Stock photography is a two-sided market. For the most part image producers need a distributor to make potential customers aware of their work. Image buyers need distributors to make it easier for them to find what they need when they need it.
The distributor needs to cover its cost of providing the service and make a profit. But the distributor must also manage the delicate balance between what customers are willing to pay and generating enough royalty for contributors to encourage them to continue to produce.
Most image buyers have a fixed price that they can afford to pay. This varies with the buyer, the project and the difficulty of finding the right image, but nearly always there is a price cap somewhere for every customer. Almost never will customers pay whatever the seller asks.
If we go back to the 1990s there was relatively little supply and demand was growing. When customers couldn’t find what they needed in stock they were usually forced to hire a photographer to produce the images they needed. This was usually much more costly than stock and there was a time delay. Consequently, if the customer could find an image in stock that worked for the project they were usually willing to pay a decent price because the alternative would be even more expensive.
The prices charged were usually based on how the image would be used and the estimated benefit the buyer might get from using the image. This became known as Rights Managed pricing.
Image creators discovered that there was enough demand to justify producing images on speculation at their own expense, and making them available through distributor networks where image buyers could find them. A huge percentage of the images produced were never licensed (many creators were lucky if 1% of their production was ever licensed), but the images that were licensed generated enough revenue to enable many creators to realize significant profits.
But there is always a delicate balance between the growth in demand and growth in supply.
In the early 90s there was a nice balance between demand and supply from the suppliers point of view. But there were many potential customers who couldn’t afford the prices charged for use of stock images. In addition, often these potential customers couldn’t justify the expense of hiring a photographer to produce what they wanted so they ended up doing without.
Enter Royalty Free
At this point the concept of gathering together a set of images, putting them on a CD-ROM disc and selling copies of the disc for a one-time fee was born. Customers could use any of the images on the disc in any way and as often as they wanted. This was known as Royalty Free (RF). There were still suppliers, distributors and buyers. Initially customers could purchase discs of about 300 images for a couple hundred dollars. Later the number of images per disc dropped to about 50 for the same price.
On any given disc most customers tended to find only a few images that worked for their projects. Thus, they had to keep buying new discs with different images. Some image creators found they could make some money from images that might never sell otherwise and the volume of disc sales justified making the images available at these low per-image prices.
Many customers that had not been able to afford stock images entered the market and overall demand for RF stock grew dramatically. Initially, relatively few image creators participated so despite the fact that the price-per-image was very low many made a decent living producing images for this market.
As Internet technology got better, distributors started making RF images available for search and single image delivery online. Fees were based on the file size delivered and the customer still received all rights to use the image.
More creators started producing better and better quality images. More and more customers discovered that RF satisfied some, if not all, their needs. Demand was strong enough for distributors to steadily raise prices, generating more profits for them and greater royalties for the image creators. Even with the higher prices RF was still much cheaper and RM.
However, demand began to plateau. About 2001 Getty Images (the industry leader at the time) decided that the only way they could continue to grow RF revenue was to raise RF prices even more. Over a period of about two years they raised the average price of an RF image from about $95 to $240.
Microstock and Subscription
At this point a lot of the graphic designers and illustrators (customers) who had found RF images so useful for many of their smaller projects discovered that they could no longer afford them. Often these potential customers created some of the photographs and illustrations they needed for their projects. Once the project was complete this visual material tended to sit in their files and gather dust.
This was also the beginning of social media. These professionals could now share information, and also photos, with colleagues on the other side of the world. The Internet made it possible for them to easily upload images to a web site and make them available for colleagues to comment on, or use.
iStockphoto, and shortly after that Shutterstock, were born. Initially, iStock was just a sharing site. Later it was discovered that some people contributed lots of images, but seldom found anything they could use, while others use a lot, but seldom contributed. At that point a small download charge was established. It helped cover the cost of operating the site, provided some compensation for those whose images were very popular and encouraged contributing.
Fast Forward to 2006
In February 2006 Getty Images purchased iStockphoto for $50 million. It is believed that iStock’s 2005 revenue was around $6 million. At that time Shutterstock was earning under $2 million a year.
