SEC Company Response from Shutterstock, (SSTK) — Jun 29, 2012
Shutterstock, Inc.
Date: June 29, 2012 · CIK: 0001549346 · Accession: 0001104659-12-047001
AI Filing Summary & Sentiment
File numbers found in text: 333-181376
Referenced dates: June 8, 2012
Letter
ORRICK, HERRINGTON & SUTCLIFFE LLP 51 W 52ND STREET NEW YORK, NEW YORK 10019-6142
tel +1-212-506-5000
fax +1-212-506-5151
WWW.ORRICK.COM
June 29, 2012
David M. Ruff
(212) 506-5391
druff@orrick.com
Via EDGAR and Federal Express
U.S. Securities and Exchange Commission 100 F. Street, N.E. Washington, D.C. 20549
Attn:
Mark P. Shuman, Branch Chief - Legal
Edwin Kim, Attorney-Advisor
Craig Wilson, Senior Assistant Chief Accountant
Laura Veator, Staff Accountant
Re:
Shutterstock, Inc. Registration Statement on Form S-1 Filed May 14, 2012 File No. 333-181376
Ladies and Gentlemen:
We are submitting this letter on behalf of Shutterstock, Inc. (the “Company”) in response to comments from the staff (the “Staff”) of the U.S. Securities and Exchange Commission (the “Commission”) received by letter dated June 8, 2012 (the “Staff Letter”), relating to the Company’s Registration Statement on Form S-1 (File No. 333-181376) (the “Form S-1”). The Company is concurrently filing Amendment No. 1 to the Form S-1 (the “Amendment”) to respond to the Staff Letter and to include updated financial information for the three months ended March 31, 2012.
In this letter, we have cited the comments from the Staff in italicized, bold type and have followed each comment with the Company’s response. Concurrent with the filing of the Amendment and in response to the Staff’s comments in the Staff Letter, we have supplementally provided a binder of materials to the Commission pursuant to Rule 418(b) of Regulation C, which is not to be deemed part of the Form S-1 and which we respectfully request to be returned upon the completion of the Staff’s review (the “Supplemental Materials”). Capitalized terms used but not defined in this letter shall have the meanings given them in the Form S-1.
Also enclosed for the convenience of the Staff are two copies of the Amendment marked to show changes from the Form S-1 filed by the Company on May 14, 2012.
General
1. We will process your amendments without price ranges. Since the price range you select will affect disclosure in several sections of the filing, we will need sufficient time to process your amendments once a price range is included and the material information now appearing blank throughout the document has been provided. The effect of the price range on disclosure throughout the document may cause us to raise issues on areas not previously commented on.
The Company respectfully acknowledges the Staff’s comment and confirms that it will file the price range in a subsequent amendment to the Form S-1 with sufficient time for the Staff to review and process such amendment or provide such information supplementally to the Staff when the price range has been established.
Prospectus Summary, page 1
2. Please revise to provide the basis of your assertions that you are an “industry-leading” global marketplace, have “one of the largest libraries of its kind,” and have “one of the highest volumes of site traffic and commercial image downloads,” as described on pages 1, 3, and 5, respectively. Your current disclosure does not provide the appropriate context for these claims, nor do you clarify if the claims are based on your belief and you have a reasonable basis for that belief. Please provide us supporting documentation for your claims. You may submit supplemental materials to the staff pursuant to Rule 418(b) of Regulation C.
The Company’s global online marketplace for commercial digital imagery (a) attracts more visitors and page views, (b) includes more commercial images and (c) delivers a higher volume of commercial image downloads than most of the competing marketplaces that the Company regularly monitors as part of its ongoing business operations. As a result, the Company asserts that it operates an industry leading global marketplace for commercial digital imagery.
The Company has strong support for these assertions based on its own research, on data reported by competitors identified by the Company and on certain independent third-party data.
As part of its ongoing business practices, the Company actively monitors the commercial digital imagery industry and has conducted extensive research, for example by reviewing third party reports and communicating with customers, in an effort to identify competitive marketplaces for commercial digital imagery and to anticipate industry trends. Information about the Company’s
competitors is included in the supporting citations identified in the Supplemental Materials, as well as in the fourth risk factor of the Form S-1 on page 14.
