4WHERE'S THE STOCK INDUSTRY HEADED?
June 11, 2005
It's time to step back and take a comprehensive look at the industry and where I think it is headed. The changes that have taken place in the last few years have been dramatic and more are still to come. Many of the keys to success of five to ten years ago are totally outdated, but it's amazing the number of people who are still trying to make past strategies work.
In the late 90's and early 2000's there was an acquisition binge, particularly at Getty. Then there was a short hiatus as the leading companies tried to consolidate their positions and developed new strategies for acquiring images. Lately there has been another binge of acquisitions leaving very little in the way of middle tier companies.
To start I need to outline my best guess at a few statistics on which I'll base much of my overall analysis. I was tempted to use the word "facts" here, but one of the problems in developing plans and strategies for the future is that there is so little factual information available that is indisputable. That said, in an effort to measure trends, we can be extremely thankful for the facts we can glean from the filings of Getty Images and the other public companies.
There are basically three major companies in the industry - Getty Images, Corbis and Jupitermedia - with Getty far and away the industry leader. To give you an idea of size, Getty's revenue for 2005 is expected to be in the range of $750 million. Corbis' gross revenue will be about $220 to $230 million and Jupitermedia's is expected to be between $125 and $129 million. All this assumes there aren't further surprise acquisitions by these companies before the end of the year. I estimate the worldwide market for still stock photos and illustration to be about $1.6 billion, with about 45% of that revenue generated in North America.
Since my readers are primarily interested in still photos and illustration, and each of these three companies is involved in a few lines of business other than still imagery licensing, I will try to break down the portion of each of these company's total revenue that comes from still imagery.
Before we leave the big guys there is a wildcard that needs to mentioned and watched closely. That is Adobe Stock Photos. At the moment they are just getting started, but with their reach into the graphic design community they have the potential of becoming a very important player. They are beginning their service with about 230,000 Royalty Free images from the three major companies. Probably 80% of the images are from Getty.
There are several questions. How many other suppliers will they add and when? Will the only way to get images seen through the Adobe Bridge be to have them represented by one of the big three suppliers and give those suppliers an additional cut? Will the requirements Adobe has for being a participating image supplier be so rigid that only the biggest companies will be able to afford to participate? When will Adobe start offering Rights Managed images?
Another important issue is how Adobe will solve the problem of answering customers questions during the selling process? (Right now they want all sales to be fully automatic with no human interaction with customers. There are no plans for a call center.)
When Adobe launched CS2 they had about 450,000 CS users who also purchased images, and most of those users will probably upgrade. They have the potential to be a major fourth player in the stock photo market, or they could be insignificant if they offer little than it is already possible to get through Getty. But they are a company that should be watched closely.
My $1.6 million figure also includes about $200 million for wire service photography (AP, Reuters, AFP, etc.) and about $150 million for photographs produced and sold in Japan the subject matter of which is of little or no interest to anyone outside of that nation. This leaves a little over $300 million to be split between all the rest of the smaller companies and individual photographers worldwide.
There are a few companies left that generate sales of between $10 and $20 million annually, several in the $2 to $10 million range and a lot that are much smaller. (See Leading Stock Photo Sellers - Story 564.)
Royalty Free and Subscription
I believe the gross revenue generated by Royalty Free sales worldwide is between $300 and $325 million, not counting Subscription sales (another way of selling RF imagery). Subscription sales probably add another $35 to $40 million to these numbers making the totals somewhere in the range of $330 to $365 million, or around 25% of total industry revenue. Not included in the above figures are wire service sales by AP, Reuters, AFP, etc. that are also mostly sold by subscription.
A significant percentage of RF sales are made through distributors so totaling the revenue reported by the RF production companies and the distributors as a way of determining gross revenue would significantly overstate the size of the industry. The distributors take 40% or more off the top before submitting the remainder to the producer and that remainder ends up showing on the books of both the distributor and the production company. In some cases producers make their images available through as many as 200 distributors.
RF started out in the early 90's as entirely sales of CD-Roms, but in the last few years disc sales have declined dramatically as Internet search and delivery of digital files has become more efficient. In the last quarter Getty reported that only 12.6% of its RF revenue came from disc sales while the remainder came from single images. Disc revenue is declining rapidly relative to single image sales.
In addition the average price of an RF single image sale has been increasing dramatically with Getty Images reporting a rise in of over 100% since the summer of 2002.
Two other factors of interest are that the sale of RF discs have been declining relative to single image sales and, based on Getty Images figures, the average price of a single RF image license has risen over 100% since the summer of 2002. (In the last quarter Getty reported that the average price of an RF single image sale was $229 and the average price of an RM sale was $616.)
