Pencil Theory of Stock Photo Pricing

Posted on 6/16/2008 by Jim Pickerell | Printable Version | Comments (3)

When I argued at the recent CEPIC conference in Malta that stock photo prices should be based on end use, one RF distributor asked, "Why is use pricing fair? When you buy a pencil, the price is the same regardless of how it will be used. Shouldn't photos be priced in the same way?"

The answer is no. All the pencils are exactly the same and their manufacturing costs are easily determined. The price charged is based on the costs of production and distribution, plus a markup that covers overhead and profit.

The pencil buyer owns that pencil, and no one else may use it without permission. The producer of a photo can sell the same image many times, assuming there are buyers. The buyer has certain rights, but the image producer also retains some rights. Because he can sell the item, the producer may choose to charge less than the cost of production for each individual sale if he believes he can sell enough times to profit after covering costs. The pencil manufacturer can't sell pencils for less than it costs him to produce them without going out of business.

Most pencils cost about the same to produce. Every photo is unique, and production costs vary widely depending on where and how the image is created. Image sellers also consider what the market will bare. In most cases, it is impossible to price stock photos based on actual production costs. Thus, some other method of covering production costs and insuring a profit must be found.

The pencil manufacturer only produces enough pencils to meet the expected, and easily measured, demand. The stock photographer knows that a huge percentage of his production will never sell, but has no way of determining, at the time of production, which photos that will be. In order to realize a profit, the photographer must charge enough for the images that do sell to offset the costs of non-sellers.

The pencil manufacturer is paid a fixed fee by the distributor for his product. The distributor assumes the risk of selling all the items he purchases. If the entire inventory cannot be sold at the originally established single pencil price, the distributor will offer lower prices for volume purchases or discount the unit price. The distributor's price does not remain the same regardless of demand. He will adjust the initial price, and thus his profit margin, depending on how quickly he can sell his inventory.

Seldom is a pencil distributor's initial price a fixed percentage above what he paid the producer. Rather he takes into account his overhead costs and what the market will bear.

The stock photography seller usually totally ignores the cost of production because he takes the image on consignment at no cost to him. Rather, he receives a fixed percentage of the selling fee and the only costs that concern him are his own operating costs. If the price charged allows him to cover operating costs and make a profit, it is unimportant to him if the producer makes a profit.

Prices vary depending on the availability of competitive products in the market. The rent for a hotel room or an airline seat is not fixed, but is adjusted, sometimes hourly, based on availability at the moment of purchase. The cost to rent a car is not based solely on the cost of manufacture, but in most cases, length of usage and the number of times the distributor believes he can rent it.

RF sellers charge based on use, they just use a very inefficient system to determine use. They attempt to take use into account by adjusting the price for different file sizes. This system made some sense in the 20th century when digital file storage was expensive and it was costly to download larger files. Plus, the quality of digital files was so poor that large file sizes were needed for good reproduction. These factors have changed, and now file size pricing serves only to take use into account in a very limited way.

There is nothing unfair about establishing parameters based on use. The only thing that is unfair is to price based entirely on what is best for the buyer, with total disregard for what is best for the distributor or the producer.


Copyright © 2008 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.  

Comments

  • Ted Spiegel Posted Jun 17, 2008
    Very professional reasoning. Considering all of the years of musing you have on this topic, it is clearly the short letter from Blaise Pascal Pickerel, who once implored "pardon the length of this letter, it would have been shorter had I had more time."

  • Robert Dahl Posted Jun 17, 2008
    Maybe the pencil analogy should be pushed a bit harder.

    A quick visit to a stationary store will show that not all pencils are "exactly the same". Pencil producers make a wide array of products, from the mini-golf throw away model to the professional mechanical models with replaceable lead and eraser. And a lot in between. And the same manufacturers make pens, rulers, organizers, etc. They no longer make blotters or nibs.

    And you can buy most models in bulk for a much lower unit price. But the low end is only available in bulk, and the highest end includes a useless but attractive box which boosts perceived value. I think this analogy should be revisited with these thoughts in mind. Then we can see where the real similarities and differences are between our new-economy digital products and the old manufacturing economy products like pencils.

    My hunch is that the similarities are much more numerous than this essay would lead us to believe. Mainly because we are still selling an array of products to people with an array of needs and budgets.

  • Tim Mcguire Posted Jun 17, 2008
    Yes! The price of a licensed photograph should have some link to the very real costs of production. This important link does not exist in most of the stock photo world today. That link is essential to having a healthy industry growing in terms of both revenue and volume. For the last 10+ years this industry has only grown in terms of volume (# of images licensed). The revenues remain flat at least in part because there is no link between production costs and price. The traditional wholesale / retail relationship does not exists. It is as you say Jim, a consignment arrangement where those supplying the goods have no say in the pricing.

    This is a important concept for photographers to get their heads around. Photographers need to change this because no one else will. It is not to their advantage in the short term. It is to the advantage of the photographer producer to link production costs in some meaningful way to the price their "goods" are sold / licensed for.

Post Comment

You must log in to post comments.

Stay Connected

Sign up to receive our FREE weekly email listing new stories posted.

Follow Us

Free Stuff

Recent Stories – Summer 2016
If you’ve been shooting all summer and haven’t had time to keep up with your reading here are links to a few stories you might want to check out as we move into the fall. To begin, be sure to complet...
Read More
Corbis Acquisition by VCG/Getty Images
This story provides links to several stories that relate to the Visual China Group (VCG) acquisition of Corbis and the role Getty Images has been assigned in the transfer of Corbis assets to the Gett...
Read More
Finding The Right Image
Many think search will be solved with better Metadata. While metadata is important, there are limits to how far it can take the customer toward finding the right piece of content. This story provides...
Read More
Where Is The Stock Photo Industry Headed?
For new readers, or those who may have missed some of what I have written over the last few months, the following are a list of stories worth looking at to get a sense of where the industry is headed.
Read More
Photography As A Career
It’s that time of year when high school seniors are waiting for college acceptance letters and thinking about future careers. If you know someone who is thinking about photography as a career you mig...
Read More
2014 Stories You May Have Missed
For many the end of the year is a time to review past experiences and consider whether it makes sense to chart a new course in the year ahead. Stock photography has changed dramatically for professio...
Read More
More Stories In 2014 You May Have Missed
Every so often I put together a list of the most important stories we’ve published in the recent past. If you are engaged in the business of stock photography the links below are to stories that we’v...
Read More
Getty: A Three Month Review
In all the excitement about 35 million FREE images it is worth looking back at some of things that have been happening at Getty Images in the last three months. After watching revenue decline for the...
Read More
State Of Stock Photo Industry: 2013
If you’re looking for an overview of the state of the stock photo industry as of October 2013 the stories listed below are a good place to start. Regular readers of Selling-Stock will have seen all t...
Read More
Education Market Shifts To Digital
If supplying pictures for educational use is a significant part of your business plan you need to be aware of how the market is trending toward digital delivery and how that is likely to affect the p...
Read More

More from Free Stuff