September 14, 2006
Recently a reader pointed out, "In the past you've been negative on the potential for stock photo industry growth in terms of pricing and volumes. Currently, are you seeing any likelihood of improvement in these areas?" Here's an outline of why I see little to no chance for improvement in the short or long term.
It is clear to me that it will be virtually impossible to raise the average price-per-image licensed above the RF and RM levels that have been established by Getty Images. (Other companies that have not reached these levels may still be able to raise prices.)
If you look at Getty's average price per RF image licensed in the last year it has risen a little over 1% ($238 to $241) and the average price per RM image licensed has actually declined by almost 2% ($582 to $571). Compare this with Getty's RF price increase between Q2 2003 and Q2 2006 of 125%, (and because there was almost no increase in the last year most of that 125% was in two years.) To me this definitely indicates that we are at the top of what the market will bare in pricing RF and RM usages.
In examining what's happening with RM it is important to remember that there are two very distinct markets for RM images. One is for advertising where the customer can afford to pay a little more for just the right image and sometimes needs the exclusivity that RF can't offer. The other is for editorial where the customer often needs an image that is cheaper than current RF prices.
Getty's price decline probably means that they are selling a greater percentage of their RM images to the lower priced editorial market than was the case a year ago. Average prices for commercial uses are much higher than for editorial use. For example, maybe a year ago 80% of their RM units licensed were to the advertising market that pays $400 or more for each image used with an average price per unit licensed of close to $700. The rest was sold to the editorial market that pays on average $150 per usage. In the last quarter Getty may have increased the volume on the editorial side by aggressive marketing and the percentage of total sales went from 80/20 to 75% for advertising and 25% for editorial. These percentages are totally hypothetical, because I have absolutely no way of knowing the actual percentages of RM units licensed for advertising or editorial, but it is easy to see how due to the price differential the mix between editorial and advertising could result in an increased volume of units licensed, and at the same time a lower average price per image.
Getty has the potential to increase the editorial side of its business, but they have such a dominant position on the advertising side that I don't see that they have much likelihood of increasing market share in this area. It seems more likely to me that they will lose a small share of the commercial market to Corbis and Jupitermedia.
Alamy's price for RM went down. Their RF price went up, but it is still not as high as Getty's. Prices vary depending on the brand of RF being licensed and I suspect that most of Alamy's price rise resulted from selling more into the commercial sector of the market even though the dominate share of their sales is still for editorial uses.
In the last year Corbis' average price per RM unit licensed went up 9% from about $248 to $271. However, be careful what you read into this indication of growth at Corbis. While significantly higher than Alamy's $151, it is still much lower than Getty's $571.
The fact that the Corbis' average went up 9% while the others went down is an indicator to me that Corbis is licensing a greater percentage of its total uses to commercial/advertising buyer, as opposed to editorial buyer, than was the case a year ago. The spread in price between Corbis and Getty would indicate that Corbis has a lot of potential to grow average price-per-RM-image if it can continue its penetration into the commercial/advertising market. Getty, or the other hand, seems to have reached a plateau and Alamy appears to be licensing an increasingly higher percentage of low priced editorial uses relative to commercial/advertising.
Subscription, Micro Payment and Rights Ready
A big part of the reason why RM and RF prices cannot be raised is because we now have Subscription, Micro Payment (S&MP) and Rights Ready (RR) seriously competing for market share with these two licensing models. S&MP will take market share from RF and RR will take share from RM.
Granted, that a significant portion of the S&MP buyers are new to the market, but the price points are so low that these new customers will add very little additional gross revenue to the market (more on volume growth in a minute.) However, the real concern is that because these new products exist some traditional, RF and RM customers will find S&MP satisfactory for their needs because these images are so much cheaper. There are lots of uses out there, particularly in the areas of Internet, power point and new media where model releases and large file sizes are not a significant issue. All the customer wants is an image that is easy to access and illustrates the point she is trying to make.
