Advantages Of MRR For RF Seller

Posted on 10/2/2007 by Jim Pickerell | Printable Version | Comments (5)

All image sellers win with MRR. Possibly the biggest benefactor of such a pricing strategy is traditional RF (TRF).

With its current file-size-based pricing strategy, TRF is forced to sell its images for large commercial uses at prices significantly below what customers can afford, or would gladly, pay. The top price for the largest TRF file is nowhere near the price commercial customers pay to use RM images when the distribution of the project is large. And yet, RF images are equal, and often superior to, RM images in quality. Customers with large planned uses that don't require exclusivity (the vast majority) search for the best image, regardless of whether it is RM or RF. They rejoice when the right image happens to be RF, thus offering them usage for much less.

For several years, RF has attempted to solve this problem by raising the price of the larger file sizes under the theory that larger uses require larger file sizes. But since file size really has no relation to the value a customer receives from most uses, TRF simply priced itself out of certain markets. Markets that are particularly price-sensitive include book publishing, general editorial, nonprofits and most Web sites.

By converting to a simple usage based pricing structure, TRF would have the ability to charge many commercial customers much more for certain types of usage, while still keeping their fees for editorial and nonprofit low enough that those segments could afford to use RF images.

MRR enables producers to charge higher fees to those few customers who intend to make large uses of the image. Such fees more adequately reflect the real value received by the customer.

On the low side, under the current file-size system, TRF sellers can easily start offering their images as microstock, as well as through traditional outlets. Microstock then becomes just another RF price point. Many TRF sellers are already beginning to test out this strategy. But the microstock strategy also has great risks.

A significant number of TRF's current commercial customers may start buying the images they need at microstock prices of $2 to $10 per image rather than at the current TRF prices. In fact, many TRF customers seem to be headed in this direction. They are finding that certain microstock images are satisfactory.

In addition, as TRF suppliers increase their participation in microstock, they will begin to raise the level of quality and variety of the microstock offering, making it even more likely that TRF buyers will search on microstock sites.

As a result, TRF is caught in the middle. It will steadily lose customers because its prices are too high, and dollars because its prices are too low. TRF needs to find a way to reach out to the huge number of new customers microstock has identified without losing any of its existing ones. A pricing system based on use rather than file size seems the only solution. Pricing based on file size has served TRF well for 15 years or so, but the realities of the market have changed dramatically. It is time for a major adjustment in strategy.

One small consideration is that MRR, as I've designed it, only allows unlimited use for one particular project within a category, and for one particular customer when an image is licensed. While this is for the life of the project, it is slightly more limiting than traditional RF. This may be a problem for a few customers, given that in the past, some TRF sellers have allowed RF images to be used in multiple projects for multiple customers. However, only in very rare cases do customers want to use the same RF image in unrelated projects, or for different customers, and it seems unlikely this will be a major issue.

TRF will find it difficult to grow unless it modifies its pricing strategy. MRR seems to be the best available and least disruptive option. While MRR is a slightly more complex than the current RF strategy, it is still very simple compared to traditional RM and much more equitable to RF sellers. To grow, TFF must find a way to extract more revenue from the customers who receive great benefit without pricing themselves out of the small user market.

Tomorrow: MRR benefits RM producers and sellers.


Copyright © 2007 Jim Pickerell. The above article may not be copied, reproduced, excerpted or distributed in any manner without written permission from the author. All requests should be submitted to Selling Stock at 10319 Westlake Drive, Suite 162, Bethesda, MD 20817, phone 301-251-0720, e-mail: wvz@fpcubgbf.pbz

Jim Pickerell is founder of www.selling-stock.com, an online newsletter that publishes daily. He is also available for personal telephone consultations on pricing and other matters related to stock photography. He occasionally acts as an expert witness on matters related to stock photography. For his current curriculum vitae go to: http://www.jimpickerell.com/Curriculum-Vitae.aspx.  

