is that Hellman & Friedman bought DoubleClick back in 2005 in a deal that was valued around $1.1 Billion, and within three years this was a leading huge Internet acquisition where the firm sold DoubleClick to Google (NASDAQ: GOOG).  The private equity firm sold DoubleClick to Google for around $3.1 Billion.

Getty Images was our top performing Special Situation Newsletter pick where we identified the company’s structure in early 2007 as one that would fall victim to the equivalent of an effective industry de-merger.  We saw the issues affecting Getty and taking it far south and the total buyout price was still under our expected price return exit.  That’s because the erosion we expected came far faster and even harder than we expected.

Getty Images is roughly worth $2 Billion today.  You could argue that the entire DoubleClick profit is being used to buy Getty.  We think Getty will actually do better as a private company for now and the company has taken many steps (which readers and critics have written about how personally Draconian the measures were) to protect their business interests.  Hellman & Jordan may do the same and it may not. 

We aren’t inclined to predict who will own Getty Images after 2010 or 2011, but we are fairly certain that it will look different as an operating company or via who runs it.  Hell, Bill Gates may even want to be a free agent by then and there is another shot for a monopoly or at least a highly dominant market share… and we aren’t talking about Microsoft (NASDAQ: MSFT)

Jon C. Ogg
July 2, 2008

• American Capital Strategies (NASDAQ: ACAS) downgraded to Sell at UBS.
• Apple (NASDAQ: AAPL) raised target to $220 from $200 at RBC.
• CACI International (NYSE: CAI) raised to Buy at Jefferies & Co.
• Comerica (NYSE: CMA) raised to Buy at Deutsche Bank.
• Countrywide (NYSE: CFC) cut tp underperform at FBR.
• Diebold (NYSE: DBD) raised to Buy at KeyBanc Capital Markets.
• Getty Images (NYSE: GYI) downgraded to Market Perform at William Blair.
• UST Inc. (NYSE: UST) raised to Buy at Deutsche Bank.
• W-H Energy Services (NYSE: WHQ) raised to Buy at Deutsche Bank.
• Yahoo! (NASDAQ: YHOO) downgraded to Sell at Citigroup.

Jon C. Ogg
May 5, 2008

• There is just one small problem: it may find that no one is willing to acquire the company even with its valuations trading at what will seem incredibly low. 

We noted for our Special Situation Investing Newsletter subscribers back in May 2007 (See Full Report; now off embargo as position was closed out) when shares were around $50.00 that the company was going to fall victim to what was effectively an industry segment de-merger that the company just couldn’t prevent.  It isn’t that Getty will die entirely.  It does have some key advantages when it comes to sporting event photos other media from other live events and that is where the company’s value and future lies.  But the problem is that even though it has tried to adopt a royalty-free model for certain aspects of its digital imaging business, it cannot just keep acquiring new age digital media companies.  After we noted for clients to take profits on Getty Images we noted that it would be under review for the possibility that ultimately it may want to or need to seek a buyer.  The problem we had is that while it looked like a great value stock, we noted that it may just be another value-trap. It did make some great acquisitions to stave off up-start and more nimble digital competitors, but there is potentially no end in sight for the competition in this space.

If anyone is unsure about the value of having a digital stock photo business, go refer back to our coverage of the post-merger fallout in Jupitermedia (NASDAQ: JUPM) when Getty was supposedly going to buy it.  Opening up a digital stock photo business can be done by anyone.  We have previously noted how we thought the entire business model could be wiki’d and duplicated for $20,000 or less, although an industry contact noted it could be done for a small fraction of that.

Someone may buy Getty in the end.  They just better make sure all the sporting events and live concert and other live event exclusive coverage contracts are locked in place for many many years.  Otherwise they are just buying a business whose model is being wiki’d away chiseled away at every hour.

Getty Images shares are up some 13% today to $24.95 and its 52-week trading range is $21.80 to $57.28.  Reports out yesterday did put the potential sale at $1.5 Billion, and after the rally today its shares have a market cap of $1.49 Billion.  It will post earnings on Thursday, January 31, 2008.

Jon C. Ogg
January 22, 2008

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Reuters writes that the GE (GE) jet engine backlog in China has hit $5 billion.

The Wall Street Journal writes that most indicators now point to the US being in a recession.

The Wall Street Journal reports that energy costs are driving inflation in Europe.

The Wall Street Journal writes that HBO will begin testing an online video service.

The Wall Street Journal reports that booming LCD sales are driving profits at Samsung and Sharp.

The New York Times writes that Getty Images (GYI) has put itself up for sale.

The FT writes that management at GE unit NBC will begin to cut out expensive traditions like "pilots".

The FT reports that China’s second-largest insurer, Ping An, plans to raise about $22 billion in a stock offering.

Bloomberg writes that oil has dropped below $90 on recession concerns.