With respect to the number of website visitors, according to comScore’s Media Trend Report, during the first quarter of 2012, Shutterstock.com attracted over 11 million average monthly unique visitors worldwide. In addition, according to the same comScore report, during the first quarter of 2012, the Company averaged over 61 million monthly page views. The Company believes that the foregoing data supports its assertion that it has “one of the highest volumes of site traffic” among its competitors. During such period, relative to the Company’s principal competitors set forth in the comScore Media Trend Report included in the Supplemental Materials, the Company’s average monthly unique visitors and average monthly page views ranked above the vast majority of its competitors.
With respect to the number of images, the Company has included, in the Supplemental Materials, information reported by the Company and its principal competitors regarding images available on each competitor’s website. As of June 14, 2012, the Company’s image library contained more than 19 million commercial digital images, first among such competitors. The Company believes that the foregoing data supports its assertion that it has “one of the largest libraries of its kind.”
With respect to the volume of commercial image downloads, the Company has formed internal estimates of the number of downloads delivered by its competitors based on both internal and external sources. The Company delivered over 58 million paid downloads in 2011 (including both commercial and editorial images), as disclosed in the Form S-1. Of those 58 million paid downloads, more than 56 million were commercial image downloads, which the Company believes is the highest volume of commercial image downloads of any brand in its industry during such period, as substantiated in the Supplemental Materials. The Company believes that the foregoing data supports its assertion that it has “one of the highest volumes of …commercial image downloads” of any brand in its industry.
The Company believes that the critical attributes of a global online marketplace for commercial digital imagery include:
· enabling image creators to make images available to be licensed commercially and to receive payment for such licenses;
· attracting and retaining a critical mass of image users and image contributors;
· offering a sufficient inventory of images that can be efficiently searched to meet the needs of image users seeking a wide variety of commercial images; and
· offering reasonable assurances to an image user that using an image for a commercial purpose will not violate the intellectual property rights of others.
The Company believes that the online commercial digital imagery market is comprised of websites that offer commercial digital imagery that users can pay to license, download and incorporate into their work. For the avoidance of doubt, the Company notes that there are search engines that aggregate digital imagery, ranging from global search engines like Google or Bing to industry specific aggregators like PacaSearch. The Company does not consider such aggregators to be online commercial digital imagery marketplaces. While such aggregators may display a larger number of images than the Company, they do not have direct relationships with contributors of digital imagery, nor do they offer the ability to license such imagery commercially. Rather, aggregators simply point back to the source of such imagery. In addition, aggregators do not offer the other features of a marketplace identified above.
The Company believes that the factors above support its assertion that it is an “industry leading” global marketplace for commercial digital imagery.
In response to the Staff’s comment, the Company is providing the Supplemental Materials contemporaneously with this letter and pursuant to Rule 418(b) of Regulation C, which the Company requests the Staff to return upon completion of its review.
The Offering, page 7
3. Please revise to clarify the options outstanding as of December 31, 2011 referred to on page 7 are Value Appreciation Rights that will be converted to options upon the close of your reorganization to a Delaware corporation.
In response to the Staff’s comment, the Company has included additional disclosure on pages 7 and 8 of the Amendment to clarify that, unless otherwise indicated, the information contained in the prospectus assumes the exchange of value appreciation rights for options to purchase shares of common stock pursuant to the Reorganization.
4. Please disclose in this section the final cash distribution payments to members of the LLC as part of the reorganization.
In response to the Staff’s comment, the Company has included additional disclosure on page 8 of the Amendment and throughout the Form S-1 to disclose that the LLC will make a final cash distribution to each of its members as part of the Reorganization. The amount of the final cash distribution will be based, in part, on the timing of the offering. The Company will include an estimate of the final cash distribution in a subsequent amendment to the Form S-1 once the timing of the offering is better known.
