State of the Industry, State of the Art

2

April 10, 2006

At the recent PACA annual meeting in Chicago leaders from the three major distributors of stock images, Getty, Corbis and Jupiterimages, took time from their busy schedules to give those in attendance their take on the "State of the Industry, State of the Art".

I apologize for the length of this story, but I think it is important to let these leaders speak for themselves, rather than for me to try to summarize their comments. In my opinion it is very important for all those in the industry who were unable to attend this annual meeting to be aware of what these leaders think are the important issues of the day. In addition, even those who were fortunate enough to attend may find it useful to go back, review and carefully consider all the issues that were discussed. Comments from those who have a wealth of statistics and information about the industry at their fingertips give us insight, not only into where we are currently, but where the industry is headed,

The first to speak was Mark Berns, St. Vice President, Creative Operations, Jupiterimages. He was followed by Lewis Blackwell, Sr. Vice President, Group Creative Director, Getty Images and the last to speak was Gary Shenk, Sr. Vice President of Images, Corbis.



Berns oversees creation, production, post-production and delivery of material for the company's Rights-Managed, Royalty-Free and subscription collections and websites. Previously, he was Chief Technology Officer for Jupitermedia Corp., which operates more than 150 web sites for creative professional, developers and IT professionals, and delivers research on business use of the Internet.


Before joining Jupitermedia, Berns managed the launch of Internet-based and other services for The Associated Press, following a career at AP as a reporter and editor.



Blackwell heads up the creation of images for Getty Images across still and motion imagery collections. He has worked for Getty Images since 1999, and in that time has been involved in numerous projects including bran d evolution, business integration and the revitalization of global image collections. He is particularly focused on conceiving, driving and supporting changing models of creative work.

Blackwell is also an internationally published author and editor of critically acclaimed and best selling books. Prior to working for Getty Images he was publisher and editor-in-chief of Creative Review magazine in the UK for several years. He has also been a consultant in the advertising and publishing arenas, a columnist, and continues to write and lecture widely.

Shenk oversees Corbis' image licensing business, including all content development and management, strategic partnerships, product management, and photographer relations for its diverse collection of commercial, editorial and entertainment photography.


In his prior role at Corbis, Shenk led the growth of the company's industry-leading Rights Services offering. He was previously a founder and general manager of FlixMix, a fully owned subsidiary of Universal Studios. At Flix Mix, Shenk built Hollywood's leading media licensing agency, negotiating major licensing deals with movie studios, TV outlets, celebrity talent agencies, music companies, and guilds in support of client projects.

It's stating the obvious to say that Jupitermedia doesn't look at this business the way everyone else does.

We've gathered a wonderfully talented team of people who ARE able to say that they worked with so and so at FPG or Corbis or Getty. Who can share the lore about the famous and infamous and remember what happened at that PACA everyone's still talking about or at the CEPIC where people from five different - and normally competing - agencies spent the night making the rounds of the bars of some European hot spot.

But we're not OF the industry the way practically everyone else here is. Where most people debating RF vs. RM in the '90s and subscription and micropayment today seem to view them with alarm, we see opportunity. We're an internet company originally and the internet has been one of the quickest incubators of "creative destruction" in history.

That's an economics term I like for two reasons. One, as a former reporter and editor I just like oxymorons. And because I'm an Internet "old hand" I like what it represents in the possibilities for the 'net and technology. As Jeff Burke said yesterday, it describes the effects of entrepreneurial and technological innovation on an industry. It's impossible to find an unaffected industry today. Jeff used typesetting equipment as an example of an industry displaced by change. Closer to this group, there's the impact of digital technology on the camera and film industries and the jobs of scanner operators.

The internet is such a driver of change because of the rapid pace of development and the explosion of new ideas it has generated. How about Amazon.com's impact on book-selling and online travel sites' impact on travel agents. And Jupiter through its Web properties helped shake up the business of tech publishing.

At Jupiterimages, I'm responsible for image operations for all of our various products from rights managed to royalty free to subscription and including flash and video for all our Web sites and distribution channels. I also have been chief technology officer at Jupitermedia for years and was involved with the technical and organizational integration of scores of Web sites and companies as we built one of the world's biggest Internet publishing ventures. Before I joined Alan Meckler's team I worked in the newspaper industry and then launched internet services for The Associated Press. I can't help but compare how debate over the changes in that industry parallel the debate over the changes going on now in the stock industry. I watched as newspapers spent too much time debating whether or not the internet was a fad while search engines ate their lunch by stealing big chunks of classified ad revenue.

Even we at Jupiter have been affected by creative destruction as social networking sites and online training put a crimp in the events business we once ran. But we embraced the change and now we do web events - sponsored online presentations by experts for the same audiences who once attended our shows.

Clearly that kind of change has played out in stock as well. New delivery models. New business models. New markets. New challenges. New opportunities. Subscription and micropayments - among other developments - are the inevitable intersection of the internet with the stock industry.
There's a recurring theme to the debates in several recent major changes in stock, including the introduction of RF in the '90s. The quality's terrible. The prices will drive down margins and drive people out of business. It's a race to the bottom that will kill the industry entirely.

Inevitably, I'm sure there are people who have left and others who will but RF production and revenue continue to grow and so does the market. Jeff talked about a content arms race. And we heard Kathy Nakamura from Brittanica talk about finding RF prices that compare with or exceed those for RM. And I read recently that Bear Stearns projects that the market for creative and editorial imagery will grow from $2.5 billion to $4.4 billion by the year 2012.

The generally accepted wisdom - Jeff alluded to this too yesterday - seems to be that the high end of the market is of a relatively finite size, leaving all of us to try stealing each other's customers with discounts and special offers. The fear, again, is that subscription and micropayment sites will push high-end users (and prices - and revenues) down.