Jonathan Klein says that only 8% of Getty Images' customers also use iStockphoto. But the question is what proportion of total images licensed (particularly RF images) are licensed by this 8% of customers. Is it 1% of total images licensed, 8% or 30%? And is the number of images these customers are licensing growing. Based on who I see using these pictures and other anecdotal information. my guess is that it is a high percentage and growing. It doesn't take very many people replacing an image that they used to pay $240 for with one that costs $2 for the industry's gross revenue to begin to drop. In order to stay even on revenue, growth in the total number of images used will need to be, not just 100% or 200%, but more than 100 times current usages to make up for the price differences.
Because it is cheaper RR is also likely to take market share from RM. Let's assume that a Getty customer wants to use an image for Printed Marketing Materials or Product/Packaging. That customer finds an RR image that would work and the cost is $800. But, suppose they only want to use the image small, inside a brochure and they only intend to print 1,000 copies. They could get a Stone+ image for that price for $490 and images from other RM brands for even less. Will they pay $800 for the RR images or will they search the other brands for something that is cheaper if they know they are only going to make a small one-time use of the image? I think they will usually check the other brands.
But, if they want to make a large use of the image, RR could be a real deal. If they want to use the image larger, or on the cover, print many more copies, or use it for many years a RM image could cost them several thousand dollars. For example, if they intend to use a Stone+ image for a full-page cover, for 5 years, with a circulation of more than 5 million the price would be $7,565. In this case $800 is a much better deal.
My guess is that most buyers are intelligent enough to know that when the planned use is small they need not bother looking at Getty's RR brand Riser. If, on the other hand, they have a large use they will search Riser first to see if they can find something that will work for their project. If they find the right image, they get it at a great discount over what they would have to pay otherwise. If they can't find something that works, then they do a normal RM search and pay regular RM prices.
The only way I can see for RR to increase Getty's revenue is if it helps them steal customers from Corbis or Jupiterimages, which I think is very unlikely. The other way that RR might work to increase prices is if Getty were to take selected RF images and offer them as RR. In this way they could raise the price of certain RF images without having to push up the price of an entire RF brand which I have already argued can't be done. At least, this would be a move that might push prices up, not down, as moving images from RM to RR seems likely to do. However, Getty Images CEO Jonathan Klein has said that Getty has no plans to move RF images to Riser.
It seems very unlikely to me that the flexibility offered by the RR license will be enough to draw many customers to this pricing model. Rather, customers will use RR when the price of the license works to their advantage. Seldom will customers be willing to pay more for an RR image, if they can find a cheaper replacement in RM.
Photos used on the Internet tend to be less expensive than photos used in print. There are several reasons for this.
- The usage tends to be smaller than print usages, and thus when the RM usage is priced based on size the fee tends to be lower. It wasn't long ago when all internet uses were priced the same, but lately some sellers have instituted a number of pricing parameters for RM images that make web use more competitive with print uses of similar size and circulation. Nevertheless, I suspect, though I do not have statistics to prove the point, that the average price for an Internet use is lower than the average price for a print use.
- For many projects the image is used for both print and the Internet. There is a tendency to price the total usage based on the print component and add a small additional amount for the Internet usage. As print components become smaller and Internet components become more dominant this will tend to reduce the overall amount being paid for photography.
- Designers only need small files for Internet use and it is believed that they tend to use a lot more RF images than RM, but no one has a way to track this usage. If this is true then the revenue generated from Internet use will be less than if the same number of images were used in print.
- There is also a greater tendency for designers to use S&MP photos for Internet applications because they don't need large files sizes, and often are less quality sensitive. This dramatically reduces the revenue generated from a given number of uses.
- Web site developers have much lower budgets for images than do print users.
Given these factors, if buyers switch their projects from print to online the gross revenue for the same number of images used will decline. So yes there will be more online use. But, the fees for still photos used on the Internet is likely to be so much lower than if the image were used in a printed product that gross revenue will decline.
The issues related to sales volumes are much more complex. I can agree that more pictures are being used in more ways, but unfortunately this does not necessarily translate into more images being licensed from professional stock photo sources.