Risk Factors
We face intense competition from a range of competitors ..., page 14
5. We note that you generally do not have any exclusivity over digital imagery provided by your contributors. Please revise this risk factor or add a risk factor that discusses the competition to acquire available content, or the risk that your contributors may freely offer their images that they provide to you to other digital image content providers. For example, please discuss the risk that your competitors may offer higher royalty rates or have a less stringent vetting process that may affect your ability to attract new content.
In response to the Staff’s comment, additional disclosure has been added to the above-referenced risk factor on page 14 of the Amendment to discuss the competition to acquire available content and the risk that competitors may develop new products or technologies or offer contributors higher royalty rates that may affect the Company’s ability to attract new content. The Company has also added disclosure in a new risk factor on page 15 to indicate that its contributors may freely offer the images they provide to the Company to the Company’s competitors and may remove their images from the Company’s online marketplace at any time.
6. Please address whether there are low barriers of entry for competitors to enter the digital imagery business.
In response to the Staff’s comment, the Company has added additional disclosure in a new risk factor on page 15 of the Amendment addressing this comment.
Continuing expansion into international markets is important for our growth ..., page 17
7. You state that as a U.S. company, you face restrictions imposed by OFAC on your ability “to do business in certain specified foreign countries or with certain specified organizations and individuals.” OFAC administers certain U.S. economic sanctions and/or export control regulations concerning Cuba, Iran, Sudan, and Syria, the countries currently designated by the State Department as state sponsors of terrorism. Please describe to us, to the best of your knowledge, understanding, and belief, the nature and extent of any past, current, and anticipated contacts with Cuba, Iran, Sudan, and Syria, whether through direct or indirect arrangements, for the last three fiscal years and the subsequent interim period. Your response should describe any goods, services, or fees that you have provided into, or received from, the referenced countries, directly or indirectly, and any agreements,
arrangements, or other contacts you have had with the governments of those countries or entities they own or control.
The Company has no facilities, operations or employees in Cuba, Iran, Sudan or Syria and, to the best of its knowledge, has had no dealings with the governments of those countries or entities they own or control.
The Company respectfully submits that it is cognizant of the economic sanctions administered by OFAC and has implemented procedures to monitor its ongoing compliance. In addition, as a general matter, the photographs, illustrations and videos that are made available to licensed customers by Shutterstock through its on-line marketplace constitute information and informational materials that are exempt from U.S. trade sanctions programs and other export controls under the “Berman Amendment.” See § 2502(a) of the Omnibus Trade and Competitiveness Act, Pub. L. No. 100-418, 102 Stat. 1107 (1988), and § 525 of the Foreign Relations Authorization Act, Fiscal Years 1994 and 1995, Pub. L. No. 103-236, 108 Stat. 382 (1994), which amended § 5(b)(a) of the Trading with the Enemy Act, 50 USC. App. §§1-44.
The Company believes that a small number of its 1) contributors from whom it receives digital imagery and to whom it pays compensation for images that are downloaded and 2) customers that pay fees to license and download this digital imagery may be in Cuba, Iran, Sudan, and Syria, based on information such persons or entities provide at the time of registration or payment. Additional information regarding these contributors and customers is as follows. In each case, the amounts listed below represent less than 0.20% of the fees paid to all contributors and less than 0.20% of the amounts received from all customers in the period referenced.
· For the year ended December 31, 2009, the Company paid approximately 12 unique image contributors with addresses in such countries a total of approximately $9,435 and received a total of approximately $29,770 from approximately 77 unique customers that it believes may be located in such countries.
· For the year ended December 31, 2010, the Company paid approximately 16 unique image contributors with addresses in such countries a total of approximately $6,070 and received a total of approximately $57,270 from approximately 170 unique customers that it believes may be located in such countries.
· For the year ended December 31, 2011, the Company paid approximately 18 unique image contributors with addresses in such countries a total of approximately $6,625 and received a total of approximately $41,800 from approximately 148 unique customers that it believes may be located in such countries.
· For the interim period ended June 13, 2012, the Company paid approximately 18 unique image contributors with addresses in such countries a total of approximately $2,455 and received a total of approximately $11,705 from approximately 153 unique customers that it believes may be located in such countries.
