Why Should The Split Be 50/50???

Posted on 2/24/2001 by Jim Pickerell | Printable Version | Comments (0)

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WHY SHOULD THE SPLIT BE 50/50???




February 24, 2001





A photographer recently asked how the 50/50 photographer agency split got started. "Did

a photographer and agent shake hands one day and say, 'You take half and I'll take

half'? Is there a logical reason for dividing revenues in this way? In 2001, given

the dynamic growth and industry changes, is it fair?"

To answer these questions we need to examine how marketing of photos, and the cost of

such marketing has changed over the years. We also need to take into consideration

photographer's production costs and use fees on which the royalty percentage is based.

I'm not old enough to go back to the beginning. My guess is it started in the 1930's or

1940's. At that time the market was almost exclusively editorial with a very small and

defined client base compared to today's market.

My experience goes back to the 1960's. In those "olden times" most stock was sold for

editorial use -- magazines, newspapers and books. Buyers found stock photos by calling

a stock agency or photographer and having them search their files for images that the

buyer would describe.

Agencies serviced customers in three ways. A customer would call requesting specific

subjects; a researcher would be assigned to look through the files, make a selection and

ship the originals to the potential buyer for consideration. The buyer might decide to

use one or more images, return all those they were not interested in using and

eventually return the images that were used.

Secondly, researchers working for the buyer would go to the agency and personally go

through the files selecting what they needed.

In some case, sales people from the agency would take new images to leading publications

(particularly editorial work and in major cities) and try to convince them to publish a

particular story. This is still common in many countries in Europe. A large percentage

of the buyer were located in the major cities, which is also where the agencies chose to

locate. A high percentage of sales resulted from laborious research of a large general

file.

Marketing and Promotion

Agencies tended to promote the comprehensiveness of their file, their personal service

and the reputations of their photographers more than specific images.

Given the limited number of buyers it was easier to develop personal relationships with

most customers than it is in today's commercial market. Print advertising costs and

other marketing costs were a relatively small part of an agency's budget. One of the

biggest cost for the agent was that of managing and maintaining the file.

Agencies tended to pay promotion costs out of their 50% share of royalties. Not only

did photographers pay all their own shooting costs, but typically they paid lab costs

when such costs could not be billed to the customer.

At that time the theory was that the split between agent and photographer should be

50/50 with the photographer paying all the production costs and the agent paying all the

marketing costs and the costs of managing the file. This division of revenue worked

when the majority of buyers were a few major publishers doing editorial work and when

most of the buyers were located in the major cities.

Very few photographers earned a substantial portion of their income from stock sales.

Most photographers who sold stock earned the bulk of their income from shooting

assignments. Much of their

stock was generated from these assignments.

First Industry Change

In the late 1970's a major shift in the market started to occur. There was a push, led

by The Image Bank, SuperStock and later Comstock, to sell stock for advertising uses.

The number of potential users of pictures in the corporate and advertising community

were much greater and more widely disbursed than the editorial buyers. It because

virutally impossible to reach enough potential buyers through personal contact. Better

ways were needed to show a broad base of customers the agency's best work. The

technique of marketing to the advertising buyers through print catalogs was launched.

Early catalogs were aimed not so much at selling images from the catalog, as giving the

buyer a flavor of what the agency had to offer. The goal was to sell the brand and get

buyers to call the agency with their specific requests. Of course, when the agency got

down to choosing images for their catalog they selected ones that were exciting, clear

representations of often used advertising concepts, as well as images that had been used

by previous buyers.

Early adoptors of this new method of promoting images found that sales grew

dramatically. They also discovered that many buyers tended to choose the catalog images

rather than asking for

research. This drove the agencies to put out larger catalogs so they could show more

images, and to put them out more frequently.

Given the much larger number of buyers they were trying to reach, in addition to the

print catalogs, the agencies started advertising more heavily in trade magazines.

Initially, due to the growth in sales, they could pay the increased cost of advertising

and still turn a profit. However, it wasn't long before the cost of advertising got to

be much more than the agencies could absorb on 50% of sales.