The first thing to examine is the potential for growth in demand for print products, as print has always been the primary source of stock photography revenue. If anything happens to cause a decline in the production and use of printed products it will very likely have a negative impact on stock photo revenues. Then we must consider the effects Internet use, TV (particularly cable), Non-professional image creation, Crowdsourcing, and Guerrilla Advertising might have on the use of still photos.
Printed Product Demand
The Publishers Information Bureau has reported that the number of magazine advertising pages sold in 2005 was roughly the same as in 1998 even though the economy had grown 30%. Since the peak year of 2000 there has actually been a 15% decline in the number of ad pages from 286,932 to 243,305. Yet the revenue from ad pages has grown 67% from $13,813,403,372 in 1998 to $23,068,182,388 in 2005. This increasing cost has caused many ad buyers to question the value they are receiving from their ad spend and to look for alternative ways to spend their advertising dollars. There seems to be every indication that this trend will increase.
While overall advertising spending is rising, print advertising is not reaping the benefit. In addition there seems to be a greater tendency on the part of advertisers to use high paid celebrities to promote their products. This siphons off a large portion of total advertising budgets and leaves less to spend on still photos.
Early in 2005 Universal McCann expected worldwide advertising revenues for 2005 to be $569.8 billion for a gain of 4.8% over 2004. This growth was considerably lower than expected based on predictions at the end of 2004.
The total spent on advertising in the U.S. in 2005 was $276 billion. However, a large portion of that was for telephone marketing, TV, classified print and other forms of advertising that use virtually no still photos.
The principal forms of advertising in the U.S. in 2005 that make use of photos were: catalog and non-catalog direct mail, $49.8 billion; magazines, $23.l billion and the Internet, $12.5 billion. Obviously, only a fraction of one-percent of these figures is spent to acquire photos for these products which gives us some idea of the importance of photos in the grand scheme of things.
Two things worth noting relative to these figures are that the direct mail segment is much larger than magazines, and that the Internet, while less than magazines is surprisingly large in comparison.
The printing industry reports that sales of printed products are trending downward. It used to be that the demand for printed materials was closely tied to the rise and fall of the general economy. But after the last economic recession there was little or no recovery in the printing industry and sales have continued to trend downward.
Part of the reason for this disconnect is that consumers used to get information about products and services from two sources -- printed materials and network television. When there were only a few TV network outlets, the cost of an advertising buy made it almost impossible for any but big national brands to use TV for promotion. Thus, all the smaller companies were forced to go to print. Now with cable and other advertising venues many small to medium sized advertisers have more options and print is often less cost effective.
Consider just one reason why there has been a fall off in print products. The travel industry was a big market for photos and there used to be people called "travel agents". Each company had on file and distributed millions of brochures on travel locations all over the world. Now this industry has virtually disappeared and the need for such brochures has declined because there is no longer an effective way to distribute them.
The Pew Internet & American Life Survey Project has discovered that today Americans look less to magazines and newspapers for information than to any of the other information sources. In a 2004 Jupiter Research survey that asked 18-34 year-old men to list their favorite leisure activity 22% said they go online and 16% play video games. Another 22% watch TV, 9% go to a movie and 6% watch a movie on DVD or VHS. Only 6% would read a magazine or book. It would seem that the printed word is no longer the way to reach this sought after 18-34 segment of the market. In general the trend for all demographics is rapidly moving away from getting information from print products.
Another factor having an impact on still photo volume and pricing is that print ad campaigns are getting more complex. It used to be that a photo would be purchased for an ad campaign and chances are something different would be purchased for a brochure, poster or web site. Now a single photo may be used in a variety of different ways each designed to reinforce the other. Getty's Flexible License Pack and Rights Ready sales models are an indication of the demand for multiple uses of single images. This results in fewer images being purchased and because the pricing for a group of uses is usually less than if each single use were priced separately the overall revenue generated is also likely to be less.