Bloomberg reports that profits at Philips doubled.

Douglas A. McIntyre

The company posted earnings at $0.47 EPS before items and $0.43 after on revenues of $209 million.  Analysts were expecting $0.43 EPS on $209.47 million.  The implied guidance for the fourth quarter of 2007 is $0.48 EPS on revenue of approximately $210 million for the fourth quarter of 2007.  It looks like analysts expect $0.53 EPS on $213.1 million revenues.  It is actually going farther out on a limb: For 2008, the company expects revenue of approximately $900 million; analysts are looking for just under $890 million for the quarter, although there are higher estimates out there.

The company has expanded its multi-site and multi-business strategy.  Its commercial music license operation was entered and it has launched its low-resolution web use model.

Back when this stock was at $50-ish in May, 24/7 Wall St. sent subscribers our own playbook on how to profit off of what was a nearly certain de-merger equivalent force that was going to cause more than just trouble for Getty.  Our target was achieved, but this kept falling much farther than we expected in the relative time frame.  That was when we took the wait and see attitude, and from an objective standpoint it seems like some of the forces against the company are being priced in. 

Shares are up almost 6% as traders accept lower numbers on the hopesthat the worst is behind the company.  This may make the old Value Stock versus Value Trap a more solid argument.  We aren’t 100% convinced yet, but our own expectations have already been seen.  We may address this one again, but 24/7 Wall St.’s first call was adequate for now.

Shares closed up 0.35% at $28.35 today, but they are up almost 6% at$30.00 as of the last print in after-hours trading.  The 52-weektrading range is $26.26 to $57.28.  There will probably be many analystcalls in the morning.

Jonathan Klein, co-founder and chief executive officer: "We havemade tremendous progress expanding beyond our traditional creativestills imagery business on our way to becoming a complete digital mediacompany. During the last few months, we have re-engineered search withthe launch of the new gettyimages.com, cemented our leadership positionin the fast growing entertainment imagery business, expanded ourmulti-media and editorial footage offerings, launched an innovative newweb-resolution product, entered the music industry, and launched ournew Soundtrack digital music service. We are seeing tremendous growthin many parts of our business, have excellent potential in largeaddressable markets for music licensing and consumer, and are realisticabout the challenges as we lead our industry forward through a time ofchange and opportunity."

Look for companies like Getty Images and others in related spaces on the web and in print to make appearances in our "Old Media/New Media" subscriber letter.

Jon C. Ogg
November 1, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he produces the Special Situation Investing Newsletterfor buyout speculations, spin-offs, restructurings, reorganizations,and IPO’s.  He does not own securities in the companies he covers.

Jon C. Ogg
September 25, 2007

The real problem is that this isn’t just a 52-week low, it’s a low not seen since 2003.  This is also after its CEO left in July.

What is interesting is that Avid is "THE GO-TO" media and broadcast technology company.  The company sells all the camera, graphic, and broadcast technology that is required for television networks and for high-end Web 2.0 media operations.  All the big boys use their equipment or at least equipment sold by them. 

If you have done any investigation of running Web 2.0 operations like video shows and the like you will know that Avid is considered the Rolls Royce equivalent in digital video and broadcast equipment systems.  The problem is that not everyone can afford Rolls Royce."  The malaise that has hit traditional media companies and the lower ad spending that has started may be contributing to Avid’s woes.  It wouldn’t take a rocket scientist to realize that lower revenues from media companies might delay and slow down some cap-ex spending on more super high-end equipment.

Most of the shoestring budget Web 2.0 companies can’t afford the Avid solutions.  When you look at what people are able to put together with some less than perfect digital cameras and basic edit packages, it is no surprise that the myriad of Web 2.0 companies out there are piece mealing together much cheaper systems.  The cheaper systems definitely are not in the same league as Avid, but a budget of less than $1,000.00 for many dictates that many of these companies and individuals use a band-aid solution that is less than perfect.

Maybe Avid can figure out more ways to tap that lower-end user without watering down its existing high-end base.  Many individuals and small companies in and around the Web 2.0 model operations need better low-end systems and that market is still very fragmented right now.  But Web 2.0 also has a habit of eating many high-end traditional go-to operations. 

Our Special Situation Investing Newsletter subscribers (sample here for the first call in May and exit call early last month) saw this firsthand where we predicted the Web 2.0 and wiki-models would result in a rapid drop in shares of Getty Images (NYSE:GYI).  There is an opportunity for Avid to capture this lower-end market IF it wants to.  But the industry trends are not really trends, they are headwinds.

With this stock hitting new multi-year lows, maybe they are willing to try reaching down to more of a lower-end customer with a goal of making it up in volume.  The company just recently sold its DigiDelivery®, asecure digital file-exchange system developed by Avid’s Digidesignaudio division, to Aspera so maybe they are considering some more changes.