Agencies began to ask photographers to share these costs. Photographers saw that the

returns from the few images in print catalogs were much greater than the average return

per image from a general file. Thus most photographers were happy to participate in

paying for the catalogs as a way of getting more of their images seen. By the late 80's

everyone wanted their images in catalogs and were willing to pay almost anything to get

them accepted.

Today, most photographers selling through an agency catalog will pay some of the

marketing costs. Some European agencies still have no catalog fees. In addition to

catalog fees photographers may be charged dupes and scan fees. The specifics vary

greatly from agency to agency and product to product. It is important to carefully

weigh the different options offered by various agencies before determining how best to

market your work.

Many photographers feel the marketing fees they are being charged are unfair and

unreasonable, but their choices are limited if they hope to maximize sales of their

images.

Systems For Charging For Catalogs

It can cost several hundred thousand dollars to over $1 million to produce and

distribute a catalog. Many agencies have trouble enough fronting these costs, even if

they are paid back through sales. If sales from a print catalog project are flat, or

fall below sales of the previous catalog it can be a significant drain on an agency's

overall operating capital.

Many different systems were developed for sharing the costs of catalog production and

distribution.

  • The agency would charge a fixed price per image.

  • The fee would vary depending on the size of the image in the catalog. (Pictures

    that appeared bigger often sold better, but that wasn't always the case. This option is

    disappearing as there is a trend toward smaller catalogs using smaller pictures and more

    of them. If you have a choice it is probably better to have 4 1/4 page pictures or 8

    1/8 page pictures than one full page picture. On the other hand usually you are not

    given the choice.)

  • The fee is a proportional share of the total cost of publishing and distributing

    the catalog, calculated after the project is complete. This sounds fair, but there are

    some problems.

      1 - Photographers often have no idea in advance as to what it will cost to

      participate. This makes budgeting very difficult for the photographer.

      2 - If the design of the catalog is such that there will be a relatively small number of

      images the share per image can be pretty high.

      3 - It is difficult to determine what the agency includes in "catalog costs". Paper,

      printing, separations and mailing are obvious, but are costs for editing, design which

      are carried out by internal staff as well as overhead also being added? If so, what are

      they?

  • Photographers may pay 100% of the fee when the catalog is released, or the

    payments may be spaced out over a period of time.

  • Photographer may pay only if the specific image sells, or catalog fees may be

    deducted from the total revenue the photographer generates at the agency.

  • In some cases the photographer is not charged if the image doesn't sell. If the

    fee for the space is $400 per image, but the photographer's total gross share of sales

    for an images is only $200 then the maximum the photographer pays for that space is

    $200.

  • Sometimes, instead of a specific fee the agency will take an increased percentage

    of sales on the catalog images.

    A decade ago I had three images accepted by a top ranked catalog agency. There were no

    catalog charge, however, the royalty paid on the catalog images was 25% of sales instead

    of 50%. In three years gross sales of these images were over $30,000. I got about

    $6,000 and the agency and its sub-agenices got the rest. (The loss is magnified when

    sales are made by a sub-agency overseas because I was getting 25% of the primary

    agency's share after the sub-agency took its cut.) The $6,000 was much more than I had

    earned from any three images previously, but it was not a satisfactory relationship

    because I couldn't get a significant number of images into future catalogs.

    In looking at catalog costs it is important to take distribution into account. One

    agency may only charge $100 an image to distribute 10,000 copies of a relatively small

    book. Another agency may be charging $400 an image, but distributing a larger, more

    significant book that is more likely to be used by the art director, and it goes to

    100,000 potential buyers. The one that charges more is probably a better buy and will

    probably generate more sales.

    Different agencies choose different systems for various business reasons. On any given

    project the photographer normally must either accept or reject the system chosen and has

    no option to negotiate a different deal. With most stock agencies the photographer has

    very little say over which images will be included in the promotion.

    Whatever system is used you can be sure that the agency has worked it out so they cover

    their costs based on their experience from the previous catalog. If they have little

    previous experience, they may make a wild guess. If the current catalog happens to not

    sell as well as previous catalogs the agency may lose money depending on how they have

    structured the financial arrangements.