Comments

  • Don Farrall Posted Oct 2, 2007
    MRR sounds OK, but it is based on the premise that end users will actually be truthful as they claim their intended usage to get the file in a file size that meets their needs. Expecting truthfulness from high-end high-profile customers may be a reasonably safe proposition, but I question the wisdom of passing this expectation down to the bottom tier buyers. In today’s world of “pier to pier sharing” of stolen copy written material, I have my doubts. Too many people today feel an entitlement to whatever they can get their hands on. One of the attractions of TRF is that a customer can buy the file and then use it as they like. In some cases the buyer really has no idea of how extensive the eventual use of the image will be. It starts out in an ad, then in a catalog and then on the web site. With a usage based system the buyer often pays for the initial usage and then the image just keeps on popping up in additional usages as time goes by. Responsible buyers will follow up and pay the additional licensing fees. Is it fair to expect buyers who have been paying so little for images to pony up when they extend their use? Of course the answer is policing usage. This has always been a week effort at best. Extending limited usage to millions of customers and then policing them is beyond a daunting proposition.

  • Jagdish Agarwal Posted Oct 3, 2007
    I agree with Don. Clients generally want the largest file size at the lowest price. For how many jobs can you actually verify circulation or print run?

  • Betsy Reid Posted Oct 3, 2007
    "A pricing system based on use rather than file size seems the only solution. Pricing based on file size has served TRF well for 15 years or so, but the realities of the market have changed dramatically. It is time for a major adjustment in strategy."

    Jim,
    I can't applaud pricing based on file size as ever serving our industry well. Pricing based on use has always been a sounder approach for many reasons, many of which you summarize in this series.

    Innovation in creating simplified rights-based licensing systems should have been an immediate priority when the stock business moved from catalogs to the internet. But unfortunately, attention turned to developing RF businesses instead. Now file-based pricing is now deeply embedded in the business. There's been no sudden shift that makes a use-based approach suddenly a better way to go. We're just at a crisis point where the system exposes its worst defects.. undervaluing major web uses, and allowing infringements of unmanaged licenses.

    Ironically, photographers and archives who have continued to focus on RM licensing have been called dinosaurs and worse, while those who've been enthusiastic about RF have been lauded as the forward thinkers by you and others.

    Betsy Reid
    SAA Executive Director

  • Eujin Goh Posted Oct 3, 2007
    I couldn't agree more with both comments.
    In my region (asia) we have (so many times) discovered people just buying whatever they can get away with (at the lowest price) and later on when the image has been published - you find that it's gone above AND below the line. Initial usage is always a brochure (innocent and cheap enough). Then you start seeing it in posters, and even in POS campaigns. Many art buyers & designers come from the middle to bottom tier businesses and to them - an image is an image.
    "If I can use it for free, great! Otherwise get me the image (I don't care if it's Rights-Managed) - just pay for the minimum and we'll try and see how far we can take this. We'll just pay up if the agencies discover it."
    I'm sorry to say this - but people who come up with notions that images are just worth 49 dollars simply have no idea what it costs to make an image. They are probably not real photographers and have no idea of what operating costs are.
    This whole industry is really trying to kid itself by saying that microstock is the new royalty free and that things are all find and dandy. Microstock is NOT the new royalty free because if you look at many other industries - (budget airlines) - the planes take you there but they do NOT provide you with choice seating and food and drinks. And people accept that.
    Clients in our industry expect an RM image to be priced like a microstock image. Now THAT is serious delusion.

  • Eujin Goh Posted Oct 3, 2007
    I couldn't agree more with both comments.
    In my region (asia) we have (so many times) discovered people just buying whatever they can get away with (at the lowest price) and later on when the image has been published - you find that it's gone above AND below the line. Initial usage is always a brochure (innocent and cheap enough). Then you start seeing it in posters, and even in POS campaigns. Many art buyers & designers come from the middle to bottom tier businesses and to them - an image is an image.
    "If I can use it for free, great! Otherwise get me the image (I don't care if it's Rights-Managed) - just pay for the minimum and we'll try and see how far we can take this. We'll just pay up if the agencies discover it."
    I'm sorry to say this - but people who come up with notions that images are just worth 49 dollars simply have no idea what it costs to make an image. They are probably not real photographers and have no idea of what operating costs are.
    This whole industry is really trying to kid itself by saying that microstock is the new royalty free and that things are all find and dandy. Microstock is NOT the new royalty free because if you look at many other industries - (budget airlines) - the planes take you there but they do NOT provide you with choice seating and food and drinks. And people accept that.
    Clients in our industry expect an RM image to be priced like a microstock image. Now THAT is serious delusion.

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