Digital Product Economics

4

The panel basically had no help for the questioner. My answer would be,
"I hope, never!"

Let me explain that response.

The general subject matter of CD-ROM discs - that is the content - is going
to be similar to what is currently in books, although CD-ROMs may need many
more images than picture books. There are some books -- novels for the most
part -- that sell hundreds of thousands of copies.

However, ten thousand copies is usually a best seller for most photo books.
Encyclopedias sell more copies, but they have many more photos. A narrow
focus book on, lets say a vanishing culture, is not likely to be a best
seller because there simply aren't that many people who are interested in
this subject matter. A book on wines of the world might do well if it were
the only book out there on that subject, but on a hot subject like this
there are many books that share the market and no single one of them is
a huge seller.

At the moment, Corbis is concentrating some of their photo assignments on
vanishing cultures in an effort to document these peoples, and they have
a photographer doing an extensive shoot on wines of the world. I would anticipate
that they will come out with such digital products in a year or so. These
products may do well if they have no competitors and are the only way digital
users can get this type of information.

Corbis' "A Passion for Art" - The Barnes Collection, is an excellent
product and breaks ground on how such titles should be designed. It will
probably do well as long as there are only a few art titles. But, as more
and more competing titles appear on this, or any other subject, there are
likely to be fewer sales of any particular product.

Creative Percentage Of Retail Price

I used to think photographers were going to be able to get a higher percentage
of the gross sale price of these digital products than they are currently
getting from books, if they would produce and market the titles themselves.
However, after some experimentation this year, I've come to recognize how
difficult it is to market such products. In most cases the content creators
will have to rely on publishers to market CD-ROM products for them.

I have resigned myself to the fact that the amount of the gross sale price
of any digital product that will be available for the content creators will
be about the same as is currently available for any photo book. That's roughly
10%.

So let's look at the economics.

We take a product that is going to retail for $39 and 10% of that is $3.90
per disc. Let's say it has some text and sound so half of the content fee
has to go to pay for that. Now we have $1.95 to be divided among 500 images.
That's .0039 (39 hundredths of a penny) per image per disc. If the producer
sells 10,000 copies he can afford to pay $39 per image, 20,000 copies and
he can afford to pay $78.

Of course, if he uses 1,000 images he can only afford to pay half that much.
If an agent is involved in the sale the photographer gets 50% of these numbers,
or maybe less.

Can you afford to shoot images and make them available in the marketplace
for that kind of fee? What if they only sell 5,000 copies?

Because of the way the marketing chain is structured, if you double the
royalty to the photographer you have to double the retail price to the consumer.
It is generally believed that consumers will not pay $80 each for such discs,
and yet even at that price the photographer probably isn't getting enough
to justify producing images.

The reason I say, "I hope the agencies don't figure out how to price
these products," is that if they do they will undoubtedly offer low
prices for volume sales. There is a big range where the price works for
the agency because they have no production costs, or fixed cost of product
to offset. The photographers lose on a percentage basis when there is no
minimum because they must offset their production costs, particularly if
the images have been produced on speculation, not as outtakes from assignments.