iStock Adopts Shutterstock Licensing Strategy

Posted on 9/3/2014 by Jim Pickerell | Printable Version | Comments (0)

On September 13th iStock will “throw-in-the-towel” and adopt the Shutterstock licensing strategy that all images should be equal in price regardless of the quality of the image or the cost of production. They will discontinue their practice of pricing based on file size delivered, and of having multi-tier price categories. Well almost.

At iStock each non-exclusive image (“Essentials” in iStock terminology) will cost 1 “new” credit to license regardless of the file size delivered. iStock will charge 3 “new” credits for images that iStock represents exclusively (“Signature” collection images).

The existence of this second higher priced collection differs from the Shutterstock model where everything is available for the same price. At Shutterstock there are no exclusive images, and no second tier. iStock argues that the Signature images are of higher quality, but really the main difference is that Signature collection creators have allowed iStock to be the exclusive representative of their work rather than placing the same images with multiple distributors.

New Credits

To make this change iStock has to deal will all the existing customers that have outstanding credits. At launch they will convert the old credits to new by providing each customer with 1 new credit for every 5 old ones. iStock has also said that they will round up in favor of the customer.

Effectively this means that an old 10 credit package that costs $19.99 will be worth 2 new credits; an old 30 credit package that cost $54.90 will be worth 6 credits and an old 150 credit package that cost $239.99 will be worth 30 credits.

Here’s how the new iStock pricing compares with Shutterstock’s “Pay As You Go” pricing.

iStock

Shutterstock

Not a lot of difference. It should be noted that iStock has not announced the price points for new credit packs. They could be slightly different than the prices quoted above, but clearly iStock’s goal is to keep their price per image about the same or somewhat lower than Shutterstock’s.

Signature

Prices for the higher priced exclusive images in the Signature collection will range from $24 to $30 per images? Won’t customers go to the much cheaper Shutterstock collection (about twice the size of iStock’s collection) for the images they need?

iStock tries to tell customers that because the Signature images are only available through iStock, and are higher priced, they won’t be as widely used as images that can be found on every microstock and subscription site. But many of these images have been licensed hundreds of times and still may be very widely used. In addition, most customers are not concerned about exclusivity. They just want they best image, at the right price, for the particular project they are working on at the moment.

iStock also argues that the higher priced images are of better quality. Overall, in general, that may be true. But, all the images in the high priced collections are not of equal quality, or use, and when it gets down to specific subject matter for a specific project, often the best image for the customer may be in a lower priced collection.

It should be noted that about 75% of iStock’s revenue last year (roughly $187 million) was generated from their higher priced exclusive collections. Certainly, there were a significant number of customers willing to pay higher prices for the images they use.

Rights Ready

In instituting this pricing strategy Getty Images (iStock parent) seems to have forgotten the lessons they should have learned when they introduced their failed “Rights Ready” pricing model in their main Creative collection on www.gettyimages.com back in August 2006.

Here’s a little review. Rights Ready had a single price for 7 different categories of use. For example it was $800 for unlimited 10-year use of any image, any size in a brochure or catalog. It was a simple flat fee, no variations.

Customers who had been paying more than $800 for the images they used loved the idea because they saved money. When they were working on a project that entailed a lot of use that would normally have cost them a lot more if they licensed a RM image, they considered the Rights Ready offering.

On the other hand, a huge percentage of people who had been buying from Getty needed images for much smaller, limited uses and their budgets for a single image didn’t approach $800. They went elsewhere to get the images they needed.

The end result was that Getty lost a lot their low-end customers. The high-end customers used the image, but they didn’t buy more images just because the price was cheaper. There was not enough increase in high-end customers, or units licensed, to offset the loss in overall revenue from the lower high-price, and the loss of customers who could not afford to pay the fixed price. After a couple years Getty quietly discontinued this licensing model.

I predict the same thing will happen with the new iStock model. Most customers who only need a small file size, particularly for Internet use, will turn to other low priced single image suppliers like Fotolia, Dreamstime, Deposit Photos and others for the images they need rather than pay $8 to $10 for each image. In fact some volume users currently get their images from www.gettyimages.com for less than what iStock will be charging.

On the high end, customers that have been using Signature, Signature+ and Vetta images will for the most part get a real markdown in price – even at an average price of $24 to $30. See the chart below. All the images in the Signature, Signature+ and Vetta categories will be lumped into the new Signature category requiring 3 credits per download.

	Essentials		Signature		Signature+		Vetta
	July 2013	Today	July 2013	Today	July 2013	Today	July 2013	Today
xSmall	1		5		10
Small	2	2	7	7	20	20	35	45
Medium	3	4	12	15	30	35	55	70
Large	4	5	17	20	40	40	75	75
Xlarge	5	6	20	25	45	50	105	110
XXLarge	6	7	25	28	50	55	135	160
XXXLarge	7	8	28	30	55	60	160	170

Note that the above numbers are credits, not dollars. The average price of a credit is $1.50 if the customer purchases a package of 650 credits and up to $2.00 for a package of 10 credits. Thus, the actual dollar costs are much higher than the above figures indicate. Also, notice how the prices have increased in the last year. This evidently didn’t significantly increase revenue. Now these prices are due for a dramatic decline.

Summary

Getty hopes this new strategy will cause many of its old customers to desert Shutterstock and come back to iStock. Nobody, outside of senior Getty management, seems to believe that will happen.

Here are a few of my predictions:

Most iStock photographers will see a continued decline in revenue. iStock has promised that the “royalty rates” for individuals will not decline in 2015, but the revenue generated from a single sale will surely decline. The only way to offset that is a significant increase in the number or licenses. That seems highly unlikely.

Many of Getty’s exclusive photographers will decide that it is a much more practical strategy to go non-exclusive with iStock. They will leave their images in the Essentials collection where they will hopefully earn some money. Then they will put the same images with many other distributors in an effort to maximize earnings.

Image creators will cut back on producing images with high production values for licensing as stock. It will become much less likely that new images produced will ever earn enough to recover costs. This leaves the image creator with two options:

It is important for all image creators to recognize that now over $600 million ($250 million iStock, $50 million Thinkstock and $323 million Shutterstork) of the industry’s approximately $1.2 billion* in still image revenue is generated through subscription and very low priced single image licenses that value all images equally regardless of quality, creator skill, cost of production or how the image will be used. This will make it very difficult for image creator in the future to earn enough from the production of new stock images to sustain a business.

• The $1.2 billion does not include hard news editorial images which for most producers is a totally separate aspect of the stock photography business.

Copyright © 2014 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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