    What do catalog costs have to do with royalty split? Photographers need to consider

    their total costs of production and marketing as a unit. These costs include: catalogs,

    dupes, scanning and manipulation of images as well as basic production and overhead

    costs.

    These costs need to be weighed against the likely gross sales to determine what

    percentage is needed for the photographer to recognize a reasonable return on

    investment.

    Producing For Catalogs

    The next major industry change occurred as agencies began to edit for catalogs and

    realized that they could anticipate client demand. They found that they could predict

    the type of image that would sell over and over for many different uses in the

    advertising market. This would eventually have a major impact on photographer costs.

    Up to that time most business and family life stock images were outtakes from

    assignments with the assignment customer paying all costs of production. (The majority

    of nature, scenic and travel images have always been produced on speculation.) Now,

    agents began to encourage photographers to shoot stock business and lifestyle pictures

    on speculation.

    This greatly increased the photographer's costs compared to the earlier situation. But,

    by studying the market and examining sales statistics many photographers found that they

    could predict what the buyers would be looking for with enough frequency of success that

    it justified the expenditures on the production. It helped that there was an under

    supply of advertising related images compared to the increasing demand from the

    advertising community.

    As we got to a state of oversupply of images in the 90's it became much more difficult

    to generate an images that would produce volume sales, even if the photographer was

    shooting high demand subjects. There were too many competiting images on the market

    that basically filled the same need.

    When production shooting first started to take hold agencies encouraged photographers to

    shoot for stock, but did little to supply them with statistical information to help them

    choose what subjects to shoot. Now, most major agencies work with a select group of

    exclusive photographers to plan and execute shoots of subjects that their sales

    statistics show are in high demand.

    Royalty Free

    Next came Royalty Free. For our purposes here, I will focus on the fact that RF has

    taken away a lot of the potential uses that had previously been the bread and butter of

    catalog sellers and the Rights Protected market. RF brought in some new customers, but

    it took away many of the old customers who no longered needed the more expensive Rights

    Protected images. I estimate that in the United States 60% of the images used are now

    RF. That means that the number of potential buyers of Rights Protected images has been

    reduced significantly in the past few years even if we accept that there has been a

    growth in the number of images used due to the availabliity of cheap RF images.

    Smaller agencies were the first to feel the impact of slower growth in sales and a

    lowering of prices in response to RF. After almost a decade most stock agencies can

    point to evidence of RF's impact on their market.

    RF affected the marketing environment in many ways.

    • They paid a much smaller share of the gross fee collected to the image

      producers (20% or less), and spent a much larger proportion of those fees on advertising

      and promotion. This forced the Rights Protected sellers to increase their marketing in

      order to compete.

    • They provided digital delivery of images. This did several things for the

      customers. It simplified the process of integrating an image into a design. It

      eliminated the risk the customer had if they lost or damaged valuable film, and it saved

      the step of having to return film.

    • They mailed promotional material more frequently and to a much larger group of

      customers than had ever been aimed at before. (EyeWire mails to 800,000 customers per

      month compared to a large agency mailing a 200,000 to 300,000 buyers once a year.)

    • They proved that smaller 64 page brochure type catalogs could be effective, rather

      than every catalog having to be a costly 500 page blockbuster.

    • They proved that catalog images could be much smaller and still generate sales

      (thus allowing more images per page). Rights Protected sellers had thought that large

      images were necessary, but in the last year or so have steadily been reducing the size

      of their catalogs and the size of the images they display.

    The fact that most Rights Protected sellers have chosen not to sell RF images, or to do

    so only as a marginal sideline, does not lessen the impact RF has had on the Rights

    Protected market when we consider what is a fair and reasonable royalty for RP uses.

    The question is constantly asked, if photographers producing RF images can earn a decent

    living on 20% of gross sales when the fee charged per unit sold is relatively low, why

    do other photographers think they must have 50% of gross sales when the fee per unit

    sold is much higher?

    The answer has to do with the volume sold, the type of images and the cost of

    production. Much of what is produced and sold as RF can be produced in high volume at

    relatively low production costs.