Rising Postage Costs
Rising postage costs also work against growth in demand for printed products. There are significant delivery costs for printed materials such as magazines, newspapers, catalogs and a significant portion of the brochures produced. There is no indication that these costs will decline and the more they go up the less competitive these forms of delivering information are in comparison with the Internet and also cable TV.
It seems to me that the spread in delivery costs between print and electronic will increase as we go forward and it will become harder and harder for print to justify that it is more effective in delivering the message than the electronic mediums. Advertisers will mgrate to the medium that provides the greatest number of customers per thousand impressions.
Book publishers are volume users of photos. In the past they tended to pay based on press run. Additional fees were charged each time they reprinted a book, or did a new edition. Now the trend is to give publishers unlimited use rights for 5 to 10 years. This cuts down on re-use volumes as well as fees.
Boards of education now require textbook publishers to make their books available online as well as in printed form. Very little is paid for this additional use of the photos and yet it is likely that there will be much broader use of each text as a result of it being available online. There is also a trend in education to move away from formal printed textbooks and increasingly rely on information available on the Internet.
Internet Advertising Grows
So the obvious question is, "Assuming there is a decline in print use won't there be a corresponding growth in other areas, particularly the Internet, because there will still be a need for information, and to promote products and services to a growing population?"
In July 2004 JupiterResearch predicted that online advertising will more than double over the next five years. The forecast sees the online ad market growing from $6.6 billion in 2003 to $16.1 billion in 2009. The Interactive Advertising Bureau (IAB) reported that overall Internet advertising revenues in the U.S. for 2005 totaled $12.5 billion. This exceeded 2004 revenue by 30% and growth is expected to continue by 30% per year through 2009. Compare that growth rate with total advertising revenue in 2005 that only had a 4.6% gain over 2004. It is easy to see how the amount spent for Internet advertising could easily equal magazine advertising in a few years.
In May 2005 Forrester Research surveyed 99 major advertiser and 20 ad agencies and found that nearly 85% planned to expand their online ad budgets for the year. Sixty-three percent of those surveyed said that as a brand-building tool, online advertising was "equal to or better than advertising on TV or in print." More and more advertisers are moving away from print and TV as a "brand building" tool and moving to online.
Advertisers like the online option because they can get extremely detailed demographic information about the people who click on their ads. It is also possible to predict the probable response rates to ads on each segment of a portal as well as the time of day ads are likely to be most effective. These are things print will never be able to do. As Internet search engines become more and more sophisticated in their abilities to segment and target buyers there will be more incentive for advertisers to spend less of their ad dollars on print and TV, and more online.
So yes, Internet use is likely to expand significantly. But, as I pointed out in the pricing section above this increase in the volume of uses will not generate the same number of dollars as print uses have generated in the past.
Linkage will also have an impact on the volume of images used online. Images that appear on the web often get much wider distribution and display than the developer of the site anticipated in advance - or paid for. In one example an exterior view of a hotel was licensed for use on the hotel's web site. It was later discovered that this image also appeared on 155 separate Internet portals in the U.S., Canada and the UK that were marketing rooms for this hotel.
A bigger problem is that many of the professionally produced images that are being offered for licensing by stock agencies are being used on the Internet without permission or compensation. PicScout, a company that has developed search technology to track Internet image use by business and commercial web sites has discovered that almost 90% of the images belonging to professional sellers are being used without authorization. Once such unauthorized uses are discovered the larger stock sellers are working to collect the fees owed, but many such uses will undoubtedly fall through the cracks.
The hope is that once customers learn that they should have been paying for the images they use they will become good corporate citizens and pay the next time. But, once they have become accustomed to using free images, will they rush to pay regular RM or RF fees the next time they need an image? It seems more likely that such customers will search out and find the cheaper subscription or micro-payment sources and use them to fulfill their needs.
