There is general agreement that the industry's No. 1 problem is oversupply, but what can be done about it?
It appears the three majors are in the process of cutting supply by editing tighter and taking less from both individual photographers and small, specialized production companies. New production companies find it next to impossible to get accepted by the three major distributors that combined represent close to 70% of commercial sales industry wide. Without selling through at least one of them, it is next to impossible to generate enough sales from other distributors to support a production operation.
It is also believed by many, although much harder to confirm, that a significant portion of the new images being added to collections are being produced by staffers or those under contract to Getty, Corbis or Jupiter enabling these companies to wholly own the resulting images. Rates are about half the per-accepted-image rates paid a year or two ago. Production companies are up for sale and in some cases, find it difficult to recover the investment made in producing the images, let alone a profit.
It is argued that if the big three, and a few second-tier players, could control supply, they could raise prices and increase profits. However, there is one additional problem - microstock. It does little good for traditional agencies to cut supply unless microstock supply can be cut as well.
Supporters point out that Getty owns iStockphoto and has put a limit on the number of images photographers can submit per month. Jupiter owns Stockxpert. Corbis owns SnapVillage, and Inmagine owns 123rf.com. Most smaller microstock brands are struggling, as evidenced by the folding of Lucky Oliver. The only two microstock companies of any size left are Fotolia and Dreamstime. It is expected these companies will be acquired by one of the majors in the near future.
Assuming the above is true, I'm very skeptical that it will work. Here's why.
Reducing Supply Won't Work
1 - If the top seven microstock sites are taken out of the picture, someone will create one or two viable new ones. Yes, it takes capital to start a site, but building such a site is getting easier.
2 - As long as the Internet exists, there will be a huge number of customers who want images at very low prices and a huge number of image producers who want to show their work. A significant portion of producers are unconcerned about the revenue their images generate because they earn their living in other ways.
3 - Other sites like Alamy can deal with massive image oversupply (12 million and counting) and still grow at a much more rapid pace than the big three (over 15% annually). Producers rejected by the big distributors will turn to Alamy and other sites. They may cut back on new production, but sites with volume and variety will begin taking market share from those that have chosen to limit choice and charge higher prices.
4 - Flickr is still a potential wild card. In 2006, the company said it would make the more than 1 billion images in its collection available for easy licensing. It failed to do this in 2007. But if Flickr figures a way to make licensing easy for even a small part of its file, it immediately becomes a dominant player in the industry. Remove the rest of the microstock players, and Flickr's incentive becomes greater. Major ad agencies tell us they currently use Flickr to find images for comping, particularly when seeking a more natural, unfinished look. When their customer likes the comp image, the agency is willing to go to major lengths to clear rights. Make things a little easier for agency art directors and the use of Flickr is likely to explode.
If this happens, the tight editing strategy of the traditionals works against them because they have limited choice.
5 - To get higher prices, traditionals must aim at the higher paying top of the market. With fewer images chasing these sales, it may still not be a viable option because the number of customers is getting smaller.
6 - Even if the big three end up owning all the microstock companies, they cannot afford to cut back on the sales this market segment generates. Getty earned $72 million from iStock in 2007 and expects $122 million in 2008. They need that money. The quality of microstock will improve, editing will reduce the choice for traditional buyers, and given the existing pricing strategy, many traditional buyers will find what they need in microstock and license it for much less.