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LOOKING AT PERCENTAGES
January 25, 2005
I've been taken to task by one photographer for not making it clear enough in Story 689 that the RF and RM percentage differences that photographers receive are important in determining return-per-image. In some cases photographers are getting 25% or less of the gross fee paid by the customer for an RM sale and well below 10% of the gross fee for an RF sale. Consequently, if the average gross revenue generated by each RM image is relatively close to that of each RF image the photographers would actually receive much less from the RF due to the percentage differential and would have to have many more RF than RM images in the system to earn an equal amount from RF.
Granted that the averages I discussed in Story 689 are based on the gross sales of the primary seller and are only meaningful if the individual photographer can determine what percentage of the actual license fee he or she is being paid. My friend has urged me to break down the numbers with some illustrations. He suggested that I point out that if a photographer receives 40% of $100 RM sale he receives $40, but if the image is actually being supplied through a 3rd Party that receives 40% of the original sale and the photographer gets 40% of that he actually gets $16 (40% of $40) from this $100 sale.
While this is correct, and an extremely important distinction to understand, the reason I have resisted spelling this out in more detail is that there are so many percentage variations today between sellers and image producers that any set of figures is likely to end up being more confusing than enlightening.
However, I will try to outline a few principles that may be helpful.
What's The Real Royalty Share?
First, most photographers have an agreement with their agency that says, in effect, "the photographer will receive 50% of the monies the agency receives from the licensing of his images." It is amazing the number of photographers who still believe that this means they get 50% of the gross fee paid by the customer. I don't believe any of my readers still believe this, but I get calls almost weekly from photographers who misunderstand this clause in their contracts. What the photographer receives is 50% of what the agent they are dealing with directly receives - and that may be a lot less than what the customer actually paid to use the image.
There are few, if any, agencies out there today that make ALL their sales direct to the end-using customer. Many smaller agencies make the vast majority of their sales through other agencies or image distributors. These distributors take a percentage of the fee off the top and distribute the remainder to the producing agency. It is the amount the producing agency receives that is split with the photographers.
Even Getty sells RM images through distributors in some smaller countries rather than establishing its own office in these countries. Getty also sells PhotoDisc images through many distributors around the world including several here in the U.S.
Percentages Selling Agents Receive
So if you really want to figure out what percentage of the "gross fee" paid by the customer you actually receive you need to know the percentage of fee the selling agent is retaining before they submit the balance to the producing agent. Unfortunately, this is often a very difficult figure to get from your agent. In many cases the agent supplying the images is required to sign a non-disclosure agreement with the selling agent and can not legally divulge that number. Any given distributor may have different agreements with different suppliers depending on the volume and quality of imagery the supplier is offering. Each arrangement is a negotiation where the selling agent tries to get as much as possible and the producing agent tries to give up as little as possible.
In "olden times" (5 to 10 years ago) it used to be very common that the selling agent would retain 40% before submitting the balance to the producing agent. At this point in time there is no standard and percentages vary widely.
While your prime agent may not be willing to tell you the percent of gross sales they receive from any given agent, they might be willing to tell you the average percent of gross sale they receive from all the sub-agents they deal with. This would not violate any individual agreement they have, or limit their ability to negotiate future deals, and it could give the photographer a general idea of what the percentage might be. (Keep in mind that your percent could vary if your percentage of actual sales in any given market differs from the average number of sales for the agency in that market.)
There is also a danger in how the agency chooses to calculate the percentage. For example lets assume the agency has deals with 15 different distributors - In 4 cases the distributor gets 30%, in 10 the distributor gets 40% and in one the distributor keeps 65% and only pays 35% to the selling agent. If your agent simply totals these percentages and divides by 15 he get 39% that can be a very misleading number. If the agent that gets to keep 65% makes a majority of the total sales (highly likely since that's why that agenct was able to negotiate a higher percentage) then the average percentage might be quite a bit lower.
What your agent should do is calculate the total gross revenue that each selling agent received, total these numbers and then divide that into the actual total amount the agent received. That will give the agent the actual percentage of gross revenue he is receiving.
Getty Strategy
When we turn to Getty, there are several things I believe are happening, but cannot document because all Getty suppliers are required to sign non-disclosure agreements relative to their contracts.
- Getty renews existing deals they are pressuring the image suppliers to accept lower percentages.
- In some of the new deals the image supplier receives 35%, or lower, while Getty retains 65%. This means that it is more advantageous for Getty to license rights to an image from these suppliers than one belonging to one of their own photographers because they would get to keep a larger percentage of the sale.
- I have reason to believe that image suppliers with images that are either in lesser demand, or in subject areas where Getty already has a strong offering are getting 30% or 25% of sales.
- There are rumors that one RF supplier is receiving as low as 15% of sales.
Clearly, the more 3rd Party imagery they can sell relative to the images produced by their own photographers the greater their profit.
Another factor that is important, particularly if you're dealing with an agency that has multiple sales offices around the world is how does your percentage vary between a "home territory" and "other parts of the world". Some agency contracts provide for 40% or 50% royalties for sales made in the "home territory" and 30% for sales made in "other parts of the world". This is not too bad if your home territory is a big market like the U.S., but it can have severe effects on your earning potential if your home territory is a market like Spain or Italy and you only get 30% from all sales made in the U.S.
Another issue that is important to determine is the percentage of your agency's total revenue that comes from direct sales to customers relative to the percentage that is generated by some type of distributor arrangement? Some of the bigger revenue producers, particularly in the RF environment, are generating a major portion of their sales through distributors and that means another cut in royalty.
Given all these variables it is hard enough to figure the average percentage of the gross fee charged customers that you are likely to receive from any given agency, but where it can be very misleading is when you try to make a decision as to which agency to join based solely (or to a great extent) on the percentage "the photographer will receive _____ of the monies the agency receives from the licensing of his images." In many cases 50% in that blank from one agency could mean a lot less money in your pocket than 30% from someone else. If you really want to compare percentages agency-to-agency you've got to take everything into account and that's not easy.
Educated Decision
Even if you can get all the information you need relative to percentages, and make an educated decision on which agency to deal with based on who offers the highest percentage, you still may not make all the money you could make from your images. There is one other key bit of information you cannot know until after you put images with an agency, and that is whether the agency offering a lower percentage will be able to sell a higher volume of YOUR images. If the lower percentage agency sells a much higher volume you may end up making more money with them, and that is the point of the exercise.
Rather than worry too much about specific percentages many top image producers simply negotiate the best percentages they can with several agencies, or distributors, and put images with as many as they can. With this strategy when the returns start coming in they are able to make a much more educated assessment as to which agency is likely to produce the greatest return in the future and where to concentrate their future production.