Pencil Theory of Stock Photo Pricing

Posted on 6/16/2008 by Jim Pickerell | Printable Version | Comments (3)

When I argued at the recent CEPIC conference in Malta that stock photo prices should be based on end use, one RF distributor asked, "Why is use pricing fair? When you buy a pencil, the price is the same regardless of how it will be used. Shouldn't photos be priced in the same way?"

The answer is no. All the pencils are exactly the same and their manufacturing costs are easily determined. The price charged is based on the costs of production and distribution, plus a markup that covers overhead and profit.

The pencil buyer owns that pencil, and no one else may use it without permission. The producer of a photo can sell the same image many times, assuming there are buyers. The buyer has certain rights, but the image producer also retains some rights. Because he can sell the item, the producer may choose to charge less than the cost of production for each individual sale if he believes he can sell enough times to profit after covering costs. The pencil manufacturer can't sell pencils for less than it costs him to produce them without going out of business.

Most pencils cost about the same to produce. Every photo is unique, and production costs vary widely depending on where and how the image is created. Image sellers also consider what the market will bare. In most cases, it is impossible to price stock photos based on actual production costs. Thus, some other method of covering production costs and insuring a profit must be found.

The pencil manufacturer only produces enough pencils to meet the expected, and easily measured, demand. The stock photographer knows that a huge percentage of his production will never sell, but has no way of determining, at the time of production, which photos that will be. In order to realize a profit, the photographer must charge enough for the images that do sell to offset the costs of non-sellers.

The pencil manufacturer is paid a fixed fee by the distributor for his product. The distributor assumes the risk of selling all the items he purchases. If the entire inventory cannot be sold at the originally established single pencil price, the distributor will offer lower prices for volume purchases or discount the unit price. The distributor's price does not remain the same regardless of demand. He will adjust the initial price, and thus his profit margin, depending on how quickly he can sell his inventory.

Seldom is a pencil distributor's initial price a fixed percentage above what he paid the producer. Rather he takes into account his overhead costs and what the market will bear.

The stock photography seller usually totally ignores the cost of production because he takes the image on consignment at no cost to him. Rather, he receives a fixed percentage of the selling fee and the only costs that concern him are his own operating costs. If the price charged allows him to cover operating costs and make a profit, it is unimportant to him if the producer makes a profit.

Prices vary depending on the availability of competitive products in the market. The rent for a hotel room or an airline seat is not fixed, but is adjusted, sometimes hourly, based on availability at the moment of purchase. The cost to rent a car is not based solely on the cost of manufacture, but in most cases, length of usage and the number of times the distributor believes he can rent it.

RF sellers charge based on use, they just use a very inefficient system to determine use. They attempt to take use into account by adjusting the price for different file sizes. This system made some sense in the 20th century when digital file storage was expensive and it was costly to download larger files. Plus, the quality of digital files was so poor that large file sizes were needed for good reproduction. These factors have changed, and now file size pricing serves only to take use into account in a very limited way.

There is nothing unfair about establishing parameters based on use. The only thing that is unfair is to price based entirely on what is best for the buyer, with total disregard for what is best for the distributor or the producer.


Copyright © 2008 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 301-251-0720, 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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