    The RP market is now aimed at images of high quality that have high production costs,

    more unique and varied visual styles and a lower volume of sales per image.

    We now have a two tier market with two distinct pricing structures, where previously the

    same image could be considered for and sold to both types of buyer for different prices

    based on usage. Now the market is segregated, and both sides will have to leave with

    the effects of that segregation.

    I don't think anyone on either side believes that if all images were sold for unlimited

    usage at RF prices, and promoted as RF is currently promoted, that enough additional

    sales would be generated for all photographers (both RF and RP) currently operating in

    the market to see increased income. In fact, it is more likely that all photographers

    would see decreased income.

    Online

    The latest change in the way images are marketed is the use of online. This is

    resulting in additional costs as agencies try to maintain a print catalog strategy as

    well as digitize and keyword images for an online catalog.

    The majority of people making images available for online search seem to feel that every

    image shown must be backed by a large high resolution file. (I strongly disagree with

    this strategy, and believe that in the long run many of those who successfully

    transition into online marketing will put images online for initial selection purposes

    that are only backed by relatively small inexpensive to produce files. They will

    scan-on-demand when larger files are needed. This, however, is the subject of another

    story.)

    Even if we were to discount the costs of setting up and operating a search engine,

    Given the huge per-image up-front cost in scanning and keywording to put new images

    online, most agencies seem to be trying to develop a tightly edited catalog so that

    virtually every image posted will sell -- hopefully many times.

    Statistics provided by Getty Images indicate that as many as one out of every two images

    they have online sell at least once in a given year. This is a very good track record.

    By way of comparison about 10% of the images Stock Connection has online with

    PictureQuest sold at least once in 2000. Thus, the odds are much better that an image

    accepted by Getty will sell. On the other hand would Getty have accepted any of the

    images that Stock Connection has put online? How many of the images Getty rejects will

    sell, if they are where customers can find them?

    For the agency that sets up its own search engine there is a large initial outlay, and

    significant continuing operating expense because these computer systems seem to have to

    be constantly re-tooled, upgraded and modified.

    Some agencies are contracting with an outside service providers to set up, and operate

    the search and delivery system. This is likely to be the most efficient route for many

    of the smaller operators, but they will have to pay for this service either as a monthly

    fee or a percentage of sales.

    It is not at all clear that operating such a system over the long run will be cheaper

    than having a room full of file drawers of transparencies and a team of researchers

    doing custom searches and shipping film by Federal Express. If not cheaper, at least

    the availability of digital search will probably make the customer's job of finding

    images easier.

    These new online costs are significant enough if the agencies could drop all the other

    costs of the old systems, but that doesn't seem to be happening. Some agencies find it

    necessary to maintain large film files, produce print catalogs and build an online

    catalog in order to attempt to retain market share.

    What Is The Right Royalty Percentage?

    Clearly, thirty years ago the stock photography business was a much different business

    than it is today, and the marketing of stock images has changed dramatically.

    There is no reason to believe that the division of fees that was reasonable and workable

    30 years ago should remain the same today.

    Marketing costs have risen. The film file, print catalog and online catalog each have

    associated costs which steadily raises the price of showing images to potential

    customers. It is not clear that it is practical to totally eliminate the large film

    files.

    While print catalogs are becomming less important as a marketing tool in the U.S., they

    are still very necessary internationally.

    Photographers costs have also risen. Thirty years ago most of the images were produced

    with simple equipment by today's standards. Production costs were usually paid for by

    a previous assignment. Now there is a ceaseless push for a higher level of production

    with better models, better sets, more up to date props and computer manipulation, all at

    the photographer's expense. Agencies want images that illustrate the latest trends.

    Many of these images are likely to have a very short useful life.

    On advertising shoots 30 years ago the buyer paid all expenses plus a fee for using the

    pictures. Now the photographer is being asked to produce the same type and quality

    level of images, front all the expenses with no guarantees whatsoever and only the hope

    that enough clients will pay enough money to eventually offset the costs of production.

    The risks for the stock photographer are much greater than they used to be.

