441 WHERE'S RF HEADED??
November 9, 2001
At the recent PhotoPlus and PACA International Conference meetings in New York the companies
producing and marketing RF images were much more visible than they have ever been before. At
PhotoPlus there was a private meeting of RF producers with almost forty people in attendance.
During the PACA meeting there was a panel of nine producers who discussed the state of the
industry as they see it. However some of the most interesting information resulted from
one-on-one meetings in the corridors.
Prior to attending these events, I had estimated that total worldwide revenue from RF sales in
2000 was between $230 and $270 million, or between 18% and 21% of total stock revenue. (I
believe total revenue for 2000 was approximately $1.278 billion. See Story
410 for details.)
Based on my discussions in New York, my early RF estimates may be too high. Many RF providers
believe I have credited the leading companies with more revenue than they are generating. For
various reasons these RF producers are in a much better position than I to know what their
competitors are doing. Totalling the numbers they provided I get approximate gross sales of
$200 million, or 16% of gross industry sales.
No one believes my estimate for PhotoDisc, the industry leader. In his recent quarterly
conference call Jonathan Klein told investment analysts that RF represented about 1/3rd of
Getty's total revenue, without giving a specific figure. I concluded that this would mean
PhotoDisc had about $35 million in sales for the 3rd quarter. Extending this percentage out
for all of 2001, would make Getty's RF sales about $140 million. None of the other RF
producers believe Getty's sales are anywhere near this high. Their estimates for all three
brands - PhotoDisc, EyeWire and Artville - range between $100 and $120 million.
Thus, I am now putting my worldwide RF estimate at somewhere between $200 and $270 million
with the likelihood that the actual number is closer to the bottom than the top.
Where Was PhotoDisc?
One of the most interesting things about the New York meetings was the conspicuous absence of
PhotoDisc. While a PhotoDisc editor attended one meeting, no one with access to PhotoDisc
sales data was present. All the other brands had key executives in attendance.
Other recent moves at PhotoDisc are also worth considering. We reported in August (Story
that Getty's U.S. scanning operation (primarily PhotoDisc) was closed. New scanning is
expected to be done in London, but there is no evidence that London is ramping up for an
additional work load.
Just before the New York meetings Sally Von Bargen, originally President of PhotoDisc
announced her retirement. Mark Ippolito, originally VP of sales at PhotoDisc resigned. Clint
Kendrick (originally PhotoDisc) and now director of customer service and sales in Seattle, and
Gretchen Hundermark customer service manager at PhotoDisc were laid off effective the end of
Competitors report dramatically reduced marketing by PhotoDisc. The company seems to have the
attitude that they have such a dominate position and commanding lead in RF sales that they
don't need to market and promote. They seem to expect that once buyers have bookmarked the
PhotoDisc site they will never go anywhere else to look for images. They give the impression
that they don't need to produce much in the way of new work because the buyers will be happy
to use whatever PhotoDisc has to offer. These impressions, may not be an accurate reflection
of real attitudes within Getty, but this is how most of the other RF producers are reading
PhotoDisc's recent actions.
This is a very attractive strategy in a down economy -- if it works. The company is able to
cut costs dramatically, while sales continue at about the same level. The thing to watch is
whether the aggressive competitors, offering new content and aggressive marketing, will take
market share from the industry leader or just each other. Any way you figure it -- even at
the lowest sales levels -- Getty controls more than 50% of RF sales.
One of the hopes of RF producers is that they will continue to take more market share from the
Rights Protected side of the business than from other RF producers. They ask, if RF currently
only represents 15%, to at best 20%, of total stock revenue isn't there a lot of room for RF
What they often fail to consider is that there is a big segment of the market -- editorial --
that is not addressed by the imagery RF producers offer. The producers acknowledge that given
the wide variety of imagery needed by the editorial market, it will never be economic for them
to try to produce discs or single images that would have much penetration into the editorial
market space. Thus to determine RF's market potential we need to focus on the advertising and
corporate segments of the market where RF's strength lies.
Based on statistics from PACA and CEPIC (again see story
410 ) I believe the advertising
segment of the market represents about $400 million in sales in the U.S. and $180 million in
Europe. If we assume RF sales are about $230 million worldwide, and close to 80% of those
sales are made in the U.S., RF represents about 45% of the dollars being spent in the U.S.
market and 28% in Europe. It is important to note that these are dollar figures, not
percentage of uses. RF's percentage of uses is much higher given the relative difference
between the average price per use for RF and that of RP. If the RF sales figures are higher in
total dollars then their market share and percentage of use is even greater.
I believe RF use, as a proportion of total use, is beginning to plateau in the U.S. market.
According to Trend Watch 80% of the creative pros in the U.S. download individual RF images
from the Internet. Trend Watch also reports that 85% use RF CD's. There are very few new
buyers to convert.
If total uses are not growing, then it is unlikely that RF's share of the total market will
increase. There is still room for RF to take an increasing share of uses from RP in Europe,
but because the total market for the RF type of imagery is smaller in Europe, the growth
potential may be less than many RF producers believe.