Traditional image producers and distributors never expected microstock and subscription to be any threat to their businesses. But, this new microstock model had several things going for it.
1 – The core producers – graphic designers and illustrators – had a very clear idea of what customers needed because they were customers.
2 – There was a huge underserved segment of the market that could not afford traditional stock photography.
3 – Microstock sites offered several customer friendly search features that made them more attractive than most of the traditional distribution sites.
4 – Part-timer image creators were able to participate in the market.
5 – Getty Images gave microstock immediate credibility when it purchased iStock.
6 – Getty invested heavily to promote iStock and the microstock model.
Initially, the quality of the imagery being offered on iStock and the other microstock sites wasn’t all that great, but it improved quickly.
In 2007 iStock generated $71.75 million from 17.75 million download. In that year Getty’s premium RM and RF collections combined licensed rights to less than 2 million downloads. Clearly lots of customers who hadn’t been purchasing images from Getty’s Premium collection were finding images on iStock they could use, at prices they could afford.
In addition, thousands of part-time photographers and illustrators who had never participated in the traditional market began submitting images to iStock. At one point iStock said they had over 100,000 image contributors. The growth in demand was matched by a huge growth in supply.
Some credit for the growth needs to be given to the Great Recession of 2008. Everyone was looking for ways to cut cost. Customers were forced to look for lower cost options. And a lot of people who were out of work decided they might be able to make a little money taking pictures since no other employment was available.
By the end of 2010, I think iStock was doing between $350 and $375 million in gross annual revenue and was licensing upwards of 25 million downloads annually. At the same time Premium revenue and profits were falling as Getty and others were forced to cut prices in order to try to hang onto their premium RM and RF customers.
Cutting Royalties
Between 2006 and 2010 iStock and other microstock sellers steadily pushed up prices. Despite these price increase there was substantial customer growth year-to-year, but as more and more customer started using microstock growth began to plateau. As microstock image quality improved much of growth resulted from premium customers switching to microstock for many of their projects.
To counter declining usage growth Getty increased prices even more to grow revenue and profits. iStock was already the market leader with the highest prices by far. Getty felt they had the best product and customers would continue to come no matter what the price as long as it seemed cheaper than RM. But, as they raised prices sales started to decline even more.
To keep revenues and profits growing Getty focused on cutting costs. Most of the costs were staff. But those cuts didn’t help much.
In the fall of 2010 it was determined that the only way Getty could continue to generate the profits it wanted was to cut the royalties paid to iStock contributors. Getty figured they were the market leader. Suppliers would have to stick with them and simply accept lower royalties hoping to make up the revenue on a promise of increased sales.
As of the beginning of 2011, royalties for iStock non-exclusive contributors were cut from 20% to a range of 15% to 19% depending on the number of the contributors career downloads. Most contributors were in the 15% to 16% range. Getty also changed the way they calculated royalties so most exclusive contributors saw at least at 10% to 15% decline.
This move angered all contributors. Contributors felt they had worked hard to grow iStock’s business, spending more and more money and time on production in order to produce better, more in-demand images. A big part of why they spent more money was because the revenue they were earning was going up month-to-month. Now as payments were cut contributors were being told to “work harder, produce more and better work at greater cost and we’ll pay you less money.” Additional time an expense was necessary just to earn the same as they had been earning before.
Some contributors pulled out in protest. But, Getty’s biggest problem was they forgot to take into account that many of the creators were also image buyers. These buyers were the graphic designers and illustrators that had supported the company from the start and had encouraged many of their friends to participate and buy from iStock. Many of them said, “I’m never going to buy another image from iStock.” They went looking for other sources for the images they needed to purchase.
Shutterstock was the great beneficiary. They were a cheaper source and they had many of the same images available at iStock. In 2010 Shutterstock was generating about $80 million in revenue. In 2014 Shutterstock’s gross was $328 million. In the same period Stock’s revenue has dropped from $375 to about $220 million. About $60 million of Shutterstock $328 million was from Enterprise customers and a lot of that revenue probably used to go to Getty’s premium side of its business.
