Lately, I’ve been getting a lot of questions from investors trying to assess the stock photo industry growth potential and figure out where Shutterstock, Adobe and Getty Images are headed. In general here is what I’ve been telling them.
Industry Growth
First, when talking about the “stock photo industry” I define it as the licensing of photos, video and illustrations to mostly professional users for commercial and editorial projects. The visual content is usually used in products that are distributed in print or digital form.
I don’t include wedding photography, fine-art print sales, music, tools for asset management or the embedding of free photos in order to gain information about users that can later be sold to advertisers. I don’t include all the revenue Adobe generates from licensing rights to use software simply because they also earn a small percentage of their revenue from licensing the use of imagery.
This is an important distinction because some distributors may be able to find ways to grow by engaging in activities other than stock photography. I’m only looking at the potential for stock imagery growth
In 2012 Shutterstock was saying the addressable market for stock photography was $4 billion (I think in was much less). And Shutterstock has been growing at 40% per year through 2014. Some financial analysts think Shutterstock can grow its revenue at a compound annual growth rate (CAGR) of 31% from 2015 to 2020. To me, that is a very unrealistic expectation.
In early 2013 the Global Stock Image Market Research Group (GSIMRG) in Heidelberg, Germany estimated that
worldwide stock imagery revenue in 2011 was
$2.88 billion. Using their data and extrapolating in ways that seemed more logical based on how the industry really works, I came to the conclusion that total industry
revenue generated was closer to $2 billion in 2011. Today, I believe worldwide revenue for the industry is in the range of $2.5 billion, or a little less, and breakdowns roughly as follows:
| Microstock |
33% |
| Traditional Premium |
25% |
| Editorial |
20% |
| Video |
22% |
Two articles that may help in understand the micrstock and video sides of the business are “
Microstock Market Size,” and the
executive summary of the “ACSIL Global Survey” of stock video usage.
I think total stock photo industry revenue is growing at less than 5%, if it is growing at all. Distributors keep finding ways to cut the cost of photos faster than the number of images being used increases. In coming years there will be more and more free and low cost imagery available and less and less will be paid for professionally produced imagery. The only way the big companies will continue to grow is in finding ways to transition into other lines of business.
Adobe
As I’ve reported, I think Adobe’s launch of Adobe Stock and the introduction of their subscription plan was very well though out and has the potential to be very disruptive.
Adobe Stock has the potential to take significant market share from Shutterstock and others that offer subscriptions. I was skeptical when
Adobe first purchased Fotolia but I think they have settled on a strategy that is likely to be a very effective. Unfortunately, we will probably never get real numbers of the revenue generated by Adobe Stock, but I expect the number of images used to steadily increase as Adobe takes market share from the rest of the microstock industry. This won’t happen quickly. The first signs of a direction may show up when Shutterstock reports Q3 revenue, but we probably won’t have a clear idea of Adobe Stock’s impact until Shutterstock reports Q4 2015 revenue.
Lee Torens in his
Microstock Diaries disagrees and thinks prices are already low enough for customers. He doesn’t believe they will leave Shutterstock, iStock or Dreamstime for this offering. He says:
The main one is that prices are already low enough that they aren’t buyers’ first priority. So most customers don’t price compare. There’s two key reasons for this.
First, there’s switching costs. If they’ve invested the time to learn one agency’s search functions, built lightboxes, gotten to know their favorite contributors’ usernames, and possibly also invested in setting up a subscription, there’s too much to lose to switch providers just for a slightly cheaper price. Most of those are minor points, except the subscription is a major inconvenience to change at companies.
Second, is content. As top microstock agencies have mostly the same images, it raises the importance of search. It must be fast and quick so they find what they’re seeking as quickly as possible. The cost of time spent searching far outweighs the cost of licenses for the majority of microstock buyers. From those I’ve spoken with over the years, more buyers consider switching agencies for a better search experience even if the prices are higher.
Shutterstock
Assuming Adobe is going to draw customers away from the subscription offering of others are there any moves can make to avoid declining revenue.
About 90% of Shutterstock’s downloads results from subscriptions, but this only represents about 43% of their revenue. The other 57% of their business is single image licensing, Enterprise sales as they move to take market share from Premium sellers, and Video. So far they are only marginally involved in the editorial side of the market, but their access of Rex and alliance with Penske Media (PMC) indicates that they hope to grow that part of their business.
Shutterstock can lower prices to a point that matches Adobe’s offer and try to hold onto their customers, or accept that some subscription customers will get most of what they need elsewhere and focus on building the Image on Demand, Enterprise, Video and Editorial sides of their business. This will be a new experience for Shutterstock because they have made their reputation on underpricing the competition.
Shutterstock Editorial
Clearly, with its acquisition of
Rex Features and the alliance with
Penske Media (PMC) Shutterstock has decided that it is time to get more deeply involved in the Editorial side of the business. Annual revenue from Rex and PMC combined probably represents on 3% to 4% of total revenue generated by the Editorial side of image licensing business and that will be very difficult to grow.
