Masterfile

Posted on 4/6/2001 by Jim Pickerell | Printable Version | Comments (0)

391

MASTERFILE


April 6, 2001

Toronto, Canada is becoming a favored destination for photographers dissatisfied

with their current representation and looking for a new agent. Toronto is the

home of Masterfile, now the third largest stock agency in North America -- after

Getty and Corbis -- with gross annual sales of $16 million in 2000. They expect

to do $20 million in business in 2001.

Masterfile currently represents 110 photographers and 20% of them earn over

$100,000 a year in annual royalties. At least one is "approaching" $1 million in

annual royalties. The agency has a staff of 140 and a ratio of one editor to

every 20 photographers.

It is interesting to compare these numbers with royalty figures for Stone that

Getty provided to Selling Stock in June of 2000 (See Story

315 .) Based on figures

provided for one quarter 20% of Stone photographers were only earning $40,000 or

more per-year, although this might have jumped to $50,000 for 2000, based on

quarterly growth year-to-year when the numbers were reported.

I estimate that the average earnings of Stone photographers for 2000 was $30,666

(1500/$46 million). The average income for a Masterfile photographer was over

$58,000.

Masterfile's most recent print catalog was number 28. They have about 15,000

images in various print catalogs. They mail two catalogs a year to in excess of

100,000 buyers worldwide. In addition, they have a very aggressive print

advertising campaign in the major publications read by art directors and graphic

designers worldwide. Since September 1999, they have mailed a 16 page tabloid

size color brochure monthly to their customers.

Until recently 85% of their sales around the world were from images in the print

catalogs, but that is changing rapidly as the internet kicks in. Currently about

50% to 60% of worldwide sales come from images in the print catalogs, but many of

these are purchased as a result of an online search rather than finding them in

the print catalog.

In February 2001, 58% of their North American revenue came from customers finding

the image on Masterfile's web site. Use of the web site has gone from zero to 58%

in less than two years.

With 58% of sales on the web it is becoming difficult to determine the

effectiveness of print catalogs. When someone purchases an image on the web it

may be the result of first finding it in a print catalog. If the customer enters

a catalog image number, rather than doing a search by keyword, in all probability

they found the image by going through a print catalog. Masterfile views print

catalogs as the best browsing tool and the web as the best research tool. They

intend to use both forms of marketing aggressively for the foreseeable future.

During a recent visit to the Masterfile offices in Toronto, I learned that they

have a relatively tight editing policy and only about 300,000 images in their

total file. 50,000 of those are in their online database at www.masterfile.com.

This number includes all of 15,000 images in print catalogs. Only about 2% of

their sales come from the file images that are not online. Nevertheless, Pigeon's

goal is to get most of the file images online. They have discovered that when

they add file images to the web, many of the images that sat in file for ages and

never moved, begin selling once they can be found on the web.

Despite the fact that they are a Canadian company, Canada represents only 10% of

their sales. About 55% of their 2000 revenue came from the United States. The

only problem

Masterfile has experienced in selling into the U.S. from Canada were perception

problems when it was necessary for U.S. customers to return film to Canada. For

this reason they set up an office in Chicago where all U.S. customers return

film. The fact that files are being delivered digitally in an

increasing number of sales also helps solve this problem.

Steve Pigeon, President of Masterfile, gets great satisfaction from the knowledge

that Masterfile is "more profitable than Getty and Corbis combined."

Photographer Royalties

Masterfile pays photographers 40% of the revenues they receive, but there are NO

promotional charges (catalogs, dupes, scanning) of any kind. Photographers used

to receive 50% for analog sales and 40% for online, but in addition many had

substantial catalog charges considering the number of catalogs published by

Masterfile. In February 2001 Masterfile decided to lower the percentage and

eliminate all charges. Pigeon said this strategy will cost the company over $1

million annually, but the board believed it was fair and the resulting growth of

the company would more than make up the difference. The average fee per usage for

images licensed in the U.S. in 2000 was $575.

Photographer Exclusives

A downside for many photographers is that Masterfile is rigidly

photographer exclusive. Pigeon says, "I don't want to represent pictures, I want

to represent people."

He doesn't agree with the philosophy, so prevalent at other agencies, of "cherry

picking" the few best images from as many photographers as possible and

forgetting about the people. Masterfile seems to be the last large agency (and

there are few of any size) that has a philosophy aimed at trying to help each

photographer they represent reach their maximum potential rather than just

maximizing agency sales.

Many photographers have asked Masterfile for image exclusive agreements, but

Pigeon says, "Image exclusive is not in the cards at Masterfile." One of the

struggles many top photographers may have is what to do with whole shoots that

the agency refuses for one reason or another to market. Many photographers

represented by other agencies are finding that their agencies are rejecting a

large percentage of marketable images, for various unexplained reasons.

Pigeon's response to this concern is that "We don't reject an entire shoot unless

it's bad. You can get precious when you represent a few thousand photographers,

but with just ove 100 we'd have to be pretty dumb to reject an entire good

shoot."