However we don't see either of these models as destructors. We see them as opportunities to grow market share by growing the market.

Micropayment is still in its infancy, but we see it as part of our broader strategy, along with subscription and the extensive investments we've made and are continuing to make in our collections of rights managed and royalty free material of all types.

As you know we've taken a position in the free, community-based StockXchange and the micropayment StockXpert sites. It's an Internet business model, after all, and we liked HAAP Media, the parent company, because they approached things much the way we have historically. Let me tell you first why I don't think it's a threat to the industry and then where we see it's an opportunity.

The material's inconsistent still. File sizes vary even within sites as do production values. There's no standard for keywording or metadata. And while the prices are low, low, low, that alone isn't enough of a draw for art buyers to switch from the other models. If there's demand for quality, prices will rise. By parallel, at one point there was concern that cheap imported laptops could hurt IBM's business. The fact is that while IT directors want good prices they don't get in trouble for buying higher-quality computers.

They DO get fired for buying low-priced computers that turn out to be junk. You do get what you pay for.

In addition, the people providing the images just can't make a living off it at these prices. Many of them probably can't even pay the costs of production. For the model to flourish there will need to be improvements in quality, meaning costs for producers will go up, meaning prices will have to go up. Think RF.

Despite the wide-eyed dreams of a new economy before the Internet bust, you just can't stay in business charging four dollars for a bag of dog food that costs you five dollars to produce. Micro is great for the microsites but not so for the photographers.

Also, micro is very much an open source phenomenon, even though photographers are paid for their work - at least a little bit - rather than doing it for "the cause" - the greater good. There's a lot of open source software in use today and it has its place, but open source has NOT killed Microsoft. The Wikipedia apparently hasn't had an impact on Britannica's image budget.

We DO see it, again, just as we see subscription as a way to grow the market, not push it down.

Let's talk about subscription - the micropayment boogeyman of three years ago.

And oh, by the way, it's worth noting that subscription services in the image business go back way further than three years. One of the sites we acquired - Liquid Library - is the digital descendant of the Clipper service that was created 40 years ago. Another example, actually, of a company that embraced a potential destructive influence.

Sure, the price of subscription is appealing. It does draw the "traditional" stock customers - agencies and large companies. But not at the expense of buying RM or single-image RF or CDs. Comments from the buyers panel yesterday suggest that price IS a driver for them but that the image remains the key and they'll pay to get the right one. We think they need both models. Every company should have a stock subscription. Preferably one of ours.
And sure, subscribers include soccer moms - and dads - doing school newsletters, the church group doing flyers, and schools and schoolkids doing homework. No denying that's a growing segment of the growing market.

But it's not the only segment. We're not just capturing the "low end." Users also include small businesses, the small office-home office segment and other companies that just wouldn't in the past have tried stock because it was perceived as too expensive or complicated.

And even better is that we find that through the techniques we've used in our JupiterWeb division that we're able to move those new buyers of stock - and other media - across our properties and up the scale to RF and RM.
We do it by applying cross-marketing and the somewhat overused but nonetheless true "three C's" of content, community and commerce.

Good content draws an audience and building community or interaction keeps them coming back so you can engage them in commerce. It's ironically what got us into stock in 2003. At the time we produced Web sites and trade shows and delivered Internet-focused research in the marketing and technology space. Our network of over 150 Web sites delivered more than 300 million pages, millions of email newsletters and literally billions of ads to some 20 million users a month.

The beauty of this "vertical" model is the synergy among the offerings. The Web sites and magazines we published and our email newsletters promoted each other and the trade shows we ran that targeted the same audiences and subjects.

Among the audience was a large segment of web developers who we felt would be interested in imagery for their sites. Clipart.com looked like a natural to us. A huge pool of content that could be delivered frictionlessly through subscription - another internet innovation. At the same time that we bought clipart.com we bought photos.com, which brought us into the stock industry at the early stages of the debate over the subscription model. We didn't invent it, but we've embraced it, and we feel like its poster child.
And we continue using those techniques. Our community of design- and web development-focused Web sites - Flashkit with its 550,000 registered users, Webdeveloper.com, The Creative Forum, Dynamic Graphics, Graphic Design Forum, Graphics.com and others - feed customers to our subscription services and to our RF single-image sites and to Jupiterimages.com with its premier royalty free and rights managed collections. In turn, Jupiterimages.com through the many email newsletters we offer, connects image buyers with the community and with our subscriptions.

We know that buyers will tend to shop at three or four sites and we figure as many of them as possible should be ours.

We're already seeing similar good results by applying the vertical cross-marketing techniques to micropayment: The free community StockXchange is not only helping to grow StockXpert but we're also getting customers in subscription.

So we're bullish on subscription. And we take exception to the idea that the quality of subscription content is poor. Some of the industry's top shooters have work in our sites. Subscription is a huge and growing consumer of pictures. This is a tough number to verify or get at but I think its reasonable to say that the number of images downloaded across our subscription services in a month exceeds the number of paid downloads for the entire industry in a year.

You should know that the pictures you've been looking at while I've been talking are all from photos.com. Definitely not, to quote one important industry figure, crap.

And it's worth noting that the continuing demand for more material in subscription - just as in RF and RM single-image collections - means there's ongoing work for professional photographers and for continuing contributions from our image partners. That's the distinction we've drawn between our subscription offerings and the micropayment sites. All the work in subscription is professionally produced with full releases, consistent metadata and the same goals and production value objectives as our royalty free and rights managed offerings.

And as I mentioned earlier, those customers in subscription can become customers of single-image RF and of RM. That's where we see the strength of the internet, community and vertical marketing - and what we bring to the table to help our partners as we convert what many have seen as potential industry destructors from downramps to up escalators.