Deflation - Future Economics

Posted on 12/6/2002 by Jim Pickerell | Printable Version | Comments (0)



December 6, 2002

We're beginning to hear talk of deflation. Is it coming? What impact will it have on the stock
photo industry? The Washington Post says:

    "Deflation, like cholesterol, comes in good and bad varieties.
    The good kind, such as many of the price declines over the past few years, happens when
    companies find ways to produce goods and services more cheaply, usually by making use of new
    technology or new ways of doing business. In varying degrees, these productivity gains are
    passed on to consumers as lower prices, to workers as higher wages and to shareholders as higher
    profits. That makes almost everyone better off.

    "By contrast, the bad kind of deflation occurs because there are too few customers chasing to
    many goods and services, resulting in repeated rounds of competitive price cutting that leads to
    layoffs, falling wages, and a decline in business investment and consumer spending.

    "During bad deflation, consumers and businesses -- knowing that prices are likely to be lower
    tomorrow than they are today -- hoard cash and put off buying things, making the recession worse
    and driving prices and wages down further.

    "Households and companies with lots of debt suddenly find that they have to make fixed monthly
    payments out of deflated wages and revenue. Some file for bankruptcy; some are forced to cut
    other spending to meet there debt service.

    "That was what happened in the early 1930s, triggering the Great Depression. Something similar
    has taken hold in Japan, where prices are falling about 1 percent a year.

    "What worries some economists is that in both of those bad episodes, the deflationary spiral
    occurred after a huge investment bubble burst, leaving the economy with too much debt and too
    much capacity across a broad range of industries.

    "Stephen S. Roach of Morgan Stanley argues that some of those dynamics are now at play in the
    U.S. economy after the worst stock market losses since 1929. 'The risk of deflation is higher
    than at any time in the past half century,' Roach said."

Stock Photo Industry

How does all this relate to the Stock Photo Industry? New technology has not made the production
of the product cheaper. On the other hand, new ways of business -- online marketing and delivery
-- may reduce the costs of marketing the product once we get past the huge initial investment
stage of preparing those images for marketing.

A few large suppliers may have gotten over the top in this "initial investment stage", but most
suppliers are still struggling with the issue of how to cover the costs of the new marketing
strategies while faced with declining sales. Increased numbers of stock photo agencies are
filing for bankruptcy, or going out of business.

Users of images are killing projects in an effort to cuts overall costs at their company. In
most cases the imagery costs are such an insignificant portion of the total project cost that
the price of images is not a determining factor in the decision as to whether or not to kill the

Image users are not seeing declining costs. Instead they are paying slightly more for both RF
and RM images and RF prices are expected to go up significantly next year. For the most part
stock image customers can't "put off buying" because the project has to go forward. But they can
go to cheaper images (switch from RM to RF) or design in a way that requires fewer images. This
seems to be happening. Evidence from Getty's statistics and anecdotal evidence from reports of
many other suppliers indicates that there is strong, continued movement by professional stock
photo buyers away from RM and toward RF.

However, there are other factors that muddy this statistic. Some RM sellers, in an effort to
increase market share in a period of declining demand for their images, are lowering prices in
the hopes of capturing some of the sales going to RF.

In these situations what seems to be happening is that the sellers do not generate enough new
sales volume to offset the lower unit prices and thus their overall revenue continues to
decline. But because the stock photo industry does not have good statistics on the number of
units licensed worldwide, or the average price per unit, we don't really know how much effect,
if any, this lowering of prices is having on:

  • - the total number of RM images licensed,

  • - the real rate of growth of RF licenses, or

  • - if total spending for stock photography is falling and at what rate.

Given the lack of good industry wide statistics -- a thing that is not a problem in most other
industries -- stock photo producers and sellers are left to hope things will get better -- much
as if they were still living in the 1930s -- rather than to plan based on accurate, up-to-date
data and information.

Agencies Not Paying Royalties

We are also hearing of many more cases where stock agencies/archives are not paying
photographers their royalties. The ability for a seller to sustain itself and exploit its
suppliers in this manner is rather unique to the stock photo industry. Obviously, this
eventually discourages suppliers from continued participation.

A company can often struggle on and continue in bad management practices long after it should
have closed down operations. When a producer places image with an image archive, the agreement
usually is that the producer will be paid 50% or less of the gross fees collected for any
usages. The producer usually has no way of independently telling when sales are made or money
collected, and thus is totally dependent on the archive to supply them with this information.

At this point I need to say that most archives honestly report this information and make
payments in a timely manner.

But, during periods when revenues decline fixed monthly expenses such as rent and staff costs
continue. There seems to be a natural human tendency to use as much of the cash available as
necessary to pay overhead and operating costs and only after these things are covered to dole
out what is left over to the royalty holders. There is always the hope that sales will pick up
next month and then the archive can make up the difference, but if that doesn't happen and
overhead costs are not dramatically cut the situation will only continue to worsen.

In most other industries companies that are short of cash to pay ALL their debts would be forced
to borrow money to keep their business afloat. In the stock industry there is a tendency to
borrow from the photographers without telling them or paying interest. The smaller the
percentage of total revenue the archive owes photographers the less time this can go on because
the archive has less float to work with. When the archive is supposed to be paying photographers
50% of everything they collect they may be able to extend their life for a long time by using
the photographer's money.