No matter how high the quality of the RF offering -- and it is certainly on an equal par with
Rights Protected imagery -- there will always be customers who need images that are not
available as RF. RF has focused on high demand subject matter and provides very little depth
in some of the lesser demand subject areas. It is this depth and variety that many customers
In a high percentage of cases the additional cost to use an image is not a factor. That is why
over 80% of industry revenue still comes from RP images. The image is more important than the
price, so long as the price is reasonable. Most customers still recognize that the prices
charged for Rights Protected images are reasonable -- based on the intended usage -- even
though they are much higher than RF prices.
Issue Of Concern For RF Suppliers
As they look ahead there are a number of issues that appear to concern the RF producers. They
Oversupply: They are concerned about an oversupply of RF. Every new entrant
produces new discs that compete with all the existing discs that are already out there. They
all recognize that sales made by new entrants are now taking more market share from the
existing RF suppliers, than from the Rights Protected segment of the market as was once the
Most RF sellers believe they can capture an even greater share of the total market for stock
photography by further improving quality of their offering. They hope this will enable them to
take an increasing share of the market from the Rights Protected sellers. I believe that from
the buyers point of view the quality level is perfectly satisfactory in both the RF and RP
segments of the market. What it boils down to is does the specific image meet the requirements
of the specific project. Customers will buy whichever image does the job the best.
There is no single arbitrator as to what is "high quality" for ALL buyers. Every buyer has a
different definition based on their particular need of the moment. RF tries to focus on those
subjects that will be of interest to a majority of buyers, but at any particular moment there
will be lots of needs their offerings will not fulfill.
Broader Distribution: Most RF sellers are looking for more companies to handle the
images they have to offer. In a typical retail model the more stores you have showing your
wares the more product you are likely to move. Look for more Rights Protected agencies to
start offering RF images on their web sites as an additional service to their customers, since
they know their customers are going to make some use of RF anyway. If the RP sellers can get a
percentage of those RF sales it will help them stay in business and support their Rights
Protected business. In most cases the Rights Protected sellers will not develop their own RF
brand, but will make deals with various existing RF brands to represent the images they have
Many photographers who offer Rights Protected images to their agencies will be unhappy with
this move, but it probably is best for everyone.
-- The RP agency gets a share of RF revenue without having any major cost of producing,
scanning or keywording.
-- The number of new RF images available, and the number of new RF suppliers, is limited.
That is good for everyone if we agree that there is an over supply of RF content right now.
-- The RF company has a chance of making additional sales from every additional outlet they
add to their network.
-- The RP company may be able to "sell up" RF customers to RP images when the customer can't
find what they want in RF.
-- The company that makes most of their money from RP sales may find it easier to justify
doing some research for RF customers because they are not totally dependent on RF fees and
they have a chance to possibly sell some RP images as well.
Sales of Discs: When both RP and RF images are searched and delivered online much
of the original convenience factor discs offered is lost. Some within the industry have
pointed out that one of the easiest ways for the RF sellers to raise prices is to stop selling
discs and only offer single images. This would eventually make it necessary for buyer to come
back each time they wanted to use a new image, rather than having a library of images
available on their desktop. However, most RF sellers seem reluctant to do this because they
need the additional revenue from the disc sales right now.
There is a real possibility that as the recession worsens customers will make more use of the
images on the discs they purchased years ago, rather than buying new images. No one doubts
this possibility, but they are not prepared to deal with its likelihood. The greater a
company's sales in the past the more likely they will be hurt if buyer psychology turns in
Customers are tired of discs that have 100 images, but with only 10 to 15 basic subjects and
the rest of the disc filled with slight variations on the main subject. Customers say that if
they are going to pay for 100 images they want 100 really different images. To go in this
direction would cost the RF producers more and make more images available for future use at no
additional fee. It seems unlikely that RF producers will move in this direction.
Given the changes in technology, it may be time for the RF industry to acknowledge that one
aspect of the business model that worked well in the early 90's when online delivery was not
practical may no longer be viable or beneficial, and recognize that it could lead to the
industry's downfall. There is little evidence that RF producers are willing to accept this
Research: Research is becoming an issue. As more and more RF images of similar
subject matter are available on the any given site, art directors must spend more time
searching through the options to find what they need. Many want the seller to help them, and
provide research. The problem for the RF seller is that their margins are so narrow that they
can't afford to spend time doing research given the revenue they will get from the sale. No
one seems to have an answer for this problem. They just hope it will go away.
Production Costs: Production costs for RF are increasing as producers try to
improve the quality of their content. In most cases it is taking longer to pay off this up
front investment than was the case in the past. Many producers are finding they need to
constantly feed new work into the system, just to keep their sales level. The growth curves
that RF experienced in the early days -- and even one or two years ago -- are no longer there.
Increased cost of production is eating into their bottom line. This may explain why PhotoDisc
appears to be cutting back on production.
Prices: All RF producers acknowledge that they are leaving money on the table. They
know buyers would be willing to pay more for many of the uses they make of RF images. However,
most feel there is no way to modify their existing pricing model. When sales volumes were
steadily growing this was not a big issue. Now that they are leveling out raising prices is
much more important issue.
Most companies would like to raise prices, but few feel they can not do so until PhotoDisc
raises their's. PhotoDisc is expected to raise prices somewhat in a couple of months. As soon
as they raise prices everyone else will likely follow suit.