The Company believes the activities outlined above are all covered by the statutory exemption for information and information materials provided in the Berman Amendment.
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ORRICK, HERRINGTON & SUTCLIFFE LLP
51 W 52ND STREET
NEW YORK, NEW YORK 10019-6142
tel +1-212-506-5000
fax +1-212-506-5151
WWW.ORRICK.COM
June 29, 2012
David M. Ruff
(212) 506-5391
druff@orrick.com
Via EDGAR and Federal Express
U.S. Securities and Exchange Commission
100 F. Street, N.E.
Washington, D.C. 20549
Attn:
Mark P. Shuman, Branch Chief - Legal
Edwin Kim, Attorney-Advisor
Craig Wilson, Senior Assistant Chief Accountant
Laura Veator, Staff Accountant
Re:
Shutterstock, Inc.
Registration Statement on Form S-1
Filed May 14, 2012
File No. 333-181376
Ladies and Gentlemen:
We are submitting this letter on behalf of Shutterstock, Inc. (the “Company”) in response to comments from the staff (the “Staff”) of the U.S. Securities and Exchange Commission (the “Commission”) received by letter dated June 8, 2012 (the “Staff Letter”), relating to the Company’s Registration Statement on Form S-1 (File No. 333-181376) (the “Form S-1”). The Company is concurrently filing Amendment No. 1 to the Form S-1 (the “Amendment”) to respond to the Staff Letter and to include updated financial information for the three months ended March 31, 2012.
In this letter, we have cited the comments from the Staff in italicized, bold type and have followed each comment with the Company’s response. Concurrent with the filing of the Amendment and in response to the Staff’s comments in the Staff Letter, we have supplementally provided a binder of materials to the Commission pursuant to Rule 418(b) of Regulation C, which is not to be deemed part of the Form S-1 and which we respectfully request to be returned upon the completion of the Staff’s review (the “Supplemental Materials”). Capitalized terms used but not defined in this letter shall have the meanings given them in the Form S-1.
Also enclosed for the convenience of the Staff are two copies of the Amendment marked to show changes from the Form S-1 filed by the Company on May 14, 2012.
General
1. We will process your amendments without price ranges. Since the price range you select will affect disclosure in several sections of the filing, we will need sufficient time to process your amendments once a price range is included and the material information now appearing blank throughout the document has been provided. The effect of the price range on disclosure throughout the document may cause us to raise issues on areas not previously commented on.
The Company respectfully acknowledges the Staff’s comment and confirms that it will file the price range in a subsequent amendment to the Form S-1 with sufficient time for the Staff to review and process such amendment or provide such information supplementally to the Staff when the price range has been established.
Prospectus Summary, page 1
2. Please revise to provide the basis of your assertions that you are an “industry-leading” global marketplace, have “one of the largest libraries of its kind,” and have “one of the highest volumes of site traffic and commercial image downloads,” as described on pages 1, 3, and 5, respectively. Your current disclosure does not provide the appropriate context for these claims, nor do you clarify if the claims are based on your belief and you have a reasonable basis for that belief. Please provide us supporting documentation for your claims. You may submit supplemental materials to the staff pursuant to Rule 418(b) of Regulation C.
The Company’s global online marketplace for commercial digital imagery (a) attracts more visitors and page views, (b) includes more commercial images and (c) delivers a higher volume of commercial image downloads than most of the competing marketplaces that the Company regularly monitors as part of its ongoing business operations. As a result, the Company asserts that it operates an industry leading global marketplace for commercial digital imagery.
The Company has strong support for these assertions based on its own research, on data reported by competitors identified by the Company and on certain independent third-party data.
As part of its ongoing business practices, the Company actively monitors the commercial digital imagery industry and has conducted extensive research, for example by reviewing third party reports and communicating with customers, in an effort to identify competitive marketplaces for commercial digital imagery and to anticipate industry trends. Information about the Company’s
2
competitors is included in the supporting citations identified in the Supplemental Materials, as well as in the fourth risk factor of the Form S-1 on page 14.
