Race To The Bottom

Posted on 6/20/2012 by Jim Pickerell | Printable Version | Comments (0)

Stock photographers regularly complain about the “Race To The Bottom” in terms of pricing and they look for someone to blame. Favorite whipping boys are Getty Images, Alamy and microstock. But, these distributors are not really the problem.

The theory is that if these organizations would just stop licensing images for low prices then professional photographers could start charging what they believe their images are worth, based on the efforts they expend and the costs of operating a photography business.

Unfortunately, if some, or all, of these distributors were to change their practices it would not alter the decline. Someone new would step in to take their place. The real culprit is technological advance. Nothing can be done to stop that. The only solution is to find a way to live with the new realities. And that may mean looking to some avenue other than stock photography as a way to earn a living.

Technological Advance

It all started back in the late 80s and early 90s when Eastman Kodak first released the PhotoCD. This technological advance made the whole concept or Royalty Free (RF) licensing possible. CD-Rom discs made it possible to deliver large quantities of images at very low cost. Previously, images either had to be printed on paper, or duplicate transparencies had to be created. That process was much more expensive and labor-intensive than the creation of multiple copies of CD-Rom discs. Without the CD-Rom’s the idea of RF licensing would never have come into existence.

The other critical factor was that there was a market for a cheaper product. There were lots of small businesses that wanted to use images, but couldn’t justify paying existing stock photo prices for professionally produced images. Large business (the traditional customers of professional photographers) also wanted to use a lot more images than they had used in the past, but couldn’t justify the high cost of professionally produced images for many of these uses.

Corporations were also beginning to use power point presentations more extensively. Many of these presentations were designed for a single showing to a small group. The corporations wanted exciting visuals for such presentations, but could not justify paying much for such uses.

Photographers argue that back then if all the creators had banded together, and not made images available to the CD-Rom producers then the whole concept of RF would never have gotten off the ground. But, when you’re dealing with self employed individuals that kind of unified action is never possible. Someone will always break the line. In addition many of the photographers who were early RF adopters earned a lot of money from participating in the RF market – even at 20% royalties and sometimes even .lower payments. In many cases they were getting a fee for images that had been sitting in their files and gathering dust. Others found that a lot more images were accepted, and there were much higher volumes of uses than had been the case when images were only offered for licensing as Rights Managed (RM).

But even if there had been such a boycott it wouldn’t have caused these small users to pay more for images. They would just have continued to do without.

Next Stage

The next technological advance was when the Internet got fast enough that high-resolution image files could be delivered in a reasonable period of time. This allowed customers to search online for the images they needed and only pay a fee when they found the right image. They could also receive immediate delivery of a usable file.

The ease of review and delivery would have been fine if the only way to license image had been RM with the price based on how the image was used. But since the concept of unlimited use of a collection of images for a fixed price had been introduced it was carried over to the Internet. Now customers could purchase a single image for unlimited use. The file size delivered was the only variable that affected the price.

No longer were customers required to buy a disc of 50 to several hundred images hoping they would find one they liked, or revert to the even more antiquated and much slower system of calling a stock agency, ask a researcher to select some transparencies on a particular subject and then have the researcher ship the transparencies to them for review.

It is important to recognize that pricing based on file size was important at that time because it cost a lot to store large files online in a way that made them immediately available for download. The cost of bandwidth was also high making it more expensive to deliver large files over the Internet.

Now, those additional costs are insignificant, but RF sellers have continued to price based on file size because it gives them an excuse to charge certain customers more rather than being locked into a single price regardless of how the image is used.

Some creators blame Getty for causing the beginning of price declines when they purchased Photodisc, and thus gave credibility to the RF pricing model. But if Getty had not purchased Photodisc that company would certainly have put their imagery online themselves. Customers would have continued to flock to Photodisc. The culprit was digital technology. If Getty hadn’t done it someone else would.

Getty Raising Prices

In the early 2000s Getty did try raising RF prices. In a period of about two-and-a-half years they pushed the average price to purchase an RF image up from about $97 to $240.  On the surface this looked like a good thing for all creators. The price for an RF images was no longer that far out of line with RM image prices. In fact, sometimes RM images were cheaper because their prices could be negotiated and the price of an RF image was fixed. RM images were often licensed for small uses by customers who found RF images too expensive.

Birth of Microstock

But as prices for professionally produced images rose, many art directors and designers began complaining among themselves that professionally produced images had become too expensive. Given design trends they needed more images than before for their projects, but could not afford the prices professional creators wanted to charge. In addition, there was a growing demand for pictures that could be used in various types of low budget online projects. Customers of the designers had no idea whether their online projects would generate any revenue so they were unwilling to pay much for the project design or the pictures included in them.

Now technology played a different role. Previously such complainers would have talked to a few friends or met in small local groups. Their complaints would have done very little to change the overall market. But with email and blogs, now they could easily talk to people with similar interests, not only throughout the U.S., but around the world. They began to share images with each other for inspiration, and allow others free use. Some images got used more than others so they developed a credit system that required those who wanted to use images to also contribute images that might be of interest to others. Finally iStockphoto was born. Small fees for usage were charged to cover the cost of operating the system. Eventually, the image contributors started earning small amounts of money whenever their images were downloaded. Most of the early adopters saw microstock as a way to provide a service to their community. They never expected to earn significant money from their contributions.

Getty’s purchase of iStock in 2006 probably accelerated the growth of microstock, but this marketing strategy would have grown to the major force it is today even if Getty had not been involved. Microstock provides a service customers want, and offers access to images at fees customers can justify paying.

