Royalty Payments

Posted on 3/29/2002 by Jim Pickerell | Printable Version | Comments (0)

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ROYALTY PAYMENTS



March 29, 2002

It's tax time and photographers are taking a careful look at what they earned in 2001.
Many are not happy. It is not just that sales were down in 2001, but in many cases
photographers are not being paid by their agencies for all the sales that were made.


Photographers are increasingly concerned that they are being cheated by their agents. The
following are some reasons why.


  • In some cases photographers get sales reports in the month after the sale is
    booked. Their contracts indicate they will be paid for these sales three or four months
    after the sale is booked, or in the month after the money is collected. This practice
    would be fine if that's what happened, but too often it isn't.


    Photographers who are diligent in checking payments against sales often find that there
    are sales going back more than a year that have not been paid. Usually, they receive no
    explanation as to why this is occurring.


  • Some sales are legitimately cancelled when a customer changes his or her mind
    before using the image. However, there are a few problems with cancellations. First, in
    many cases cancellations are never explained to the photographer in a future sales report
    -- payment for reported sales just never shows up.


    Second, too frequently some agencies book sales before the customer has made a definite
    commitment to use the picture. When the customer comes back a day or two later with a
    slightly different use, they cancel the first sale and book a new sale for the revised
    price.


    Again, such cancellations are understandable, but what makes photographers very
    suspicious is when sales are cancelled months or even more than a year after they were
    initially booked. At the very least, this tends to make photographers believe that their
    agent wasn't doing a very good job of following up to collect after the sale was booked.
    Collection is an important part of the selling process, and the agent's responsibility.


    I recently reviewed one photographer's records of several year from one agent and over
    13% of the sales (in dollar value) had been cancelled beyond what might be considered a
    reasonable period of time for cancellation. This seems to be a very high percentage.


  • Most U.S. agencies have a term in their "conditions of sale" that says if a sale is
    cancelled a "cancellation fee" will be charged. The time period and the amount vary from
    agency to agency, but agencies with the greatest number of cancellations usually don't
    provide any evidence that they charged their customers anything when sales are cancelled.
    The argument often given is that in order to maintain "good relations", the customers
    were allowed to cancel free of charge. However, this may not serve the best interests of
    the photographer.


    Normal cancellation policies of most non-U.S. agencies are not clear. It may be standard
    practice in other countries to be more lenient in allowing customers to cancel without a
    fee. Cancellations tend to appear more frequently in connection with foreign sales, than
    with U.S. sales.


  • A favorite trick of one agency is to write the royalty check in the month when the
    money is owed, but then hold the check for a month or two before mailing. This gives the
    agent enough time to get cash in the bank to cover the check. It is not clear whether the
    oldest checks are being mailed first, or whether some photographers are being given
    favorable treatment. This agency must think that their photographers are not smart enough
    to look at the date on the check, or that if they do they will assume the postal service
    was at fault.


    Of course, the photographer can check the date on the envelope to see when the check was
    actually mailed. And when this practice is repeated payment after payment photographers
    quickly understand that their agent is not treating them in a fair and responsible
    manner.


  • Some agencies never pay their photographers until they call and request payment.
    Most photographers who supply images to such agencies are aware of this practice and make
    frequent calls to get their money, but photographers should not have to beg their agent
    to be paid.


  • One agency doesn't seem to know what they have paid their photographers. This
    agency sent one photographer a note saying, "tell us how much we paid you last year, and
    we will send you a 1099 form for that amount."


  • One of the favorite tricks of foreign agencies is to tell the photographer that
    they never received an invoice. In many countries the law requires that the photographer
    invoice the agency before the agency can pay. The agency normally notifies the
    photographer of the amount due, and then waits for the photographer to submit an invoice
    before they pay.


    Then the agency argues, sometimes as much as years later, that they never received the
    invoice and therefore they could not pay. We believe that the "agent" has a
    responsibility to send the photographer a second notice, if they haven't received an
    invoice within a certain time period.


    Too often the attitude seems to be, "if the photographer doesn't try to aggressively
    claim what he is owed, then we'll just keep the money." One agent even said, "some
    photographers prefer to be paid once every couple years." I would like to meet a
    photographer who has this attitude.


  • Photographers frequently see uses of their images that are never reported or paid
    for. When a photographer catches an agent doing this they immediately become suspicious
    that there are a lot more uses that have not been reported.


    It adds to the photographer's suspicion and mistrust if, once notified of such a use, the
    agent seems to make little or no effort to collect for the sale, or to get to the bottom
    of what happened and explain it to the photographer.


