Consumer vs Middlemen vs Workers

Posted on 12/5/2020 by Jim Pickerell | Printable Version | Comments (2)

There are many businesses where one or more “middlemen” are needed between producer of the product and consumers. Digital technology is making it increasingly possible to reduce, or eliminate, the need for middlemen in many industries.

When this is possible (assuming the technology developer doesn’t take a disproportionate share of the price the customer pays) the creators of the product can get a fairer share of the amount the consumer is willing to pay and has more control over the price charged for the work performed. This can benefit consumers as well as producers by giving them more direct access to the creators of the product they want to use.

In the assignment photography business, creators have always had total control over the price charged for their work. Creators receive 100% of what the consumer is willing to pay. In the stock photography business creators have lost control of the price charged for their work and often cannot earn enough to recover their production costs, let alone realize a profit.

When image creators can’t earn enough from their production to support themselves they are forced to look for other ways to earn a living.

In the stock photography business today the people reaping what little benefit there is from what the customer pays are primarily middlemen and capital investors and not the image creators.

Consumer Needs


Buyers always want more and better products for lower prices. More choices usually benefit the buyer, but there comes a point when there are more choices than the buyer can reasonably consider. If that happens, it can unnecessarily waste the buyer’s time.

Image producers need to find a way to earn enough from their production to cover their costs. That can be accomplished in several ways. The producer may work longer hours. He may produce and be able to sell a greater volume. He may find ways to cut the cost of each item sold. He may improve his efficiency and produce more in a shorter period of time. He may delegate some of the work to support staff who will work for less money. He may spend less time doing research. He may focus his production on high demand products, assuming he can determine what those are.

But, at some point if customers keep demanding lower and lower prices and the producer has maximized his production efficiency the producer will need to look for some other way to earn a living.

Middleman Services


Middlemen can help producers reach buyers and allow producers to focus their time and efforts on what they are good at – producing. For many middlemen “the customer is always right.” Customers always want lower prices and more for less. However, doing everything possible to satisfy customers is not always in the best interest of producers. Sellers must continually attract customers, but at some point, they cannot continually offer lower and lower prices.

In theory the middleman needs to balance the demands of customers with the needs of its suppliers. Unfortunately, in the stock photo industry most middlemen have very little understanding of the costs involved in producing the images they make available to customers.

Stock photography middleman have zero cost for the product they sell they are tempted to continually lower prices in an effort to keep the buyer happy and coming back to purchase more product. The middleman’s sole interests are in covering his operating costs and keeping those who have invested in his business happy.

In many businesses, middlemen pay a fixed fee for each product delivered. Then the middleman marks up the price they charge their customers to cover their costs. They may tell the producer they could sell more product if the producer would provide them for a lower price. The producer may then be able to cut his production costs and still deliver a usable product at a lower price.

When the producer knows how much he will receive for products delivered he can then manage his costs. If he can’t earn enough to cover his costs and necessary profit, then he won’t bother to produce the products and incur the costs. In this system the producer has a reasonably clear idea of what he will earn before starting the manufacturing process.

In the stock photography business photographers are not paid anything when they deliver images. Instead, if the image is licensed sometime in the future, they will be paid a percentage of what the middleman receives. If the image is never licensed, they receive nothing for their efforts.

Thus, they have no idea what they might earn before producing and delivering images for potential licensing. They have no control over the price charged for licensing use to a given image. All they know is that if the image is ever licensed, they will receive a percentage of the fee charged. Thus, they have no way of managing their production costs.

How Likely Is It That An Image Will Be Licensed?