In the case of Pictor Inc. some photographers did not receive payment of the monies they were
owed for years. For well over a year before the company went into bankruptcy, and for 16 months
after it filed for bankruptcy, it made virtually no payments to the creators whose images it was
licensing. All monies that came in were used to pay staff salaries, rents and other overhead.

There is no sure protection against this. Despite written contracts, in the long run
photographers must rely on the ethics of the people operating the archive. Even CreativeEye,
founded by photographers (under the sponsorship of ASMP) as a cooperative venture with one of
its principle goals being the protection of photographers from unscrupulous agents, got caught
in this trap. In August, CreativeEye reported to its member that approximately $30,000 of the
money due photographers in royalties had been used to pay operating overhead. The managers
argued that the photographers would have wanted them to use the money to pay overhead and keep
the organization functioning rather than be paid the royalties for the sale of their images. But
they didn't bother to go to their cooperative membership to get permission for this action.

Photographers used to be able to make some judgements about what they should be receiving from
their archive based on the average return of previous months. Now, with the total number of RM
sales so relatively low the revenue earned for any individual photographer can fluctuate widely
month-to-month. Thus, predicting future revenue has become very difficult for RM sellers and
determining whether the archive might be withholding payments based on the reports received by
any one photographer is impossible.

Effects On Production

An increasing number of stock photographers -- the suppliers of the RM images -- are in
financial straights. They are dropping out of the market and reducing new production. Some have
other options and their livelihoods have not been seriously threatened. They have been able to
move away from a dependance on stock photography revenue and ramp-up other lines of business in
order to maintain a fairly stable level of income.

On the other hand many experienced shooters trying to stick with stock photography production as
a principle line of business are, with few exceptions, finding that they can't get anything near
the number of images accepted for marketing as they did in the past. In addition, the images
that are accepted don't generate anything like the revenue a good stock image would have
generated a few years ago.

It used to be that if a photographer increased production sales would increase. This worked
because a significant percentage of ALL production was made available for customer viewing. It
also helped that there was a growing demand for RM imagery in the 1990's. Now very tight editing
due to the costs of making images available online has drastically reduced the acceptance level
and limited the customer's choice. And demand appears to be declining.

Photographers are still free to produce as much as they want, but if they don't have an
effective way to show ALL their production to the buyers they are just throwing production money
down a rat hole. Long range, this probably means that photographers will reduce production even
more than is the case already.

As a result of digitization and online marketing a huge numbers of analog images have been
removed from the market and returned to photographers. It is now impossible for customers to
find a great percentage of these images. This has not only narrowed the supply, but has resulted
in lost revenue.

Photographers are struggling -- mostly unsuccessfully, at the moment -- to find a way around
these problems. If a satisfactory solution doesn't develop many producers will slowly fade from
the scene.

This reduction in new production may be reason for concern for companies that earns their sole
livelihood from the licensing of stock photography. On the other hand there is general agreement
that during the ramp-up period of stock in the 1990s a huge over supply of imagery developed.
The current reduction in overall supply may be good for those who already have images in the
supply chain (the online sites). It doesn't bode well for suppliers who are still on the
outside, or whose images have been removed.

Images Customers Want That Are No Longer Available

Given the move to tightly edited online systems there are certain images -- once available at
stock agencies -- that some customers want to use, but which can no longer be found. These
images tend to be of subjects needed by small specialized industries or book publishers. The
argument for no longer making these images available is that the costs are prohibitive when
compared with the limited revenue the images might generate.

The costs of scanning, keywording and online administration are too great to justify making
these images of marginal demand available online. Also since a very high percentage of all
images used can now be found online, the costs of maintaining the old analog systems, and the
researchers needed to service them, can no longer be justified for the marginal additional
revenue these files might generate.

These are legitimate arguments. So far no good solution to making the marginal images available
has been offered. Companies that have attempted to continue to make analog images available seem
to be proving the theory that the costs exceed the revenue generated.

Unfortunately, this means that many buyers will encounter more difficulties in finding the
variety of imagery that used to be available to them through stock. The hope of the sellers is
that these buyers will settle on images that are available online even though they may not be
exactly what they need. The other options for buyers are:

  • - to work harder to find something from a non-traditional source when the offering from
    the online portals are simply not sufficient of satisfactory,

  • - to hire someone to shoot it and end up paying much more than what would have been the
    case if the image were available as stock, or

  • - get along without an image.

Final Thoughts

  • - There will be a decline in business investment for the creation and marketing of Rights
    Managed photography.

  • - The industry has too much capacity and too many images chasing too few customers.

  • - Customers are not hoarding cash waiting for prices to go down, but opportunities to ever
    make certain sales are being lost due to the general state of the economy.

  • - Accurate statistics to aid everyone in the industry in their future planning are badly

  • - Producers will be hurt more than image sellers.

  • - Buyers choices are being limited.

    Technology advances are benefiting many customers, but in the long run a large number of
    customer will view the limiting of their choices as an "unfriendly" act by those who produce and
    sell stock images.

    The stock industry's problems are not the result of deflation, but a period of deflation is
    likely to make them even more difficult to overcome.

  • Copyright © 2002 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, 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:  


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