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The battle for digital images

Two wealthy men--Bill Gates and Mark Getty--are headed for a showdown in the emerging market for online photo stockhouses.

Two wealthy men are headed for a showdown in the emerging market for digital images, an industry being transformed by technology from one dealing in small, privately held photos or videos to one in which digital images are available on demand online.

In one corner is Bill Gates, whose Corbis business has made waves by buying up collections of historic photos (from a war chest estimated at $100 million) and is working its way toward eventually licensing the photos to graphics professionals and consumers. In the other corner is Mark Getty, heir to part of the Getty oil fortune, who has been bankrolling Getty Images (GETY), now a $142 million publicly traded firm that has purchased four stock photography or video houses during the last year.

Yesterday, Getty completed a $200 million merger with PhotoDisc, a player in the royalty-free photo market (pay once for unlimited use) with a rapidly growing Web business. The company has some 60,000 images online, and booked $1.3 million sales from it site for the month of December.

Last week, Corbis, which does not disclose financial information but is believed to generate under $10 million in annual revenues, began making inroads into the royalty-free space, buying Digital Stock for an undisclosed sum. It also opened the Corbis Print & Poster Shop, an outfit that sells posters reprinted from Digital Stock images.

The battleground at stake is the once stodgy now rapidly consolidating industry of providing photo and film images to ad agencies, publishers, TV producers, and others. Forming the backdrop to the bidding wars between Corbis and Getty is a rapidly evolving photo industry that has seen stock houses go from suppliers of glossy photos to warehousers of digitized imagery. Gates and Corbis were among the first to spot the potential in this industry, but Getty is aggressively looking to get a piece of the action.

"PhotoDisc is an entirely digital provider in both CD-ROM and the Internet. Getty was primarily an analog distributor," said Getty, who is now cochairman of Getty Images along with Mark Torrance, a PhotoDisc cofounder. In 1995, Getty created Getty Communications, a British firm that was merged with PhotoDisc to create Getty Images, in order to better chase his digital vision.

"We recognized that industry was highly fragmented," Getty said, "and we thought we could bring together a lot of complementary products and manage the process to digital delivery."

Last week Getty added a leading sports photo agency Allsport to his stable in a deal that cost $27 million and 1.11 million shares of Getty Images stock. Getty's best-known holding is contemporary stock photo agency; Tony Stone Images, which, like so many of its competitors, is increasingly making its images available online. Allsports, which covers high-visibility sport events like the Olympics, has 180,000 high-resolution images online and is adding about 5,000 a week. Altogether, Getty Images owns 25 million images that it is converting to digital formats for online sale.

Corbis, meanwhile, has been bolstering its archives as it creates an all-digital infrastructure for selling and delivering images. Since a management change last May, however, Corbis' emphasis has been on selling those images.

"The measure of success is no longer on the number of images scanned or acquired," said Corbis spokesman Jim DeNike. "Now we are taking those images to multiple markets."

Lost in the transition, however, is Corbis' high-end CD-ROM publishing business, although the company's new poster store is enhancing its consumer sales efforts.

Today's bandwidth limitations hamper the efficient delivery of images online, particularly for those looking to get the high-resolution images required for publication in slick magazines or ads. Because downloading high-resolution images takes so long, Corbis delivers most of its images on CD-ROMs by overnight courier. In the time between when an order is placed and when the image is received, art directors can download low-resolution versions, called "comps," to get started on their designs.

Overall, the two sides in this escalating battle to dominate the digital imagery space eye each other warily, but with respect.

"Getty Images is an established leader in the industry, but we are taking a different approach," said Corbis' DeNike. "Getty is assembling a portfolio of separate businesses, but we are taking an integrated approach and leveraging our common technology."

Target markets also differentiate the companies.

"We have a large portion of our business being sold into the advertising and design communities," Getty said. "Corbis is licensing its images into editorial markets, like newspapers, magazines, and book publishers."

Getty also has an advantage in its stronger international distribution efforts.

Nevertheless, Getty cochairman Torrance sees Corbis' acquisition of Digital Stock as a move that will make the company a more direct competitor.

"They've targeted us and they're entering the fray," Torrance said. "Competition is great for the customer."