Microstock Raising Prices

It is also important to recognize microstock has steadily raised image prices. They began by offering larger file sizes at higher prices. After that the majors steadily raised the prices for each file size while remaining conscious of smaller competitors that would undercut them if their prices were too far out of line. Lately, they have introduced brands at different price points into their collections. Currently, iStock has 6 pricing levels depending on the image chosen. 

  Collection Photos+ Exclusive Exclusive+ Vetta TAC
XSMALL 1 2 4 12    
Small 4 5 6 20 35 55
Medium 7 10 10 30 55 75
Large 10 15 15 45 75 100
Xlarge 15 20 20 48 105 150
XXLarge 20 25 25 55 135 200
XXXLarge 23 28 28 60 160 250

(The numbers listed above are credits. The price for a credit varies depending on the number purchased, but is usually more than $1.00. Thus 25 credits is more than $25.00.)

Some of these uses are much more expensive than prices charged for many RM uses today. In the last two years, since several of these collections were introduced, the total number of images licensed by iStock has declined. Nevertheless, revenue has still risen somewhat because enough customers are choosing the higher priced images that they offset the decrease in volume. Among the challenges for iStock are: (1) deciding what images to offer at each price point, (2) how to organize search-return to keep higher priced images near the top without turning away customers who can’t afford those images or angering some suppliers, (3) keeping enough variety in the main, low priced collection to satisfy the majority of customers that are only interested in low priced images and (4) deciding whether to integrate iStockphoto.com and Gettyimages.com into a single site.

Problem Areas

As distributors improve the services they offer costs also grow. In order to stay in business distributors must first cover their costs and provide a return to their investors. There are three ways to do this: (1) increase prices, (2) grow the volume of sales or (3) cut the cost of the product (royalty share). As customers have abandoned RM in favor of cheaper microstock the RM distributors have been forced to reduce prices in order to hang onto customers. As revenue drops and sales volume remains flat the distributors need a larger share of each license to cover their expenses. They can cut costs to a certain degree by reducing staff and other overhead expenses. But, that can also affects the service they provide. At some point the only way to continue to cut costs is to pay less (lower royalties) for the product they are selling.

Microstock faces similar problems. Sales growth overall grew dramatically from 2005 through 2009, but it has reached a plateau since then. Some brands are still seeing good growth but mostly at the expense of taking market share from their competitors. There is a limit as to how much prices can be increased. At some point customers will turn to lower priced competitors. (iStock is experiencing this trend now.) As collections grow, costs continue to rise, often faster than revenue. In order to continue to return a profit to investors, staff and other overhead costs must be cut. One way to cut costs is to require suppliers to do more work in preparing the product for licensing. At some point the only way to make additional cuts is in the amount paid (royalty) for the product being licensed.

What Is An Image Worth?

One important lesson here is that the value a creator places on his work has nothing to do with what a customer might be willing to pay to use it. A photographer might say, “My images are worth ‘X’ and I’m not going to sell them for less.” Fine, that’s the creator’s prerogative. But customers always have options. They determine what they can afford to pay for what they need. If the price is too high they will either look for something else or do without.

The Internet has made it much easier to look for competitive options. It has also made it easier for new suppliers to gain access to the market and offer their images for licensing. Given the huge oversupply more and more customers are able to easily find alternative choices that are less expensive, or free.

If a creator has a truly unique image – and the customer must have that particular image -- then the creator can set the price. But there are fewer and fewer cases where it is impossible for the customer to easily find a substitute at a much lower price for virtually any image offered. Often there is very little difference between an expensive and an inexpensive image in terms of general appeal or image quality. Thus, those who insist on pricing their image at high levels will find fewer and fewer customers willing to pay those prices.

Technology Makes It Possible For More To Participate

Technology has also made it much easier for the average amateur or part-time photographer to make good pictures. It is much easier for image creators to correct mistakes made during image capture, or to modify image files. Once creators have done that they often want to share their work with others. Technology has made that easier too. (Flickr, Photobucket, Instagram, YouTube, Vimeo, Facebook, etc.) The vast majority of today’s image creators are not interested in the amount of money they can earn from their images, but rather in accolades from others. Anything they earn is viewed as a supplement, not as a means of support. And there is no way to prevent these competitors who are willing to accept lower prices from entering the market.
An accolade can be the amount someone is willing to pay to use an image. But it can also be the number of different people (downloads) who choose to use the image, or just a count of those who take the time to look at the image (views in microstock). Often the images produced by amateurs who happen to be specialists or experts in a particular subject are better that those produced by professional photographers who don’t understand the subject as well.

So, yes, there will continue to be a “race to the bottom” in terms of the fees paid to use images. Spending time bemoaning this fact will not change it. There may be short term things that could be done to increase stock image prices, but in a very short period of time someone will come in to undercut the new prices.

Those who hope to make a living taking pictures need to critically examine their work. In the broadest terms it is their art, but are there any consumers interested in purchasing such images and what is their likely level of interest? Is the creator providing a service that consumers want and need, or is it just the creator’s own unique vision that doesn’t happen to be of much interest to others? Are the images available where others can easily find them, or are they buried somewhere on the Internet, or worse yet in the creator’s basement? Are they priced competitively with the work of others and equally easy to find?

If the answer to any of these questions is NO then the photographer may need to look for a way to adjust his career plans toward something that will provide a living wage, and engage in photography as an enjoyable hobby or pastime that may, with a lot of effort, generate a little extra income.

Copyright © 2012 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 301-461-7627, 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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