Jon C. Ogg
September 12, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he produces the 24/7 Wall St. Special Situation Investing Newsletter and he does not own securities in the companies he covers.

Getty, and Bill Gates’ Corbis, has perhaps the easiest business to attack with a wiki-model business out of anyone out there.  I have estimated that their model could be attacked by anyone employing a wiki-model in a Web 2.0 world for $20,000.00 with operating capital to last 6-months.  An industry contact Augustine Fou, CEO of PictureSandbox.com says this can be done far less: "Anyone with $1,000 can build a web 2.0 service — something as simple as a meta search engine for photos which searches across every available microstock collection. Helping the potential buyer more quickly and easily find and license a photo means that purchase will occur outside walls of traditional stock houses."

Today Getty’s stock didn’t just hit a 52-week low.  At $30.10 it has now given up all the stock gains back to early 2003.  In early 2003 this went from a stock in the high-$20′s and low-$30′s rapidly up to $40+, then $50+ by December 2003, and it reached the $70′s, $80′s, and even the $90′s before the end of 2005.  There is less and less war coverage now and the coverage that requires photos can be had for far less.  But the main area of attack is the non-copyright (royalty-free) event photos in what is becoming more and more royalty-free.  A high resolution picture of a bear eating a salmon just isn’t worth what it was even in 2005.  As media conglomerates merge it creates fewer clients, and any new media start-up out there knows it can get stock photos and digital audio or video media for free or very close to free.

Getty won’t implode, or at least we are fairly sure it has a place in the future.  We sent out our Special Situation Investing Newsletter in early May when Getty Images stock was just above $50.00 with a $36.00 to $38.00 target price by early 2008.  We even gave the options strategy for it as the maximized way to limit risk.  Early in August we sent out an alert after it hit our downward target.  It has continued its slide, even worse than we thought it would.  At some point we feel that this could become an incredible value stock as long as it can stay profitable, but we aren’t about to go out with any call like that this soon.

We are constantly looking at special situation investing opportunities out there for our newsletter subscribers.  We won’t be putting Getty on any reverse list for any private equity or management buyouts in the immediate future, but we’ll be issuing for more and more special situation opportunities that have the same criteria.  Some special situations are buyouts, some are break-ups, some are pending de-mergers wrecking an industry, and others are special situations for other reasons.

Jon C. Ogg
August 15, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Frankly, it is at least refreshing to see a company be honest about the current trends in stock photos.  If they are honest enough, well that is another topic but this at least addresses the compression of the value here and the trends that are coming into play upfront instead of the company trying to explain how it didn’t get it 6-months from now.  This should actually create more and more future writedowns to the value of goodwill and intangibles, and that won’t be good for Jupitermedia with the state of its balance sheet now. 

Getty Images (NYSE:GYI) was the one we felt had the most to lose, partly because they were the largest pure-play in stock photos and partly because the company hasn’t been as forthcoming about the future of these businesses even after it has made recent acquisitions to try to stave off some of the onslaught.  The wiki-model is too powerful here for this sort of business.  It will probably continue to make money and it will have a solid place in many copyright enforced venues, but much of its business will face severe margin compression.  This is an overly simplified explanation for a highly complex issue, but it is what it is.

Here are Alan Meckler’s quotes regarding the trends in the stock photo sector: "Despite a challenging period for the stock photo industry, our Jupiterimages division had some bright spots in the second quarter and for the first six months of 2007. Our Rights Managed category experienced over 30% growth for the first six months of this year compared to the same period of 2006. In addition, our JupiterimagesUnlimited high level royalty-free subscription offering grew over 200% for the first six months of 2007 compared to the same period last year. On a sequential quarterly basis, operating income for our Jupiterimages division increased from $8.6 million for the three months ended March 31, 2007 to $9.2 million for the three months ended June 30, 2007. Due to the evolution taking place in the stock photo industry, we are currently focusing our direct sales team to further emphasize our strengths: sales of Rights Managed images and JupiterimagesUnlimited. We have also initiated a rigorous review of our operating expenses that we expect will result in annual expense reductions of $2.0-$3.0 million on a prospective basis starting in the third quarter of 2007. Additionally, we have also identified opportunities to streamline various capital projects and content production that we expect will result in a reduction of over $3.0 million in annual cash expenditures. Combined, this restructuring is expected to improve our annual after-tax cash flows by approximately $4.0 million and possibly more."

No one is going take this report well in its entirety, and the stock is seeing the punishment for it.  But it is at least a step in the right direction.  This industry is rapidly changing and changing faster than a mere writeup here can address in a few hundred words.  Jupitermedia’s prior 52-week trading range is $5.45 to $10.48.  At least it owns the Internet.com domain name and is entering new operations with venues such as MediaBistro.com.  Things are bad, but they could have been much worse.

Jon C. Ogg
August 9, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.