However, in this same period the number of RF images licensed has been relatively static with a slight decline in the initial quarters and a slight recovery recently. In Q3 of 2002 Getty licensed rights to over 247,000 single RF images and in Q1 of 2005 about 238,000.
The fact that unit sales have been flat may indicate that we are close to the peak in the number of RF buyers out there. It has certainly been clear for this 2 ½ year period that the only way for RF producers to increase revenue was to raise prices.
While some RF producers may have seen more growth than Getty as they were building their files and adding distributors, I believe Getty's experience is probably characteristic of the industry as a whole. On average about 65% of the units licensed by Getty have been RF and 35% have been Rights Managed. Recently, Jonathan Klein said that about 75% of the images they license in the U.S. are RF. Europe has been much slower to adopt RF and Klein claimed that in Q1 2004 only 46% of European unit sales were RF. However, Klein said that in Q1 2005 European RF sales had jumped to 54% and he expects that ratio to climb to around 75% RF sales in Europe in a short period of time.
Thus, three out of every four images licensed for commercial use are likely to be an RF images, not counting the number of images used as a result of subscription licenses or CD-Rom use. And yet the number of RM images available for licensing is much greater than the number RF images. And it appears that the spread between these two will get greater as many more RM than RF images are being created and added to the databases. This means that the chances of any given RM image being licensed is much smaller than that of an RF image.
Choosing RF or RM
One of the first conclusions of this report is that RM shooters who have been adamantly opposed to RF for years need to take another hard look at this licensing model. If three out of four sales are for RF images and the price per RF usage continue to rise, as is expected, while the price per RM usage remains relatively flat it may be possible to actually earn more revenue from marketing images as RF instead of RM.
In December 2004 (See Story 689) I did an analysis of the return-per-image (RPI) of images on the Getty site and a couple other sites. The average return for an RF image on the Getty site in 2004 was $634.63, down slightly from the preceding year due primarily to the increased number of RF images that had been added to the site. An interesting comparison is that the average RPI for RM images was $673.54 down 13% from the previous year, again mostly because of the number of new images added to the site.
This illustrates a couple points. First, the supply of imagery is growing much faster than demand and this is more the case with RM images than RF. Consequently, RPI is falling despite price increases, but it is falling much more rapidly in the RM area than in RF. All indications are that this trend will continue as more and more photographers put more and more images in play while the market grows ever so slightly, if at all. Given current trends it seems likely that by the end of 2005 the average RPI for RM images at Getty will be lower than that of RF.
Photographers point out that the above figures are gross sales and since they get a higher percentage of the gross for RM than RF they are still better off with RM. That may be true but there are at least four other factors they should consider before rejecting RF. They are:
- in many cases it is possible to get a lot more images into play as RF than as RM;
- in most cases it is possible to distribute RF more broadly than RM given the control required in order to be able to offer restricted licenses to RM images;
- new ways are being developed to cut the percentages of the gross that the photographer receives for RM; and
- if the only way you can get RM images on a major portal is by working through an "image partner" of the prime distributor your percentage will be significantly lower than if you were directly contracted to that agency or distributor.
Issues To Consider
The stock photo market has changed in many ways over the last few years. In order to make any sense of where the industry is headed, it is important to try to examine all the relative issues, not just a few in isolation, and determine the overall impact each is likely to have relatively to all the others.
I've already discussed RF and where I think it is headed. Some of the other issues that need to be examined are:
How Subscription stock will impact both RF and the rest of the industry;
Agencies as Image Partners;
Agencies as Consolidators;
The trend toward Production Companies;
Declining Percentages for Photographers;
Editorial vs. Commercial;
Why agencies have failed; and
New Licensing Models.
I expect subscription sales to always be a minor part of the market and to have almost no impact on RM sales. (Keep in mind that I was saying the same thing about RF twelve or so years ago. Hopefully, I've learned a few things in recent years.)
On the other hand subscription is likely to impact traditional RF in several ways. First, it will cut into RF volumes by taking away many of the low end sales that had previously gone to RF, particularly the sale of RF discs. RF sellers may also be forced to hold back on price increases in order to stay competitive with subscription offerings. The current strategy seems to be to keep the price of the 1MB file size low (although still not competitive if the subscription buyer intends to use more than a very few images) and raise prices on the 10MB and larger files sizes. This could work if purchasers of subscription images are using them almost exclusively for Internet projects or cell phones where a large file size is not needed. But, if a lot of subscription buyers are print users RF sellers are going to have to look for another strategy.