  • Photographers are amazed by agents who go for long periods of time without paying
    any royalties on collected sales, and then suddenly call to ask for additional
    permissions that might be necessary to license one of the photographers images for a big
    ad sale. If the agent hadn't been paying for past sales why does he think the
    photographer is going to help him license additional rights for another image when the
    photographer knows he will probably never see any money for this new sale either.


  • One might think there would be fewer accounting irregularities with big
    multi-national companies than with small agencies, but that is not always the case. Often
    some of the smaller companies provide more accurate and detailed reporting because they
    are dealing with fewer sales overall, and with fewer variations in types of sale.


    The acquisition and consolidation of brands in recent years have created some major
    problems for most of the acquiring companies. Each brand had different accounting
    procedures. Often, trying to integrated these into one unified system has led to
    confusion and incorrect reporting for long periods of time.


  • When sales drop off and an agency starts looking for cash to pay expenses the first
    thing many seem to do is stop paying photographers their royalty. They use the cash to
    cover their operating expenses. Operating expenses don't necessarily decrease when income
    drops.


    The rationale is that it is in everyone's best interest to keep the agency functioning.
    In theory when sales pick up the agent will be able to pay the photographers everything
    they are owed. Often that doesn't work and the agent ends up playing catch up for years.
    Of course, the agent almost never goes to their photographers and get permission to
    withhold some of the royalties for a specified period of time.


    On the other hand, I know of one agent who did just that when he didn't have enough
    capital to invest in necessary digitization for the future. This agent went to some of
    his most productive photographers, explained the situation and asked permission to
    withhold some of the monies he owed them in order to have enough to pay other
    photographers their royalties and invest in the digitization. He agreed to eventually pay
    these photographers all monies they were due, plus interest. Many photographers supported
    the agent in this effort. During the time when monies were being withheld the
    photographers were fully informed as to what sales had been made of their work, and the
    total of what was owed to them.


    If it is impossible to get a bank loan, this is the way to handle the problem. This
    agent's photographers respected him for the way he handled the situation.


  • A few years ago one agent bragged to me that he was a "past master" at figuring out
    how much of what a photographer was really owed he needed to pay in order to keep the
    photographer happy. He said that as long as he paid the photographer about the same as he
    got in the previous pay period the photographer would be satisfied. Royalty payments were
    based not on the total owed, but on what the agent thought he could reasonably get away
    with paying.


    He even had a separate module built into his computer program so he could look at the
    total sales for a given photographer and then pick and choose which of those sales he
    wanted to pay. Fortunately, this agent is no longer in the industry.


  • When photographers call their agents with accounting questions they often get put
    off. This is understandable because the agent may not have the answer at his fingertips,
    but there is no excuse for the agent not to get back to the photographer with an
    explanation, which too often is what happens.


    What To Do?


    When sales are down two things begin to happen. The activities described above become
    more prevalent, and photographers start examining their sales and payment reports with
    greater care because they are not making as much as they had in the past.


    Agents get away with these practices because photographers have little recourse. The
    process of auditing an agent's records is difficult, time consuming and expensive.
    Contracts are often for long terms and hard to break. And when a contract is broken or
    terminated the photographer may have a major problem in getting the images returned. From
    time to time various groups of photographers talk about joining together to do an audit,
    but that seldom happens.


    On the other hand, agents should recognize that when these things happen photographers
    start talking to each other. With the internet that has become much easier. An agent can
    be pretty sure that if any of these things happen to any one of their photographer many
    of the other photographers the agent represents are going to hear about it.


    When photographers learn about such problems they tend to do several things.

    • They stop submitting work on a regular basis.


    • They start looking around for another agent to represent them.


    • They bug their agent taking up valuable time that the agent could be using to
      contact potential customers.


    • They start looking very hard at internet solutions that will enable them to handle
      sales directly without the aid of an agent.

    Photographers are also tired of being locked into on-sided contracts that allow agents to
    continue to license rights to their work without paying them any royalties.


    These problems are so widespread that even agencies that are providing honest and
    accurate reports to their photographers have cause for concern. An agent can't just
    assume that because they are not doing any of the things described above that they have
    nothing to worry about. Many photographers tend to distrust all agents because of the
    things they have heard about a few.


    To maintain a good reputation an agent must not only pay its photographers promptly, but
    keep them fully informed about what is happening at the agency. Photographers tend to
    trust those agents who send them statements and checks monthly. The statements must be
    easy to read and understand, but at the same time give detailed information about how the
    image was used. Checks should arrive on approximately the same day every month.
    Consistency is important.


    When this doesn't happen mistrust starts to breed.


  • Copyright © 2002 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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