With respect to the number of website visitors, according to comScore’s Media Trend Report, during the first quarter of 2012, Shutterstock.com attracted over 11 million average monthly unique visitors worldwide. In addition, according to the same comScore report, during the first quarter of 2012, the Company averaged over 61 million monthly page views. The Company believes that the foregoing data supports its assertion that it has “one of the highest volumes of site traffic” among its competitors. During such period, relative to the Company’s principal competitors set forth in the comScore Media Trend Report included in the Supplemental Materials, the Company’s average monthly unique visitors and average monthly page views ranked above the vast majority of its competitors.
With respect to the number of images, the Company has included, in the Supplemental Materials, information reported by the Company and its principal competitors regarding images available on each competitor’s website. As of June 14, 2012, the Company’s image library contained more than 19 million commercial digital images, first among such competitors. The Company believes that the foregoing data supports its assertion that it has “one of the largest libraries of its kind.”
With respect to the volume of commercial image downloads, the Company has formed internal estimates of the number of downloads delivered by its competitors based on both internal and external sources. The Company delivered over 58 million paid downloads in 2011 (including both commercial and editorial images), as disclosed in the Form S-1. Of those 58 million paid downloads, more than 56 million were commercial image downloads, which the Company believes is the highest volume of commercial image downloads of any brand in its industry during such period, as substantiated in the Supplemental Materials. The Company believes that the foregoing data supports its assertion that it has “one of the highest volumes of …commercial image downloads” of any brand in its industry.
The Company believes that the critical attributes of a global online marketplace for commercial digital imagery include:
· enabling image creators to make images available to be licensed commercially and to receive payment for such licenses;
· attracting and retaining a critical mass of image users and image contributors;
· offering a sufficient inventory of images that can be efficiently searched to meet the needs of image users seeking a wide variety of commercial images; and
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· offering reasonable assurances to an image user that using an image for a commercial purpose will not violate the intellectual property rights of others.
The Company believes that the online commercial digital imagery market is comprised of websites that offer commercial digital imagery that users can pay to license, download and incorporate into their work. For the avoidance of doubt, the Company notes that there are search engines that aggregate digital imagery, ranging from global search engines like Google or Bing to industry specific aggregators like PacaSearch. The Company does not consider such aggregators to be online commercial digital imagery marketplaces. While such aggregators may display a larger number of images than the Company, they do not have direct relationships with contributors of digital imagery, nor do they offer the ability to license such imagery commercially. Rather, aggregators simply point back to the source of such imagery. In addition, aggregators do not offer the other features of a marketplace identified above.
The Company believes that the factors above support its assertion that it is an “industry leading” global marketplace for commercial digital imagery.
In response to the Staff’s comment, the Company is providing the Supplemental Materials contemporaneously with this letter and pursuant to Rule 418(b) of Regulation C, which the Company requests the Staff to return upon completion of its review.
The Offering, page 7
3. Please revise to clarify the options outstanding as of December 31, 2011 referred to on page 7 are Value Appreciation Rights that will be converted to options upon the close of your reorganization to a Delaware corporation.
In response to the Staff’s comment, the Company has included additional disclosure on pages 7 and 8 of the Amendment to clarify that, unless otherwise indicated, the information contained in the prospectus assumes the exchange of value appreciation rights for options to purchase shares of common stock pursuant to the Reorganization.
4. Please disclose in this section the final cash distribution payments to members of the LLC as part of the reorganization.
In response to the Staff’s comment, the Company has included additional disclosure on page 8 of the Amendment and throughout the Form S-1 to disclose that the LLC will make a final cash distribution to each of its members as part of the Reorganization. The amount of the final cash distribution will be based, in part, on the timing of the offering. The Company will include an estimate of the final cash distribution in a subsequent amendment to the Form S-1 once the timing of the offering is better known.
4
Risk Factors
We face intense competition from a range of competitors ..., page 14
5. We note that you generally do not have any exclusivity over digital imagery provided by your contributors. Please revise this risk factor or add a risk factor that discusses the competition to acquire available content, or the risk that your contributors may freely offer their images that they provide to you to other digital image content providers. For example, please discuss the risk that your competitors may offer higher royalty rates or have a less stringent vetting process that may affect your ability to attract new content.