The biggest problem subscription sellers face is how they are going to be able to raise the quality of their offering and still make the images available at subscription prices. Up to now subscription's focus has been in offering volume. To get that they have been willing to accept a lot of second rate images and a lot of redundancy of situation where they show many very slight variations of a particular shot. I don't think they can afford to shoot the variety of situations they will need, and edit tightly, at the low, low prices they are offering the product. (Again, I said the same thing about RF when it was getting started and RF solved the problem.)
There are definitely indications that subscription is making an effort to improve the product by editing more tightly and by reaching out to a broader group of photographers with varying styles and subject matter. If subscription producers can find enough people willing to work at rates they can afford, they will likely apply serious pressure on the rest of the RF industry. It does seem that subscription producers need to wholly own their entire offering, and thus they will only work with photographers who are willing to give them a buyout.
The next issue to consider is portals. It is absolutely necessary to have your images on one or more portals. Currently, almost all picture buyers are searching for the images they need online. Thus, if an image is not scanned and properly keyworded it is extremely unlikely that it will be seen no matter how great and creative the image is. For the most part buyers prefer to go to sites that have a smooth, efficient search engine and ones that offer lots of choice. Some photographers prefer to build their own custom site in order to avoid the competition on the major portals. However, they often find it very difficult to get stock photo customers to check out such sites and them remember them when the customer actually needs what the photographer has available. Such photographer sites can work well for portfolio presentations to get assignment work, but they tend to be ineffective in selling stock.
Most customers want to go to large portals where they can see a broad cross section of imagery. Small agencies are finding it difficult to sustain sites with a limited number of images unless they have a very unique collection and a strong customer base that probably got to know them in the old analog environment. Buyers say they want more options, but when it comes time to actually do searches they tend to stay with the major portals, or companies with whom they have built a long relationship over a number of years.
Gettyimages.com is clearly the number one source for picture buyers. Getty demands worldwide exclusive rights to the RM images on its site. Many of the other portals are willing to accept images on a non-exclusive basis making it possible for sellers to offer the same image on a variety of different portals.
Some sellers argue that having the same image on several different portals makes it impossible to license exclusive or restricted rights for high dollars for the use of a particular RM image. Thus, many believe that only one distributor should represent RM images. In my estimation, this is not the case.
There are many examples where an image represented on multiple sites has been licensed exclusively. In virtually all cases when a customer needs some kind of exclusivity on a non-news image it is unnecessary to make the decision instantaneously. There is time to check with the photographer and other distributors, and once arrangements are approved to immediately remove the image from all the other distribution outlets. Granted this adds a great deal of complexity to the process of licensing exclusive rights, but given the relative infrequency of such requests and the potential additional sales by having the images available on multiple sites on a non-exclusive basis many photographers and portal operators are willing to operate in this manner.
Think about catalog distribution a few years ago. While created by a single company, most catalogs were handled by many sub-agents and distributors. In those rare cases where the customer needed an exclusive it was necessary to clear that with the producer of the catalog. The producer would need to insure that other distributors did not license the image during the exclusive. If the distributor represented the catalog exclusively in its territory it could license local exclusive or restricted rights without getting permission from the producer, but given the ubiquitous Internet it is becoming rarer and rarer to give distributors a territorial exclusive. Despite these problems many distributors are seeing the advantage of being able to offer RM images on a non-exclusive basis, but with the price based on usage to their customers.
Another interesting early trend in connection with portals is that a number of Royalty Free distributors who have built strong relationships with the RF buyers are now looking to expand their offerings by including RM images. One assumes the distributors have recognized that many of their customers are also buying RM images and that they can better service these customers by giving them both an RF and RM option. Offering customers both also helps solidify the relationship as well as grow volume and revenue.
Certainly the fact that RF unit sales growth seems to be leveling off has played a role in this decision.
The Image Partner (IP) strategy offers some interesting challenges and opportunities. Again Getty is the leader. Currently, Getty has "Partner" relationships with 53 different companies. At the end of 2004 about 25% of the non-editorial images on the site came from the Image Partners. I estimate that by the end of 2005 40% to 45% of the images on Gettyimages.com will belong to Image Partners.
For Getty this is a great way to cut costs. They choose partners with a broad diversity of specialties and imagery. They require these partners to provide clean, digital image files to very exacting standards and complete keywords, all ready for upload to gettyimages.com. This results in dramatic cost reduction for Getty compared to trying to get new images from their contract photographers with all the costs they would have in scanning, keywording and preparing the images to be uploaded to the site. Also when working with photographers Getty can't control the flow of subject matter as will as when they work with Partner agencies.
