Ninety percent of new products fail for a variety of reasons. When a product is first being designed and launched it is impossible to determine how successful it will be. Product developers and designers are entrepreneurs. That usually means they are under funded, but have high and often unrealistic hopes for the success of their products. If photography is to be part of the product the development budget for its use is often inadequate.
Traditionally, when confronted with a request to use a photo as part of a product photographers have tried to assess how successful the product will be, or ask the customer how long they expect to sell the product. Then they establish a one-time, up-front license fee for unlimited future use. It is a common practice to try to charge a little more for large project by having one price for “under 10,000” copies and another for “over 10,000” but these figures are very arbitrary and often not very applicable to the particular product.
Based on the posted figures on Getty Images the charge for a 5 year license is about 1.5 times the price for a one year license. The price for a 10 year license is 2.7 times the one year license. In 90% of the cases the life cycle of the product will be less than 5 years, but it’s impossible to predict which products will fall into that group. The amount the customer will pay is based on the customer’s enthusiasm and how strongly he believes in the success of his product.
Leasing
Instead of charging a one-time license fee, a better strategy for both the customer and the creator would be to set up a leasing arrangement with an initial fee and stipulated renewal dates. Initially, the customer would pay a relatively low fee for a one or two year lease. At the end of term the customer would be re-billed (by the creator) for a second term. Re-billing would continue indefinitely until the customer was no longer offering the product that included the image for sale.
For the customer the principle advantage is a low initial fee during the start up period. If the product doesn’t sell well it can be killed without significant expense. If, over a period of time, the product turns out to be a good seller the customer will be happy to pay the leasing fees when they comes due.
Here’s a sample of how it could work.
| |
Getty |
$140 per |
$225 every |
| |
10,000 |
year |
2 years |
| 1 year |
$276 |
$140 |
|
| 2 year |
$290 |
$280 |
$225 |
| 3 year |
$345 |
$420 |
|
| 4 years |
|
$560 |
$450 |
| 5 year |
$415 |
$700 |
|
| 6 years |
|
$840 |
$675 |
| 7 year |
$555 |
$980 |
|
| 8 years |
|
$1120 |
$900 |
| 10 year |
$750 |
$1260 |
$1125 |
Getty’s price for an image from the Stone collection for under 10,000 products is a minimum of $276 for 1 year and $750 for 10 years. A seller might offer to lease the image for $140 per year and re-bill every year, or $225 for 2 years and re-bill every two years. The customer starts out paying a much lower fee than might be required using the current method and in three or four years the seller is earning significantly more money than would be paid if he had negotiated a one-time upfront fee.
If the product goes into multi-year distribution the customer will not object to paying the continuing license fee. The period when the customer needs a break on the price is during that initial development period.
This strategy also gives the seller the option to negotiate an even lower initial fee in exchange for a higher annual lease. This may be useful when dealing with a start up that is short of cast, but needs several images.
Sellers usually have no way to determine how well most products sell. But it is fairly easy to determine if a new product is still available for purchase from the prime manufacturer. (A product might still be trading on the used market, but once the prime manufacturer is no longer distributing new products, he is no longer obligated to pay the annual fee.)
Another advantage of the leasing strategy is that the upfront price for a RM image will often be less expensive than the cost of microstock today. Most microstock sites add on a premium of 125 to 250 credits to the base price whenever an image is to be used on a product. Once paid this entitles the customer to unlimited use on the product, but for a startup this additional expense is often a budget buster.
Those who want to stick to the traditional strategy should also consider whether a customer will they really tell them when they produce more than 10,000 items. There are too many examples of customers purchasing the cheapest option first and then “forgetting” to notify the seller when they owe him more money. If the customer receivea a new invoice from the lessor every year or two, it is clear that if they are still using the image they need to pay the invoice.
Clocks With Pictures
Recently, I was contacted by a designer who had an idea for a line of wall clocks with different photographs on the face or each. His plan was to launch the project with 50 different designs. Obviously, he had no idea which images would be most in demand and which ones might need to be changed as the project developed. He also needed to produce a catalog to sell the project so retailers could place orders.
Because he needed images of a wide variety of subjects it was unlikely that he could find a single contributor who could provide all the images he needed. Thus, he was forced to deal with a major distributor who could supply images from many different photographers. He was looking at microstock given the prices traditional sellers charged for such uses. Even then, when he added in the premiums microstock sites charge for images used on products his 50 image purchase was well above his budget.
What he was hoping to find was an organization that would be willing to take a more entrepreneurial approach to licensing and be willing to share part of the risk for a greater share of the eventual outcome. As we move ahead this type of approach may be necessary to stay in business.
Many photographers may prefer to get all their money upfront and forget about the project, but there may be many cases, like this one, where the customers is forced to go somewhere else because a reasonable one-time upfront fee is simply more than he can afford.
Books Are Products
It should also be recognized that books are products. Rather than giving publishers 20 or 50 years licenses, revolving two year leases would most likely increase the total compensation for creators. As more of the publisher’s income stream come from licensing digital books to single students, rather than selling printed books that can be used by many students over many years, the publishers will be able to expense in line with their income stream. Currently, in many cases they are pay for longer licenses than they ever use in order to protect themselves from accidentally being in violation of copyright.
The need for such a pricing strategy will become particularly apparent when most of the uses are electronic rather than in print. It will be next to impossible to establish fees based on circulation, but it will be relatively easy to determine if a particular image is still being used in an electronic product or is available for download from a publisher’s web site. As long as the publisher is using the image the company is obligated to pay the lease.
Administrative Hassles
Some photographers argue that it is too much administrative hassle to keep track of when they need to bill customers and submit a new invoice every year or two. The question they’ll be faced with is whether it is better to deal with the hassles or not make sales at all. Undoubtedly, if the strategy were to be widely adopted organizations would spring up that would, for a small fee, be willing to track the leases and submit the invoices on behalf of the photographers.