To better understand the potential for an iStock turnaround it is worth comparing iStock and Shutterstock downloads. At the end of my report on Shutterstock’s Q3 results
I estimated the number of IOD (single image) and subscription downloads Shutterstock will have for 2015. For an explanation of how I calculated the iStock numbers see this story
. The following chart compares the sales of these two companies.
||Single Image, IOD
|iStock % of Shutterstock total
If we add Thinkstock
sales that are mostly subscription to those generated by iStock, total subscriptions sales might be as high as 35 million rather than the 14 million just from iStock.
This figure is based on a few reports from non-exclusive photographers who participate in the “Partner Program.” However, it is very hard to tell how many subscription sales Thinkstock is actually making because iStock exclusive contributors represent the bulk of the images licensed through iStock (75%) and many of them do not participate in the Partner Program. Frankly, this Thinkstock number is a very speculative and based on very little data.
While iStock has about two-thirds as many single image downloads as Shutterstock at about the same price point they only have about 11% as many subscription downloads. (It might be as high as 22% if we include Thinkstock.)
How Did Things Get This Way?
Shutterstock may have had a big advantage by starting out with subscriptions and building a loyal following of subscription users when there wasn’t much serious competition. Once they had the attention of a broad cross section of customers, they discovered there were some who didn’t need a large number of images. For these customers subscriptions were too expensive. At that point, Shutterstock introduced a much higher priced pay-as-you-go option for the customers willing to pay higher per-image prices for a few images. At the time, Shutterstock’s pay-as-you-go prices were still much lower than iStock’s.
iStock used the opposite strategy. They not only charged higher prices, but kept raising prices as volume stagnated. They focused primarily on premium customers who could afford what the company had to offer, and argued that most of their images were of a higher quality from exclusive contributors than the non-exclusive images offered by other sites. Despite the quality claim, more and more iStock customers found that the lower priced images offered by other sites were perfectly satisfactory for most uses.
In an effort to maintain iStock’s premium position and still supply customers who wanted subscriptions with an option to Shutterstock Getty Images created a separate brand, Thinkstockphotos
. They distributed many of the photos submitted to iStock through Thinkstock as well as iStock. Thinkstock has had a degree of success but virtually no impact on Shutterstock. Instead, it may have kept some of the iStock customers, determined to find lower prices, from leaving the Getty Images family. But it didn’t prevent revenue overall from declining.
As customers continued to leave, iStock lowered prices to try to hold onto them. iStock subscriptions were introduced in March 2014
. Today, iStock’s prices for single images and subscriptions for non-exclusive images are very close to those of Shutterstock, but iStock only has about 30 million images in its collection compared to Shutterstock’s 70 million.
However, the problem that is virtually impossible for iStock to overcome is that of its exclusive contributors. The prices for images from exclusive contributors are about three times the price of Shutterstock images regardless of whether they are licensed as single images or via a subscription. About 75% of iStock’s revenue (not counting Thinkstock) comes from the licensing of exclusive images.
(Many in the investment community are confused by the use of the term “exclusive” because they think the customer is getting exclusive use of the image, and thus would have reason to pay a higher price. In fact, exclusive images may be licensed simultaneously to many different customers for many different uses. There is no guarantee that a customer’s competitor will not use the same image.
Exclusive simply means that the image creator cannot offer that image for licensing through any site not controlled by Getty Images.)
iStock not only prevents exclusive contributors from offering their work through other sites, and possibly increasing their overall revenue-per-image produced, but they pay exclusive contributors a higher royalty-share of every sale. If iStock were to lower the prices of exclusive images and reduce exclusive royalties to the same as those of non-exclusives, it would not only lower the company’s overall revenue, but anger every exclusive contributor. Most, if not all, exclusive contributors would immediately offer their images through Shutterstock and other distributors. There would be no advantage to remaining exclusive.
Many exclusive contributors are already extremely dissatisfied with the declining prices and revenue they receive and are cutting back dramatically on the new images they produce. (See here
) Thus, it seems that there is little, if anything, Dawn Airey, Getty Images’ new CEO, will be able to do to turn iStock and the Midstock division of the company around.
For more detailed information about iStock sales in 2015 see here
For additional comments from image contributors and customers check out these comments