I understand that Getty Images won’t be releasing Q4 2014 information to bond traders until April. Investors are anxiously awaiting the results and hoping Getty has been able to turn around its Midstock division (iStock, Thinkstock and Photos.com) in the first full quarter since its dramatic change in
pricing strategy last September.
Investors have asked if I can explain why, after all Getty has done to improve Midstock sales, iStock continues to perform poorly?
I’ve
discussed this before, but maybe I can give a clearer explanation. Based on what I hear from photographers, I don’t think the new prices have done much to increase volume. And iStock doesn’t seem to be taking share from
Shutterstock?
iStock has tried to argue that their $166 per month for an annual subscription is better than Shutterstock’s $199 per month. But for many customers it really isn’t. At Shutterstock, if the customer only wants a subscription for a month or quarter they can get it for at slightly higher per month price than $199. At iStock the customer has to commit for one year.
A bigger problem, however, is that only about 25% of iStock revenue comes from non-exclusive images that are priced competitively with Shutterstock. Most of the images iStock customers want are in the company’s exclusive collection, and the subscription plan for those images is $499 a month compared to Shutterstock’s $199.
If, to get competitive with Shutterstock, iStock were to lower the price on its exclusive images – and cut exclusive contributor royalties – at the very least most exclusive contributors would go non-exclusive with iStock and put the same images with Shutterstock and other microstock distributors to try to make up their lost revenue. After having been burned too many times in the last few years many photographers would just say good-by to iStock. And to the degree this would happen iStock would lose its argument that “we’ve got images no one else has.”
In addition, because exclusive images are three times more expensive than non-exclusive, if Getty were to price everything at the non-exclusive level they would have to license rights to twice as many images just to stay even revenue wise. That seems highly unlikely at best, and very risky.
Also, it is important to note that most of iStock’s non-exclusive images are already on Shutterstock so the customer doesn’t get much benefit at all from going to iStock. And Shutterstock has almost 4 times as many non-exclusive images as iStock in its collection.
Image Needs Vary
Another factor to consider is that image needs for many customers vary greatly month-to-month. For these customers it is more cost effective to pay a slightly higher single image prices for the images they really need, when they need them, rather than having a subscription. That’s why single image sales at Shutterstock have been growing so dramatically in the last couple of years.
Most of the customers in the world who can make effective use of subscriptions are already doing business with Shutterstock, or one of the other microstock companies that offer subscriptions. Thus, the new person on the block (iStock) has to offer a significantly better price point or significantly better service to get customers to switch. iStock fails on both counts.
It is also important to recognize that Shutterstock’s subscription business isn’t growing all that much. Most of their revenue growth is in single image sales, Enterprice and Video. Only a little over 40% of their revenue comes from subscriptions despite the fact that subscriptions represent more than 90% of all their downloads.
Single Image Pricing
One would have thought that switching from prices based on file size delivered to a simple single price regardless of the size of the file delivered would have had great customer appeal. Shutterstock has had this simple pricing system for several years and sales there seemed to be growing dramatically.
iStock’s new single image prices for non-exclusive images is almost exactly the same as Shutterstock’s. But, iStock’s exclusive images are three times the price of images at Shutterstock. Nevertheless, if a customer happens to occasionally need one of iStock’s exclusive images it is worth paying $30 rather than buy something for $10 at Shutterstock that’s not exactly what they need. But that same customer will probably stick with a Shutterstock subscription for the bulk of their image needs.
Unfortunately, when iStock switched from pricing based on file size delivered to a single price some uses became more expensive than they had been before. Previously many Internet uses that only require a very small file cost much less expensive than the $8.50 to $10 they cost today. While there is no big advantage for these customers to go to Shutterstock rather than stay at iStock to buy images at prices they can afford, there are other cheaper sources like Fotolia (now Adobe). Dreamstime, DepositPhotos, 123RF, etc. that have many of the same images as those in the collections of the leaders.
Happy Customers
Shutterstock has a great reputation with customers. iStock had a good reputation until about 2011, but it has been going steadily downhill in the last few years. With the purchase of any product, if you’re happy where you are it takes a really compelling reason to switch suppliers. iStock’s offer isn’t that compelling. It is also important to remember that many of Shutterstock’s customers were iStock customers 3 or 4 years ago. Then iStock’s prices got way out of line and the customers found Shutterstock. These customers are not going back to iStock.
All and all, I don’t expect Getty’s numbers to be up when they finally get around to reporting them.