Another thing to keep in mind as Internet advertising grows is the likely demand for video rather than still images. The Internet can easily make effective use of video while print cannot. On the other hand, so far we're not seeing much increased demand for stock video. Again, digital cameras may be part of the explanation. Smaller companies may now be able to create their own custom video to fulfill their needs and thus bypass the use of large video production operations, particularly if the primary use of the video is on the Internet. It is these large production operations that have been the main users of stock video in the past.
TV and Cable
Commercial and cable TV are a more attractive medium for advertising than print, particularly when trying to reach the 18-34 age group that tends not to read. While this highly sought after consumer group is watching a lot less TV than they used to, they are spending even less time reading. To catch the interest of these Millennial and GenX generation buyers, major advertisers are turning away from 30-second TV spots and looking at a lot of other ways to market that don't use photographs in the same way old media did.
The expansion of cable encourages more TV advertising and less print. With the segmentation of the TV market it has become a lot easier for smaller, specialized advertisers to more cost effectively reach a specialized market.
Despite the advantages of TV over print it has been reported that major companies are reducing their ad spend on TV as well compared with 2002 and 2003. Correspondingly the companies have increased their spending in other kinds of media most of which tend not to use a lot of still pictures.
Creating Images Themselves
Another threat is the tendency for image users to create images themselves rather than buying from a professional source. Digital cameras have made taking pictures so fool proof that now amateurs can produce professional quality images. Canon has estimated that it will sell 5 million professional SLR's with interchangeable lens in 2006.
The advent of digital cameras and Photoshop has made it much easier for art directors to create and manipulate the resulting images themselves. The technical issues of processing film and many of the lighting issues have been eliminated. Advertising agencies are buying professional digital cameras for their art directors to use on low budget projects where they would have hired professional photographers or used stock photos in the past.
In the advertising world, professional photographers are usually not expected to create an advertising concept, but rather to technically execute a concept already developed by an art director. On many photo shoots the art director actually directs the photographer who then becomes little more than a technician. When the art director buys a stock photo he is looking for something that perfectly illustrates the concept he already has in mind. Since art directors know what they want, often it is easier to just produce the image with a digital camera rather than to search for a stock photo or hire a photographer.
iStockphoto, Shutterstock and other micro payment sites are not just sources of cheap photos, but an example of crowdsourcing. One of the major reasons they work is that they have been built as a community of buyers who communicate and share resources with each other. For many of the image producers the primary goal is not to earn revenue from their images, but to obtain cheap images from others in the community so they can increase their margin of profit on their primary business - graphic design, publishing or whatever.
Unlike most commercial ventures where the goal is to increase prices, a large segment of the producers of images on these micro payment sites have an incentive to keep prices low. This is because they are also users of images. If there is to be a price increase they want it to be on their finished deliverable product, not on their raw materials. Low priced raw materials (photos) help them grow their profits.
In 2005 it is believed that iStockphoto licensed rights to 5 million images and they expect that number to double in 2006. Meanwhile Getty licensed rights to about 1.5 million images in 2005 and will probably have less than 4% growth in the number of images licensed in 2006. Klein says that only 8% of iStockphoto's customers are also Getty customers, but we don't know how many of iStock's total images licensed were bought by this 8%. My bet is that it is more than 8%, but even that small percentage the sales represent approximately 800,000 images that won't be purchased from Getty's higher priced collections, or from other more traditional sources.
All these factors work together to make it more difficult for professional photographers to earn a reasonable return on investment for the time and resources spent to produce stock images and make them available online. If there is a growth in the number of images used it seems likely to be at much lower price points than stock images have been licensed for in the past. And there certainly seems a likelihood of some cannibalization of existing image use by lower priced offerings. For decades print products have been the major users of still stock images, but now there are also strong indications that there will be a decline in the use of print products in favor of the Internet and cable TV. All indications are that these trends will continue downward rather than improving. To the degree that print uses decline, and new uses are at much lower price points there will be less revenue for stock photos. The Internet may end up using a lot more photographs, but a very high percentage of them will be from free or very low priced sources. Increasingly, the producers of stock photography will look at the business as a hobby or a supplement to some regular employment rather than a career.