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Does a merger of these stock media giants make sense?
While the ink is far from dry at this point – including whether the merger will pass any antitrust hurdles – I’d like to share my initial take by first examining the revenue growth and cost reduction drivers typical for mergers at this scale, illustrated with examples from our photo and video industry. I'll then weigh in on whether these drivers apply to the Shutterstock-Getty merger, while considering the major challenges facing both companies.
Primary driver: boosting revenues
Cross-selling
The ability to cross-sell products is often a major driver for parties with complementary product offerings.
Example: Shutterfly & Lifetouch. With families typically buying school photos once a year, why not also sell them print products from their own family photos throughout the year?
Market expansion
A merger (or acquisition of a sizable industry player) could give access for one or both parties to new markets.
Examples: Sensaria & Jondo: this wall décor printing combo enabled Sensaria to offer its products on multiple continents; Albelli & Photobox: this B2C photo print combo now offers products both in the UK and various EU countries.
Innovation
A merger of sizable parties could make it feasible to boost investments in technology innovation that were previously impossible for one or both parties on their own.
Example: Adobe & Macromedia. Remember the days when Adobe was focused on the “desktop publishing” market but felt the need for a daring move into the world of interactivity and web design? Come to the rescue: Macromedia, with products like Director (multimedia authoring), Dreamweaver (website design), and the Flash platform, which dominated interactive websites long long before Web 2.0 and gave Adobe time to retool its products for when the interactive experiences provided by Web 2.0 became the norm.
Marketing power
Big companies like to do business with big vendors: "No one ever got fired for buying IBM." Big vendors also get a load of free PR, as they can’t be easily left out in any mention of products, vendors or industry trends.
But… Where things get dicey is when the new entity has such a powerful position that it could force its customers to pay higher prices if they have few or no alternatives – and that’s when antitrust authorities could put a break on the intended merger.
Example: Adobe & Figma. Adobe tried to acquire product design platform Figma for $20B but encountering pushback from EU antitrust regulators and ending up paying Figma a hefty reverse termination fee of $1B.
Primary driver: cutting expenses
“Synergies” and “Operational efficiencies” are the typical buzz words used when heralding a new merger – but their true implication only surfaces over time when layoffs occur, suppliers get squeezed, or customer service becomes automated and “more efficient.”
(BTW, Getty and Shutterstock announced expected annual “cost synergies” between $150M and $200M in the next 3 years).
Example: Shutterfly & Lifetouch. This combo was not all about cross-selling products. A year after Shutterfly acquired Lifetouch, PE Firm Apollo acquired Shutterfly in 2019 and took the combine company private. Soon after, COVID hit and deeply affected Lifetouch’s school photography business. Opinions vary as to what degree COVID has been the cause, but the combined company has seen a series of layoffs and print plant closures ever since.
So what could the rationale be for combining Shutterstock and Getty?
In short: any or all of the above merger drivers (cross-selling, market expansion, innovation, marketing power and cutting expenses) applies to some extent, but the driver that will make or break this merger depends on if and/or how a combined new entity chooses to address the 5 most pressing challenges both companies currently face:
Declining stock prices
- On a high level: while revenues of both companies have been fairly constant and they are both profitable with EBITDA substantially up last year, both Getty and Shutterstock stock prices have been in prolonged slumps. Shutterstock is down more than 75% from its peak in 2021, while Getty shares are off more than 90%.
- Why? My suspicion is that shareholders believe that generative AI is not only a long-term threat to these companies, but also has inflated revenues and profitably in recent years thanks to the licensing deals both companies have made with a range of AI companies in need of images and metadata to use as AI training sets.
- Getty doesn’t publish a breakdown of their AI licensing revenues, but Shutterstock reports their Data, Distribution, and Services revenues (non-content licensing revenues, primarily access for AI companies to Shutterstock’s metadata), which in my calculation accounted in the first 9 months of 2024 for 20% of their overall revenues and increased by 41% YoY.
- It’s doubtful that these licensing deals to AI companies are sustainable in the long term, once the major AI companies have accumulated enough data for their initial training sets, or have further improved their foundational models such that they’d need smaller training sets going forward.
- In other words: these metadata licensing revenues from AI companies might very well be the proverbial Band-Aids masking the more structural challenges stock media companies face.
Enterprise sales and marketing departments are more and more adopting web-based, single-source integrated design platforms, such as Canva, Freepik, and Adobe, which each offer their own stock media collections derived from acquisitions in the past.
- For instance, Canva acquired Pixabay and Pexels; Freepik acquired Videvo and EyeEm; Adobe acquired Fotolia.
Enterprise sales and marketing departments increasingly embrace authentic imagery for their materials, produced by consumers or influencers and featuring real people and real settings rather than models and staged settings.
- For instance, last year’s Visual 1st panelist Catch+Release successfully provides a platform for brands to curate and license UGC in lieu of stock media content.
Enterprises need video content for their sales and marketing materials – lots of it.
- This is why we also see a proliferation of easy-to-use video editing tools for business users, such as the AI-powered video editing platform for non-pro business users offered by last year’s Visual 1st panelist Augie Studio. But commissioning videographers for the desired footage is expensive, takes time and is not scalable, hence the need for licensable video footage with much more variety and authenticity than is currently offered by stock media companies. More video is what businesses need!
And the elephant in the room: generative AI – the challenge most often quoted as the core threat to Shutterstock's and Getty's businesses. But things aren’t that simple…
- Yes, AI-generated realistic-looking photos and videos can conceptually replace stock content, especially the not-authentic kind that feels like you’ve seen it many times before – but as mentioned before, enterprises increasingly require more than that.
- To counter the emerging generative AI threat Getty, Shutterstock, (and Adobe) have launched GenAI tools for their customers to generate AI images themselves. But… their generative AI offerings compete with any startup that can use a vast array of open source GenAI tech these days. No moat!
- An alternative approach for an innovation-focused Shutterstock – Getty combo would not be the me-too generation of run-of-the-mill AI visuals from scratch, but leverage GenAI tech to address their enterprise customers’ needs to scale up their segmented and personalized marketing: enable them to generate Hybrid visuals (original imagery enhanced with GenAI), auto-generated at scale.
- Something along the lines of: provide sales and marketing executives high-quality photos or videos to begin with, while enabling them through the click of a button to generate endless variations that match their segmented marketing needs: changes to people’s age or ethnic appearance, the colors of their clothing, the background settings, or auto-extracted clips from longer stock videos.
In short: use the merger to innovate by tackling the challenges outlined above:
- Competition from GenAI startups
- Competition from business-focused single source design & content platforms
- Customer needs for video footage up and above what's currently offered
- Customer needs for authentic, UGC, influencer-produced photos and videos up and above what's currently offered
Even shorter: strategically tackle serious challenges through innovation rather than treating short term “cost synergies” as the golden goose.
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