Each partner is assigned a yearly quota that is generally many fewer images than the partner would like to upload. This forces the partner to edit and provide only the best. The variety of partners enables Getty to keep its file well balanced relative to demand.
And, in most cases Getty pays these Image Partners a lesser percentage of the sale than they pay their photographers.
However, there may also be some disadvantages to this strategy for Getty. As sales of the IP images become a greater portion of their revenue the Image Partners may be able to make more demands, particularly relative to licensing some of their images through other portals.
Recently Getty tried to pressure many of their partners not to supply images Getty didn't want to represent to its two major competitors - Corbis and JupiterMedia (See Story 722). The implied treat was that if a partner didn't comply Getty would lower their position in the search order, reduce their annual allocation, or insist on a re-negotiation of their contract giving the partner a lesser percentage of sales. While this action was taken in a way that will allow Getty to deny intent the partners got the message. But the interesting thing is that several of the partners refused to buckle under and appear to have ignored the threat.
This whole situation is still playing itself out and Getty may still find a way to enforce its will, but while the partners need Getty, Getty also needs the partners. And despite the power of Getty's platform some IPs make significant revenue from other sources. Getty has already signed up most of the major quality brands in the world as IPs and if it does anything to reduce the revenue these brands generate Getty runs the risk of reducing its own revenue. Possibly, Getty subscribes to the theory that its customer will always purchase the best it has to offer, regardless of what it is, and will never go away to someone else, but I believe to force this issue based on such a belief would present serious problems for Getty.
It seems clear that Getty does not want to go back to being dependent on contract photographers to produce a greater portion of the imagery for the site as that would dramatically increase the company's costs and lower its profit margin. In addition contract photographers get a higher portion of the gross fee collected (40%) than most of the partners and using them to a greater extent would also work to lower margins .
Also, Getty is in a difficult position relative to Jupitermedia. Two of Jupiter's brands - Comstock and Thinkstock -- are represented on the Getty site. Getty probably doesn't want to give up that revenue, but how can they tell their partners not to deal with Jupiter if they are dealing with the company. And if Getty were, for any reason, to dump Comstock and Thinkstock Jupiter would surely dump Photodisc and Digital Vision from its site. That would likely reduce Getty's revenue from four RF brands and would seem to be a risk Getty couldn't afford to take.
As Getty becomes more dependent on the image partners to produce the images it licenses, the partners may achieve a better negotiating position with Getty, at least enough to withstand the company's most outrageous demands.
The partners are also looking for ways to spread their risks and as some of the other portals gain strength, and partners position themselves on every one, it is likely that many of the partners will become less dependent on Getty for their livelihood.
While these image suppliers are not necessarily referred to with the same terminology on all other portals, in effect the relationship is the same. The agency prepares digital images and the keywords to the portal's standards. The portal loads the images on a searchable site, promotes the site to image buyers, handles sales and takes a percentage of the fee.
Agencies As Consolidators
The role of many stock agencies, large and small, has changed dramatically over the past decade. It used to be that an agency was looked on as an organization that would collect images from a group of photographers and market those images directly to its customers.
In some cases the agency also developed representation relationships with a few other agencies in other regions of a particular country or in other parts of the world, but for most Rights Managed agencies the number of such relationships was usually relatively few due to the costs of making dupes and producing catalogs. And, it should be remembered that a decade ago the principle source of revenue for virtually all agencies was from their direct sales.
The digital environment has changed all that and now there is the possibility of a much clearer delineation of labor into Consolidators and Distributors.
1 - There are agencies that are primarily consolidators. They serve the function of gathering images from a group of photographers, editing, scanning and preparing the images for distribution, producing keywords, and placing the images with a variety of portals and distributors. Often these agencies generate only a small percentage of their revenue from direct sales. Their focus is on acquisition of imagery, not marketing. The key to success is getting the images with as many distributors as possible.
Here, the digital environment has created a major advantage compared to dealing with film. There is a major upfront cost in preparing the image for first release, but once an image has been digitized and keyworded, there is comparatively little cost in making it available through multiple distributors.
For many of the smaller specialized agencies that used to sell directly to customers, their role has now changed dramatically. They still deal directly with photographers, edit their work, encourage them, give them guidance as to what is happening in the market place and see to it that they get paid when their images are used. But they do less and less direct selling to customers. Instead they place the digital files with the few (but growing number of) portals that have the ability to reach a significant customer base. The portals do the selling.
The main work of the agency is to prepare the images for placement on portals including scanning and quality control of digital files as well as captioning and keywording. This is a costly and time consuming task, but may not be any more expensive than the production of print catalogs and massive sets of dupes under the old system.