Agency Expectations

Masterfile will help photographers reach their potential, but they expect a very

serious commitment from each photographer. Each photographer is expected to

produce a certain number of new images each year and this figure is built into

the contract. The number depends on the type of work a photographer does so a

larger quantity may be expected from a nature or travel photographer than from

someone who produces concept images using PhotoShop.

Another unique characteristic of the contract is that Masterfile has an annual

sales quota for each photographer based on a minimum dollar value per accepted

image. The amount is negotiated and depends on the photographer's area of

specialty. If the photographer does mostly scenics the number might be around $35

per image. If he specializes in lifestyles it might be in the range of $135.

The contract states that "if the Gross Billings for the calendar year ... are

less than the Minimum Sales" (quota) the photographer has the option to terminate

the contract. If Masterfile wants to retain the photographer then they must pay

the photographer the "applicable Royalty on the difference between the actual

Gross Billings and the Minimum Sales for such calendar year."

As far as we know Masterfile is the only agency that offers this type of

guarantee. Pigeon says he has only had to pay out the minimum once in 28 years.

However, they will terminate a photographer's contract if the photographer

doesn't meet his/her production commitment.

The term of the contract is for five years with one year renewals after that.

Selling Separately

Many agency contracts allow photographers to sell stock direct to their customers

so long as they don't market images through another agency. Masterfile's

agreement says, "During the term of the Agreement, Artist will not compete with

Masterfile in the marketing of any Stock Image." All stock sales must go through

Masterfile. Pigeon is concerned that the photographer's judgment of what is

similar, might not be the same as the customers. He doesn't want to take that

risk.

Any new images created for licensing as stock must be handled

by Masterfile. Masterfile believes that the only way they can offer exclusive

licenses is to have absolute control over all similars of every image offered.

Pigeon doesn't want something that is close, but not exact floating around, and

available for licensing, if they have given one of their customers an exclusive

license.

They have all similars in their online database linked. If someone wants an

exclusive on an image they can put a hold on all the similars, if necessary.

However, that usually doesn't happen. Someone on Masterfile's staff goes through

all similars to determine which, if any, might present problems based on the

clients specific usage. All others would remain available for full licensing.

While customers can license usage online and download the image file without the

appearance of any human interaction, a human is in the background all the time.

Whenever a license in North America is completed, the information appears

immediately on the screen of someone in the Toronto office. The usage is checked.

If there is a potential conflict a Masterfile staffer will contact with the

customer within 15 minutes. This operation is manned 24 hours a day, 5 days a

week.

The receipt the customer gets online says: "This receipt is not a License. A

license to use the selected Image for the purposes indicated below will be mailed

to you within one (1) business day following our review of the data you supplied.

In the meantime, you may download the Image to prepare for production but you

will acquire no rights until you have received and paid our License. If you

require immediate rights to reproduce the Image, contact Masterfile..."

Sensitive Issues

They also check for sensitive issues. In their contract with the customer

Masterfile defines "sensitive issues" as follows and obligates the customer in

the event of a misuse.

    "You hereby agree that:

    a. You will not use or permit the use of any Image in a defamatory, libelous, or

    pornographic context or contrary to ethical business practices;

    b. You are responsible for all text used and claims made in connection with Your

    use of any Images; and

    c. If any Image depicting a person is to be used in a sensitive context

    (including, without limitation, context relating to sexual conduct, criminal

    activity, substance abuse, mental condition, religious, political or racial

    bias), then the existence of a model release may not be sufficient to protect You

    from action by the person depicted in the Image (the "Model"). If you intend to

    use an Image in a sensitive context:

      i. You agree to notify Masterfile in writing and Masterfile (in its sole

      discretion) may determine to contact the Model and request a sensitive issues

      model release on Your behalf;

      ii. You understand that such release could require You to pay an additional fee

      (which would require Your prior approval); and

      iii. If Masterfile is unable to contact the Model, or if the Model refuses to

      execute a sensitive issues model release, or if Masterfile (in its sole

      discretion) declines to License the Image for Your purpose, then You agree that

      you will not use the Image and no License will be granted by

      Masterfile."

In addition to the above requirements, a sales person or rights coordinator

checks all online licenses within fifteen minutes of a buyer completing any

online license. Five percent of sales have some type of exclusive.

Overseas Sales

Masterfile has 17 foreign agents licensed to use the Masterfile brand. The agents

are required to have a unique phone number for the Masterfile brand. If for any

reason Masterfile decides to move the images to another representative the phone

number is transferrable. This helps build that brand in the country. They also

have regular sub-agent relationships in 15 other countries. Included in this list

are England, Germany, Italy and Switzerland.

Each agent must report all sales of Masterfile images on a daily basis, in

addition to image number, artist name, print run, and fee the sub-agents are

required to supply: end user name, type of business of end user, rights

termination date, type of exclusivity, type of media, audience of media, and

territory of license. If there are no sales they are required to send a report

that says they have had no sales. Thus, worst case, Masterfile knows within 24

hours if there is a potential conflict to any usage. This information is entered

into a database that is available to all sales staff and sub-agents.