Worldwide the editorial side of the stock photography business probably represents 20% of total industry revenue but the editorial marketing environment is very different from the one Shutterstock has engaged in thus far.
Currently Shutterstock gets all of its content free of charge. If any of it is licensed Shutterstock pays the contributor about 28% of the gross fee collected and keeps the rest to cover its costs of operation and profit. If a significant part of the content never sells there is basically no cost to Shutterstock.
To seriously compete against the major editorial image distributors Shutterstock will need to offer potential customers good coverage of virtually every major news event worldwide and deliver those images in a timely manner. Otherwise, potential users won’t bother to look at their offering because the customers already have way too many images to review.
Others on the editorial side of the business have found that they can’t totally rely on freelancers submitting what they want when they feel like it. Often they must pay, at least a few photographers, a salary plus expenses and guarantee some freelancers a minimum fee to cover certain events. These costs are incurred regardless of what the photographer is able to produce and before the image distributor has any idea if the production will be of any interest to their customers.
With the PMC arrangement in particular Shutterstock will need to start hiring either staff photographers or contracting with freelancers to cover events.
Ben Pfeifer, VP of New Business at Shutterstock says, “We currently have photographers on staff in the UK, plus a large number of relationships with freelancers worldwide. We will be looking for new staff photographers in the US, UK and potentially other territories, in addition to freelance photographers on retainers and contracts.”
To the extent that they do grow revenue in this segment of the business they will also incur much higher expenses.
Shutterstock Growth Potential
The only reason Shutterstock had its spectacular growth rate in the last four years is because they underpriced everyone and were able to steal a huge amount of market share from iStock, in particular, as a result of a series of Getty mistakes. Consider these numbers:
| |
2010 |
2014 |
| Shutterstock |
$78 million |
$328 million |
| iStock |
$375 million |
$220 million |
Now they have a competitor that is significantly underpricing them. They will continue to take share from Getty and others on the Traditional side with their Enterprise business, but at much lower prices than the traditional’s have been charging. Every Enterprise sale Shutterstock generates is likely to be a Premium loss from someone else. So gross revenue for the industry as a whole should decline.
Shutterstock is convinced that there are a lot of customers out there that no one has reached. I think they’re wrong. Virtually all of their growth will be the result of taking market share from someone else, not finding new customers who have never purchased stock from anyone. Consider these numbers.
| Subscription |
$143 million |
| Image on Demand |
$86 million |
| Enterprise |
$76 million |
| Video |
$23 million |
| Total |
$328 million |
In 2010 I believe Shutterstock’s entire business was subscription. They have moved into other lines of business and taken share from the other players.
(When I published an analysis of the microstock side of the business I lumped all of Shutterstock’s revenue under my Microstock category although in reality they have revenue from all four business segments – microstock, premium, video and editorial.)
Image Use
Another factor to consider is image use. Based on the data reported by Shutterstock
I estimate that roughly 90% of images downloaded in 2014 were through subscriptions. But subscriptions only represented about 43% of the company’s total revenue. On the other hand more and more customers have been willing to pay a much higher price per image ($10 to $11 per image) for just the images they need when they need them rather than purchase a subscription. Image on Demand sales currently represents about 7% of downloads and over 25% of revenue. The other 3% of downloads representing 30% or more of sales are for Enterprise (premium) and Video sales.
Enterprise and Video are growing as a percent of total revenue as Shutterstock further penetrates the Premium and Video markets with lower prices. That doesn’t mean that the demand for content is growing. For the most part they are just taking market share. Customers are switching to a lower priced offering when the content and service meets their needs. Image buyers will occasionally go back to a higher priced offering when they can’t find what they want at the low priced distributor, but the distributor with the higher price will not be their first choice. And they will find more and more of what they need at the low priced source.
This takes us back to Adobe Stock. Adobe offers some slight service advantages for customers who use Adobe Creative Cloud (CC) software when designing their projects. But they offer a significant price advantage for CC users that purchase visual content. And Adobe has over 4 million CC users although many of them are not buyers of visual content. It seems logical that most of the CC users who buy images would use Adobe Stock when it is convenient and go elsewhere when Adobe doesn’t have what they need.
It is also important to remember that unlike the other companies in the industry where stock photography is the sole or major part of their business, licensing photography will be less than 3% of Adobe’s business. If photography revenue falls that’s not a big issue for Adobe as long as the availability of photography drives more use, and more dependence, on the other products in Adobe’s offering.
Also check out “
Microstock Revenue Will Decline” that I wrote last month.
Getty Images
For more about how Getty and iStock fit into this picture see:
Getty’s Turnaround Potential and
Sales For iStock Leading Contributors Continue To Decline.