Stuart Ells, MD, Alvarez & Marsal (A&M)
Stuart Ells, MD, Alvarez & Marsal (A&M)
A view from Staurt Ells

Think BR: Challenges lie ahead for growing photo and image database market

Brands and investors are becoming increasingly interested in image platforms and databases, writes Stuart Ells, managing director, Alvarez & Marsal (A&M).

Facebook recently finalised the purchase of photo-sharing app Instagram. The high profile transaction, initially announced in April, highlighted the increasing interest in photo and image databases and further investment in the industry has followed.

In May, US private equity firm KKR invested $150m in stock photo group Fotolia, a business which gives amateur photographers a platform to sell their photos, while more recently another private equity firm, Carlyle Group, agreed to buy photo archive Getty Images, a business targeted at the professional market, in a deal valued at $3.3bn.

There is clearly a lot of activity and interest in this area. The KKR and Carlyle investments, though targeted at different markets, appear to be a sign of intent and give a clear message that there will be more use of digital content going forward and suggests that the level of investment in this area will continue to grow.

These firms are investing because they are serious about the potential of the market.

Elsewhere, brands now understand the potential marketing power of image platforms such as Pinterest and MyPhotobook.

These relatively new businesses are still exploring how they can best monetise their offering, but what is clear is that as companies become increasingly aware of these platforms, and position their branding accordingly, the use of image platforms will grow.

But the industry is not without its challenges.

Getty has continued to thrive by diversifying into video and music licencing, and has, throughout its existence, been a driver of consolidation.

This strategy has served to keep it on top of its market, but the fast evolving nature of the digital media industry means that Getty, as well as other firms, will need to continually evolve their strategy and positioning.

Monetisation is also a big issue. Getty has found a good formula, but this is a company with a history going back beyond the digital years to 1997.

To maximise value, new firms have to look for innovative ways to monetise. Not everyone has found the solution.

It’s not just monetisation where firms looking to invest in the market face challenges and obtaining good advice is essential. For example, they must also look at structure.

To optimise value, tax structuring and transfer pricing must be carefully considered; the benefits of marrying commercial and fiscal drivers are likely to be significant.

Meanwhile due diligence becomes especially important, as the underlying value of these businesses becomes increasingly difficult to assess.

As part of their due diligence, investors will need to assess how to improve external search engine optimisation as well as assessing the quality of internal search functionality, which is critical for suppliers and customers. 

Also such issues as scalability, current and future competition, cross border growth and legal issues must all be considered. 

All the above are particularly important in respect of photo and image database companies. With an increasingly crowded image database market, it will become more difficult for new players entering the market and for consolidators to find value for money. 

Driving value through fast, efficient, well planned post deal integration becomes even more important.

The emergence of other digital media should not be ignored either. The huge success of e-book readers, and indeed the emergence of e-magazines, will see more scope for photo and video content in the near future.

In this digital age new ideas are always emerging. While the market continues to grow in volume, so too will the accompanying challenges - but it doesn’t look like putting off investors any time soon.

Stuart Ells, MD, Alvarez & Marsal (A&M)