Production Shoots

Occasionally Masterfile funds productions of wholly-owned business and lifestyle

images for the company. Pigeon says he was "forced to create our Production

Department in 1998 because our artists were not meeting the growing client demand

for business and lifestyle images." On these shoots they pay the photographer a

day rate, and in some cases 5% of sales. These shoots are done solely for the

purpose of filling gaps and the images represent only about 2% of the images

online.

Pigeon expects that there will be less need for such shoots as the company adds

photographers during 2001 and he emphasizes that Masterfile did not do this to

lower royalty expense, but to meet client demand.

The following is an excerpt of an e-mail he send to all Masterfile photographers

earlier this year:

    "WANT US TO STOP FUNDING PRODUCTIONS? ...here's the promise some of you are

    looking for:

    MASTERFILE WILL STOP FUNDING PRODUCTIONS THE MOMENT THAT WE CAN RELY ON OUR

    ROSTER OF ARTISTS TO CREATE WHATEVER IMAGES WE NEED - WHENEVER WE NEED THEM - ON

    30 DAYS NOTICE, WITHOUT FAIL.

    If that were to happen, we would gladly re-assign our art direction & production

    staff to work with lifestyle shooters to increase your

    productivity."

    At that point they may go to an outside photographer, but Pigeon insists, "we are

    not in business to create pictures, but to sell other people's pictures."

Will They Sell Out?

One of the questions photographers have, given the number of agencies that have

been sold in the last few years, is will Masterfile be sold also.

Pigeon insists that he is not interested in selling. He also says, "I didn't get

into this business (28 years ago) for the money and I won't get out because of

the money. If we ever sell, and I have no personal interest in doing that, I

would have to know that we are doing the right thing by our photographers as well

as our shareholders." Several of his photographers are shareholders.

He also points out that the financial quotas they have in every photographer

contract would make it tough for any existing companies in the industry to buy

them because they would have to honor the Masterfile contracts.

Tracking Misuse

Masterfile is very aggressive in tracking misuse. Almost 5% of their North

American income ($500,000) in 2000 came from someone making an unauthorized use

of a Masterfile image. Whenever they license a usage they always get the name of

the end client and the publications where the image will appear, not just the

design firm or advertising agency. Then they subscribe to these publications and

track how and when the image appears, to determine if it complies with the

license.

A large percentage of the misuses are simple oversights on the part of the

customer. Customers are usually happy to pay promptly when such mistakes are

called to their attention. In these situations Masterfile usually charges the

customer their normal rates. Occasionally, the infringement is intentional and

then copyright claims are pursued aggressively.

Recently, a client requested a price for an ad usage of a very tight shot of a

businessman that showed part of his face and one arm held at a unique angle.

Masterfile quoted a $4800 price for the usage and never heard anything else from

the client. A few months later one of their "Infringement Researchers" was going

through magazines and spotted what he thught was a Masterfile image. A quick

check of the database showed it had never been licensed. On closer inspection it

became apparent that the image was slightly different, and was actually a shot of

another person, but it was also clear that whoever took the picture was trying to

copy Masterfile's image. They probably thought they could create a new image for

less than the Masterfile price and no one would ever know. Masterfile pursues

this type of infringement to the full extent of the law.

Online Pricing

Masterfile, has probably the most extensive online pricing template in the

industry, with prices for very large print runs as well as small ones, and for

long time periods. They also offer prices for worldwide and unlimited use based

on the media, territory and duration of use. Sometimes these number can be in the

$40,000 to $50,000 range.

Many agencies don't want to publish high end prices because they want to retain

more flexibility in negotiations. Pigeon's theory is that anyone considering one

of these uses will come to them anyway to negotiate, and there is nothing wrong

with giving them the "starting number" online. In addition, many of the people

who ask for unlimited uses are just shopping, and will never get around to

serious negotiations for the high end uses. In such cases giving the customer the

number online is a more efficient use of the time of the Masterfile sales staff.

Masterfile invoices every sale and is not attempting to take credit card orders

online. Every customer must qualify before they can purchase images online. If a

customer wants to pay by credit card Masterfile will accept payment in that

manner, but they don't expect credit card sales to be significant in the

forseeable future.

Royalty Free

Masterfile created a separate company called "Wonderfile" in the Spring of 1999

to sell Royalty Free images. They were encouraged to do this by some of their

photographers who wanted to test RF. Wonderfile also represents some of the other

RF brands, but on the whole has been a disappointment.

They have put a lot of energy into marketing the brand, and are getting low

results for the effort. Pigeon's current advice to photographers is that since

they have the same costs in scanning and keywording RF images as they would have

RP, it is better to put the images into the RP marketing channel (Masterfile) and

have a greater upside potential for sales.

Masterfile encourages photographers represented by the agency to get to know one

another. Every new photographer is provided with a list of all their contributing

photographers and telephone numbers before they sign with Masterfile and

encourage them to call anyone on the list. Pigeon says, "In 28 years, I don't

think we've ever been given a bad reference by a contributing photographer."


Copyright © 2001 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 301-251-0720, 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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