    The one thing that has not risen significantly are the fees paid for usage. This is

    particularly true in the editorial field (magazines, books and newspapers), and for

    sales outside the U.S. Many editorial users are complaining bitterly that certain image

    files are no longer being made available to them at the prices they want to pay. The

    reason for this, of course, is that it is not economic to maintain and operate these

    files unless the prices are raised substantially.

    While high end advertising fees are up, these uses are rare. The key question are the

    fees for 1/4 page brochure. In my opinion these fees have not risen anywhere near as

    fast as the costs of marketing or production. The increased volume of sales, even for

    RF, is no longer making up the difference, and the volume of sales for RP images is

    falling off.

    These are my impressions, but this industry has such inadequate statistics - on an

    industry scale - that no one knows what the comparative costs of marketing, production,

    average price per image licensed, or number of images licensed on a year by year basis

    really are. Individual agencies might be able to answer for their own agency, but no

    individual agency is representative of the industry as a whole because there are so many

    unique ways of operating.

    When it comes to production costs there is almost no way to track them. Selling Stock

    has made a modest attempt with our annual surveys, but we get such a small percent of

    the total photographic community responding that there is a wide margin for error. I

    urge all photographers to go to

    Survey 2001 and complete

    this year's survey.

    One thing we can say, is that many of the stock agencies who have done in-house

    production have usually found that the return on such productions, compared with the

    costs, were such that they preferred to have the photographers taking the risks and

    paying for the productions. It is usually cheaper to pay the photographer a percentage

    than to pay all production costs and get 100% of the fees.

    Point To Consider

  • It is impossible to say what percentage is fair in today's selling environment.

    There is no magic in the 50/50 number. A fair percentage for photographers might be

    lower -- or higher --

    depending on what is invested in marketing.

  • Images will not sell unless they are where they can be seen by customers.

  • Royalty percentages can not be viewed in isolation. All other cost factors must

    be considered. When comparing options look for more information such as average

    photographer return per image, percent of images sold per year, average gross license

    fee and weigh all factors, not just royalty percent.

  • Usage fees for Rights Protected images must go up. Without a larger fee to divide

    neither the marketing nor the production side will earn enough to cover their costs as

    these costs continue to rise.

  • The greater the percentage the marketing side gets (because they control the

    pricing) the lower they can afford to set the price. For example, if the marketing side

    needs to earn an average of $160 per-image sold to cover their operating costs, and they

    pay the photographer 20% of sales their average break even per-image sales price is $200

    per-image. However, if they must pay the photographer 30% their average sale price

    needs to be $230 to leave them with something above the $160 figure. By allowing

    marketing to recover their costs by paying less for the product rather than passing

    their cost on to the consumer the photographer effectively allows them to keep the price

    of the product artifically low.

  • If the purpose of print catalogs is to build brand and draw customers to a web

    site rather then sell specific images, there may be more cost effective ways to

    accomplish that goal than the current print catalog strategy. Royalty Free catalogs

    have demonstrated one alternative. Photographers should be reluctant to pay to

    participate in a marketing strategy just because it worked in the past. Expect better

    statistical proof that it is still valid.

  • We are at a point in history where there is little proof that any of the currently

    used strategies for marketing stock will work successfully in the future. Online

    marketing will certainly be part of the mix, but exactly how that mix will eventually

    structure itself is still very open to debate. Probably the best option for anyone who

    wants to continue producing and selling stock images is to simultaneously test several

    strategies and spread one's risks.


  • Copyright © 2001 Jim Pickerell. The above article may not be copied, reproduced, excerpted or distributed in any manner without written permission from the author. All requests should be submitted to Selling Stock at 10319 Westlake Drive, Suite 162, Bethesda, MD 20817, phone 301-461-7627, e-mail: wvz@fpcubgbf.pbz

    Jim Pickerell is founder of www.selling-stock.com, an online newsletter that publishes daily. He is also available for personal telephone consultations on pricing and other matters related to stock photography. He occasionally acts as an expert witness on matters related to stock photography. For his current curriculum vitae go to: http://www.jimpickerell.com/Curriculum-Vitae.aspx.  

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