Jonathan Klein may only take pictures with an ordinary digital camera but, with the help of Mark Getty, a friend who he met when they were both bankers at Hambros in London in the early 1990s, he knows how to build a company.

Getty Images, which they started in 1995, gobbled up more than a hundred small photo agencies and libraries until it became the dominant image library in the world. Then, a decade later, the picture went out of focus.

The South African chief executive for all of that time acknowledges that, after a decade of growth, “profits peaked in the two years before we went private” in July 2008. Getty was suddenly hit, not so much by the internet, making available hundreds of cheap photographs through websites such as Flickr, but by the problems facing advertisers and traditional media.

“Print began to suffer. It is the best market for us, we get the highest price per picture, and so revenues began to decline,” Mr Klein admits.

Getty’s share price began to tumble, rendering it vulnerable. Hellman & Friedman, the private equity firm, bought the company, which began life on a scrappy thoroughfare near Camden, in North London, for $2.1 billion in a deal that made Mr Klein $53 million and Mr Getty $38 million. In addition, Mr Getty’s family vehicle netted $281.3 million. Some of that money was, however, reinvested by the duo for a 25 per cent stake.

Mr Klein stayed on, while Mr Getty, the grandson of the oilman who was once the richest man in the world, has become non-executive chairman.

Mr Klein says: “We talk about strategy but operational stuff doesn’t bother him. He’s chairman of the National Gallery now, raising money to buy Titians. We go for cheaper pictures here”.

He reckons that it is a good time for Getty to be in private hands, not least because the prevailing environment is so difficult. When the company was last public — the figures are for 2007 — turnover was $857 million and net profits were $125 million. This year, he says, sales will certainly be down — “find me a media company where sales are up” — as demand for images from advertising agencies has slumped, although cost-cutting means that “profits will be in line with last year”. However, with $1 billion of debt taken on since the acquisition — only three times” underlying earnings, Klein says — net profits will be down.

With declining demand for photos used in advertising, which start at $200 per photo, the largest part of the Getty business is tumbling.

But that is not to say that there isn’t any growth in imaging. The company sells digital images, including those taken by amateurs, via its iStockphoto website, and demand is taking off. Mr Klein says: “In December 2005, before we bought the company behind it, the site did $600,000 of business. Yesterday it did $850,000 in one day.”

Its growth is not surprising, considering that pictures start at $1.35. But it is not the kind of price that will pay a professional photographer’s mortgage, even though they earn royalties of between 20 and 40 per cent per photo, or offset the decline in the traditional print photography business.

Mr Klein also wants to experiment. Getty is involved in a joint venture with Time Warner, reviving its defunct pictoral Life magazine as Life.com and sharing advertising revenues. It is the sort of diversification, Mr Klein admits, that public company shareholders would not tolerate. He hopes that, if Getty were to buy “new images of Hitler or Marilyn Monroe”, they would also be exposed on other Time Warner media, such as CNN or People.com.

More bizarrely, Mr Klein is also interested in music, particularly in licensing music as sound tracks for advertising. There are obvious parallels between the image rights business and music publishing but, with the industry so concentrated between the four majors, it is hard to see how Getty can elbow its way in.

Mr Klein says that Getty considered buying Warner/Chappell, the music publishing arm of Warner Music, before Edgar Bronfman bought it. In addition, Getty represents a few unsigned artists. Unless a big acquisition is planned, however, it is unclear how the company can develop a presence.

Getty’s real success, though, has been in consolidating what was once a massively fragmented market, and, in some cases, cutting costs at agencies when acquired. Its dominance of imaging — it is four times the size of main competitor, Corbis, which is owned by Bill Gates — unsettles some photographers. “In 2000 we employed 25 photographers, now we employ 125, and I don’t know that newspapers will have increased their staffs during that time. We are photographer friends, but not photographer cuddly,” says Mr Klein, referring to the fact that profit margins sit at 35 per cent.

In sport, Getty saturates events such as the Olympic Games, but makes its money by acting as the official photographer for the event. “We cover all the medal ceremonies, and take all the pictures for the sponsors,” says Mr Klein, adding that that is where the profit is. But, with no big international events in 2009, the year is not looking good for Getty. The company, and its backers, will have to hang on.

“Hellman tell me that their average investment is for three-and-a-half years, but in a recession it could take longer,” says Mr Klein. “We’ll sell it or float it, and it depends on the strategies of various media companies, and whether they see imaging as an interesting business”. And, he says, when the company calculates how much revenue is left when the recession is over.

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