Our Royalty System Is Destroying Photographers

Posted on 7/10/2020 by Jim Pickerell | Printable Version | Comments (0)

Since the 1980s “The legal and political environment has been tilted substantially in favor of shareholders and against workers,” according to Lawrence H. Summers, former U.S. Treasury Secretary and president of Harvard, and Anna Stansbury a Phd candidate at Harvard University.

The following is the way this principal has played out in the stork photo business.

In 1980s photographers created the images. Agencies took over the job of collecting images from a broad cross section of photographers, making potential users aware of what they had in their collection and negotiating prices for their use.

Many of the agencies of that time were started by photographers who understood what it cost to produce images of commercial value. They could explain to customers why certain images were worth high prices. In addition, if a potential customer wasn’t willing to pay a reasonable price for a planned image use those early agents would walk away from the sale.

No one knew exactly which images would sell and which wouldn’t. Consequently, agencies needed to collect and store a huge number of images in order to have the right image when a customer came in to look for something specific. A lot of work was required of both image producers and marketers. It was generally agreed that there would be a 50/50 split with the photographer receiving half of whatever the agent could get as a license fee.

The agent had an incentive to negotiate the best price possible because then the agent would also take home more money. If a customer wasn’t willing to pay what they agent felt was reasonable for a particular use, the agent wouldn’t license the image for that purpose. In some cases agents wouldn’t even bother with customers who always insisted on low prices. The agents understood that at extremely low prices they wouldn’t earn enough from their percentage to cover their cost of operation.

Some of the major agencies of this period that were founded by photographers were The Image Bank founded by Larry Fried; Tony Stone Images founded by Tony Stone; The Stock Market founded by photographers Richard Steedman and Barry O’Rourke; Comstock founded by photographer Tom Grill and his business partner Henry Scanlon and H. Armstrong Roberts operated by Bob Roberts son of the photographer founder.

In the 1990’s two things happened that changed the course of the industry and eventually made it an unviable business for professional photographers.

Royalty Free

The first was the introduction of Royalty Free (RF) images on CD-Rom discs. Customer would purchase a disc with several hundred images on it. Purchasers could use the digital images on the disc, as often as they pleased, for any purpose whatsoever. This business was started by people familiar with users who wanted cheaper images, but with little or no understanding of the costs of producing images. In some cases, they purchased image collections outright. In others, they offered photographers a percentage of the revenue they generated from selling the discs.

In order to sell discs with several hundred images they found it necessary to produce and distribute very expensive print catalogs to make potential customers aware of what they had to offer. Based on what they could sell they determined that they needed at least 80% of the revenue to cover their costs. That meant they could only afford to pay the image creators 20% of the revenue they generated. Thus, the new royalty share for RF became 20%.

Second Tilt

The second tilt came when large business organizations that had no understanding of the costs of producing images entered the market. These organizations included Getty Images founded by Mark Getty and Jonathan Klein; Corbis founded by Bill Gates and Kodak. These organizations understood business and profit and loss, but they had no understanding of the labor and production costs that went into the product they proposed to sell.

However, they determined that the beauty of a royalty based business was that they didn’t have to understand what went into production of the product they proposed to sell. All they had to do was sell as much product as possible for the best price they could get and cover their costs and profits with 50% of the revenue they collected.

They didn’t have to pay producers a fixed amount for what they produced as is the case in many industries. It was up to the producers to figure out how to produce what was needed for 50% that they would receive from an unknown quantity of sales.

If the producer’s products didn’t generate enough revenue to cover the producer’s costs that wasn’t the agents worry. As long as producers kept supplying them with product all the agency had to do was cover its marketing and administrative costs. The rest was the worry of the producer.

This worked fine for a while when prices were relatively high, but it eventually stopped working for producers who were trying to earn enough from their production to support themselves and their families. Eventually, most of the production came from amateurs and hobbyists who enjoyed taking picture regardless of the revenue the images produced. However, the kind of images these hobbyists produced often weren’t what the customers really needed.

RF Transformation

One of the interesting things about the RF development was that in the late 90s it became possible to show and deliver images online. In order to market images, it was no longer necessary to produce and distribute expensive CD-Rom discs and print catalogs.

While there were initial marketing costs to overcome in adjusting the business model, the marketing side of the business was able to cut their costs dramatically and increase their profits. To increase sales, they also lowered prices. There was no effort to share the cost savings benefits with product producers, only the consumers. The 20% royalty share had been established and there was no sense that labor should share in the improved efficiency of the business model.

The goal was simply to grow the number of customers and to lower the price to whatever level was necessary to sell more product.

RM and RF

For some years there were two pricing models – Rights Managed and Royalty Fee. The photographer’s share of RM licenses continued at the 50% level for several years, but as RF began to take a larger share of the market, the marketing companies discovered that they had to lower prices of RM uses in order to make sales.

As I mentioned earlier the agent side of the business was only interested in making a much as possible for managers and shareholders, not the well being of its suppliers. Thus, if they were limited in the amount of product they could sell, the only way to cover their costs was to lower the royalty share paid creators.

The transition was slow, but eventually many RM suppliers were receiving the same 20% royalty as that paid RF suppliers. In 2006 Getty also introduced a strategy called Premium Access (PA) that supplied RM images to certain customers for the same low price they were charging for RF. Gradually, they made PA available to more and more customers until at the beginning for 2020 they eliminated RM licensing all together.

In 2006 Getty Images had gross RM revenue of $325.89 million and the average price per RM image license of about $536. That year they had 973,933 RM images in the collection and licensed rights to 607,452 of them. The total size of their Creative collection (RM and RF) in 2006 was 1,767,214 images.

In 2019 the total size of their Creative collection was 28,717,621 (more than 16 times what it was in 2006) and gross RM revenue was probably less than $125 million. The average price per RM license was down to about $29. Moreover, based on my analysis of sales made for some of Getty’s leading contributors about one-third of all their Creative licenses were for prices of $5.00 or less. (Check out this story for one recent license.

Today, the focus of the business is to make as much as possible for managers and shareholders and hope that amateurs keep sending in enough images that customers will want to use, The opportunity for image producers trying to earn a living from the pictures they produce has basically disappeared.

Other stories readers might want to check out.





Copyright © 2020 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


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