False Premise: Innovation Makes Things Better

Posted on 10/9/2009 by Jim Pickerell | Printable Version | Comments (0)

In “Adding Microstock as a Revenue Stream,” Kelly Thompson argued that “technology and innovation perpetuate our ability to lead better, longer and healthier lives.” Unfortunately, this is a false premise. Technology and innovation may do these things, but not always, not automatically and not necessarily for all stakeholders.

Questions to explore include: “Is the microstock innovation better for everyone?” “Does technological advancement always benefit producers and distributors equally?” and “Can microstock innovation lead to ‘better, longer and healthier lives’ for customers and distributors, while at the same time not necessarily be in the best interest of most creators?”

There are three groups of stakeholders in the business of stock photography: customers, distributors and creators. Creators need to consider the impact microstock has on each group.

Customers certainly benefit from the availability of microstock. They can choose from large quality collections and get the images they need cheaper than was possible before. Many who found professionally produced images too costly in the past can now afford to purchase images for their small projects. Currently, the market for stock images is 10 to 20 times its previous size. In theory, being able to service more customers is good for everyone.

New technology has also resulted in a huge reduction in transaction costs. When images were on pieces of film, stored in plastic sheets in file cabinets, a human had to sort through them every time a customer made a request. Selects had to be delivered to the customer for review, a fee negotiated, and an invoice sent if there was a sale. After that, it was necessary to ensure the images were returned and refiled. Sellers had to charge enough to cover all these transaction costs. Still, they managed to cover their costs on 50% of the gross sale price.

Technological advances have made it easier and faster for customers to find the images they need. However, this technology is being employed in both the traditional pricing environment as well as in microstock. Thus, what microstock brings to the table is not so much a technological improvement as a pricing innovation.

While technology has eliminated most of the earlier transaction costs that were the distributor’s responsibility, it has increased the cost of preparing the image for the file. It is difficult to say by how much. But in the process of transitioning to the new model most of the work and cost that used to be the responsibility of the distributor has been laid on the shoulders of the creator.

It might be reasonable to expect creators to shoulder this additional cost if they were adequately compensated for their efforts, but that has not been the case. In the film days, creators received 30% to 50% of the gross selling price. With the introduction of this new technology—which saves distributors huge amounts of money compared to what it cost to operate a business of similar size in the film days—the creators get 20%. The 20% is a carryover from the early royalty-free days of CD-ROMs and no Internet. At the time, distributors argued that they needed a larger percentage of the gross sale because they had huge fixed costs in producing and distributing print catalogs. The distributors also insisted that the revenue from these discs would be “add-on” for the creators. In no way would the discs impact the creator’s sales to traditional customers.

When print catalog costs disappeared, distributors did not see fit to adjust the royalty structure in the creators’ favor to more accurately reflect new market realities offered by improved technology.

So what is the status for the creator? His costs have not decreased as a result of new technology; if anything, they have increased. For macro photographers, both volume and prices have declined. Volume for the microstock photographer is higher than it ever has been for the traditional shooter, but at the low compensation rate per image downloaded, it does not seem to be high enough to offset the cost of most creators and provide a profit.

At iStockphoto, the average price per download seems to be about $6.50, and a 20% royalty of that nets the photographer $1.30. iStock has over 80,000 contributors. The top 800 would be in the top 1%. The 800th contributor on the list started contributing in May 2003 and has had less than 19,000 total downloads. If all those sales were for today’s average price, her total return would be about $24,700. However, prices last year were lower, and were even lower in 2007 and before, so this photographer’s career earnings from iStock are certainly quite a bit less than $24,000.  (She may have her images with lots of other outlets; if so, she probably at least doubled her career earnings.)

In all, new technology has benefited the customer and distributor much more than the creator. While microstock innovation is better for the customer and the distributor, it only works to the benefit of a very small percentage of image creators. The issue is not technological advancement, but whether every application of new technology can be structured to benefit all stakeholders equally.

Copyright © 2009 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 301-461-7627, 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.  


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