In response to the Staff’s comment, additional disclosure has been added to the above-referenced risk factor on page 14 of the Amendment to discuss the competition to acquire available content and the risk that competitors may develop new products or technologies or offer contributors higher royalty rates that may affect the Company’s ability to attract new content. The Company has also added disclosure in a new risk factor on page 15 to indicate that its contributors may freely offer the images they provide to the Company to the Company’s competitors and may remove their images from the Company’s online marketplace at any time.
6. Please address whether there are low barriers of entry for competitors to enter the digital imagery business.
In response to the Staff’s comment, the Company has added additional disclosure in a new risk factor on page 15 of the Amendment addressing this comment.
Continuing expansion into international markets is important for our growth ..., page 17
7. You state that as a U.S. company, you face restrictions imposed by OFAC on your ability “to do business in certain specified foreign countries or with certain specified organizations and individuals.” OFAC administers certain U.S. economic sanctions and/or export control regulations concerning Cuba, Iran, Sudan, and Syria, the countries currently designated by the State Department as state sponsors of terrorism. Please describe to us, to the best of your knowledge, understanding, and belief, the nature and extent of any past, current, and anticipated contacts with Cuba, Iran, Sudan, and Syria, whether through direct or indirect arrangements, for the last three fiscal years and the subsequent interim period. Your response should describe any goods, services, or fees that you have provided into, or received from, the referenced countries, directly or indirectly, and any agreements,
5
arrangements, or other contacts you have had with the governments of those countries or entities they own or control.
The Company has no facilities, operations or employees in Cuba, Iran, Sudan or Syria and, to the best of its knowledge, has had no dealings with the governments of those countries or entities they own or control.
The Company respectfully submits that it is cognizant of the economic sanctions administered by OFAC and has implemented procedures to monitor its ongoing compliance. In addition, as a general matter, the photographs, illustrations and videos that are made available to licensed customers by Shutterstock through its on-line marketplace constitute information and informational materials that are exempt from U.S. trade sanctions programs and other export controls under the “Berman Amendment.” See § 2502(a) of the Omnibus Trade and Competitiveness Act, Pub. L. No. 100-418, 102 Stat. 1107 (1988), and § 525 of the Foreign Relations Authorization Act, Fiscal Years 1994 and 1995, Pub. L. No. 103-236, 108 Stat. 382 (1994), which amended § 5(b)(a) of the Trading with the Enemy Act, 50 USC. App. §§1-44.
The Company believes that a small number of its 1) contributors from whom it receives digital imagery and to whom it pays compensation for images that are downloaded and 2) customers that pay fees to license and download this digital imagery may be in Cuba, Iran, Sudan, and Syria, based on information such persons or entities provide at the time of registration or payment. Additional information regarding these contributors and customers is as follows. In each case, the amounts listed below represent less than 0.20% of the fees paid to all contributors and less than 0.20% of the amounts received from all customers in the period referenced.
· For the year ended December 31, 2009, the Company paid approximately 12 unique image contributors with addresses in such countries a total of approximately $9,435 and received a total of approximately $29,770 from approximately 77 unique customers that it believes may be located in such countries.
· For the year ended December 31, 2010, the Company paid approximately 16 unique image contributors with addresses in such countries a total of approximately $6,070 and received a total of approximately $57,270 from approximately 170 unique customers that it believes may be located in such countries.
· For the year ended December 31, 2011, the Company paid approximately 18 unique image contributors with addresses in such countries a total of approximately $6,625 and received a total of approximately $41,800 from approximately 148 unique customers that it believes may be located in such countries.
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· For the interim period ended June 13, 2012, the Company paid approximately 18 unique image contributors with addresses in such countries a total of approximately $2,455 and received a total of approximately $11,705 from approximately 153 unique customers that it believes may be located in such countries.
The Company believes the activities outlined above are all covered by the statutory exemption for information and information materials provided in the Berman Amendment.
We cu