It is important to note that between 2010 and 2014 most of Shutterstock’s growth was at the expense of Getty Images. Certainly they also took some share from the other microstock distributors because they have a well-run operation and for the most part their prices were much lower than most of their competitors. Shuttestock’s 40% growth annually was not the result of a huge number of new customers entering the market.
To the degree that there has been a growth in image use, prices have been falling more rapidly. Consequently, there has been little revenue growth overall.
It is also important to recognize that supply has far outpaced demand. In the last decade many talented contributors with much lower revenue expectations have entered the stock photography market. They are perfectly happy to earn a little extra a month to engage in their hobby. Their primary means of support tends to come from some activity other than photography. But even these people want to see steady growth in revenue when they are expending increasing time and money producing images.
What Getty Tried Next
Over the next four years Getty tried consolidating iStock’s operations (formerly in Calgary) by bringing much of the operations to Seattle. They cut staff and other costs. They let go the core people who had solid relationships with contributors, and a lot of contributor mistrust followed.
On the premium side of the business Getty cut a lot of the higher paid marketing staff. Later they discovered that the customers these people had been servicing were no longer getting the service they needed. Getty was forced to hire and train new people to try to improve service.
To compete with Shutterstock, Getty expanded its Thinkstock collection with 6 million images from iStock and 4 million from Getty’s premium collections. While Thinkstock’s sales grew it seemed to have no effect on Shutterstock’s revenue and probably cannibalized some sales from iStock and Getty’s premium collections. Overall revenue continued to decline.
They raised iStock prices and then later eliminated their highest priced collections when sales all but disappeared for images in the top price categories.
They cut the price of non-exclusive images in half and heavily promoted “50% off on 50% of our images.” However, they pushed a higher percentage of the higher priced exclusive images to the top of search return order so the customers didn’t recognize a lot of this “low price” benefit.
They delayed Payments to contributors. They ran into several problems in supplying contributors with information about their sales as a result of constant changes. They overpaid more than 9,000 contributors for 2 months in 2013 leading contributors to believe that sales were finally actually improving. Once they discovered their error they clawed back these monies over a six-month period making cash management difficult for the contributors.
In 2014 they introduced iStock subscriptions and single image pricing that came close to matching Shutterstock pricing for non-exclusive images. However, their exclusive images that represented 75% of iStock revenue were still two to three times more costly than images found at Shutterstock.
Neither of these 2014 moves resulted in any positive effects on gross revenue. In Q3 2014 Midstock revenue was down 9.8% year-to-year and in Q4 2014 it was down 15% year-to-year. Their 2014 moves also seem to have resulted in a dramatic decline in royalty payments, particularly to exclusive contributors. Many of iStock’s exclusive contributors have reported that their January 2015 royalties were 40%, or more, lower than a year earlier.
Needless to say during this period image suppliers on the whole have become increasingly unhappy. Based on my January analysis of
430 of iStock’s top earners almost 50% added fewer than 100 new images to the iStock collection between the end of 2012 and the end of 2014. On average, each of these contributors has 5,245 images in the iStock collection, or a total of 2,255,531 images for the group. Twenty-three percent of the 430 added no images or removed images in the two-year period. Thus, the contributors that over the years have experienced the greatest success are giving up.
Getting back to the Two Sided market, it only works when the needs of both suppliers and buyers are satisfied. Buyers always want a better product and more service for a lower price. Suppliers need to earn a reasonable profit for their efforts and costs expended. The distributor – middleman – must carefully manage both sides of the market and try to keep it in balance.
As the Two-Sided stock photography market has gotten increasingly out of balance, many who used to earn their living producing stock images have long since given up and focused their energies on other endeavors. Now, even many of the part-timers are finding it difficult to justify the effort expended for the compensation received. More and more of the production comes from people living and working in low cost-of-living parts of the world where often it may be difficult to find other full-time employment.