Some photographers are confused about how payments for subscription usage work. I received the following question recently:
Question: If say a customer pays $100 per month for the right to download 100 images, but only actually uses 20 images from the library during the month is the photographer royalty share based on 1/100th of what the library received, or does he get 1/20th of what the library received? The first works particularly well for Picture Libraries as they receive income for less work.
When subscriptions were initially introduced photographers were paid a flat fee for each image downloaded regardless of whether a subscriber used 10 images from a 750 a month subscription or all 750 images.
Obviously, the agency makes a lot more from that subscription if the customer only downloads 10 images in a month instead of 750.
However, the way the agency figured out what that flat fee should be is to determine how many total images were likely to be downloaded in a month by all customers and the total likely revenue generated from all subscriptions during that month.
For arguments sake lets say the agency generates $1,000,000 in revenue a month. Their operating expenses, overhead and profit cost them 70% of that. Thus, they can afford to pay out $300,000 to contributors. While their contracts with customers allowed might have allowed them to download 3.2 million images in actual fact, on average, the customers only download about 780,000
.
Divide 780,000 into $300,000 and you get about $0.38 per download. So the agency agrees to pay its contributors a flat $0.38 for every images downloaded, regardless of the quality of the image, who the customers was or how the image will be used.
The actual number of downloads will vary month-to-month, but if there is a large enough cross section of customers the usage will probably stay relatively close to the same percentage of total revenue generated. Thus, the agency can easily agree to pay a fixed fee per download.
Obviously, the usage customer-to-customer and month-to-month will vary, but Shutterstock has been consistently paying out 28% to 30% of total revenue collected for several years.
iStock and some other agencies in the industry have recently instituted a new strategy. They look at what each individual customer pays in a given month and the total images actually downloaded by that customers in the month. Then, after deducting a percentage for their overhead costs for supplying the service they divide actual downloads by each customer into the money received from that customer during the month to determine the royalty to be paid to the contributor.?
This requires an infinitely greater number of calculation, but thanks to technology it’s possible.
In theory, this is fairer for the photographer. If a customer pays $150 a month to download 100 images and she downloads all 100 each download generates $1.50 for the company. Assuming the creator gets a 20% royalty the creator would get $0.30 per download.
However, if the customer only downloads 20 images in the month, even though she had the right to download 100, the value of each images to the agency is $7.50 and the royalty for each use would be $1.50.
The problem with this new system is that it is impossible to tell the contributor how much revenue his downloads have earned until the end of the customer’s month. Only then will the agency know how many of the allowable downloads the customer actually used. Under the new system some contributors may earn slightly more than others in a given month for the same number of downloads.
The advantage of the old system is that the contributor can know on a daily, moment by moment, basis exactly how many downloads he has had and exactly how much those downloads have earned him in royalties. It is still unclear whether iStock’s new system will actually benefit contributors significantly.