Public numbers are available for Shutterstock, the industry’s second largest middleman distributor of stock images. In Q3 2020 they had 370 million images in their collection and licensed uses to 43.4 million of them. The average license fee was $3.79. The average revenue earned per-image-in-the-collection was about $0.45. Creators will receive about 26% of the gross figure paid, or about $0.12 per-image-in-the-collection. At that rate they would earn about $0.48 per year per-image-in-the-collection

A year earlier Shutterstock had 313 images in its collection and licensed 46.3 million uses. The average license fee was $3.40. The average revenue earned per image in the collection was about $0.50. Creators earned about $0.13 per-image-in-the-collection. At that rate they would earn about $0.52 per year per-image-in-the-collection

During this period Shutterstock grew its collection by 18%, saw a decline of 5.5% in the number of images licensed and the revenue paid to image creators declined by about 8%.

How The Industry Has Changed


Forty years ago, as demand for stock photography began to grow, there were lots of relatively small companies that handled distribution for photographers. Often these middlemen were former photographers who had a good understanding of the costs involved in image production. Given that background they could present arguments to customers as to why images were worth a certain amount of money. And they had the guts to refuse to sell if the fee offered was unreasonable.

In the early years these agents had to organize film images into categories. When a customer asked for something specific a staffer would search the collection and deliver a small selection of the available images for the customer’s consideration. That’s gone now. They used to edit and only added images to their collections that were likely to be marketable. Gone. When Internet delivery became possible, they would keyword. Now gone.

In the 90s big business began to take over. Nobody in senior leadership of these companies had ever taken a picture for commercial use. They had no idea what was involved in image production, but that didn’t make any difference because instead of paying the producer a fixed fee for the product they wanted to sell, all they had to pay producers was a percentage of what they were able to collect for licensing a use of one of the images the producer supplied.

Initially, there were two major suppliers – Getty Images and Corbis owned by Bill Gates. Getty’s goal was to buy up all the competition and then control the market. Despite the fact that Getty Images started with the Getty family fortune they still needed to borrow from investors in order to acquire everything they wanted as fast as possible. In this way they became beholden to the investors.

Corbis also acquired many of what had been smaller distributors, but they could never quite keep up with Getty. Eventually, in 2016, Corbis was sold to VCG in China and Getty did a deal with VCG to handle the marketing of Corbis images outside of China.

When the larger agencies started to take over there were still a many small agencies that represented a number of producers, and of course many small producers sold directly to consumers. Consumers often had to go to many sources to find anything that might meet their immediate need. Often, rather than going from agency to agency looking for something specific, it was better to hire a photographer to shoot exactly what they needed. It would probably cost more to complete their project, but the time savings was worth it.

In the early 2000s microstock sites came on the scene – particularly iStockphoto, Shutterstock and Fotolia. They offered unlimited use of any image in their collection for much lower prices than Getty and Corbis were charging. Many of the suppliers to microstock were amateurs or part-timers for whom photography was a sideline activity. Getty acquired iStockphoto (now known as iStock) in 2006.

For a few years Getty tried to maintain prices that were somewhat higher than microstock sites charged, but they started losing so many customers that in about 2012-2013 they basically “threw in the towel” and competed on price in order to try to generate enough revenue to keep their investors happy and pay off all the debt they had amassed in their efforts to control the market and eliminate competition.

Initially, the middlemen made some attempts to provide their suppliers with detailed information about what buyers were interested in using. But as time passed the information about sales that they provided producers became much more general and for the most part irrelevant.

As revenue began to decline, they were faced with three choices. The first is to cut staff and put more of the burden of getting new images into the collection on the backs of creators.

New technology also made it possible for them to throw all that editing burden on the backs of the customers. Instead of delivering a targeted selection, based on the customers current need. At that point customers needed to spend theirr time going through everything the agency had to offer in order to find something useful. Then the agency would show what earlier customers hade liked to any new customers.

Now the big agencies (Getty, Shutterstock, AdobeStock and iStock) seem to think that the key to success is providing more choice to customers, even if the customers don’t have time to review most of it. The strategy is to constantly add as many images as possible to the collections. As long as creators kept sending in more, they assume that what they were doing must be right, even if what they are adding to the collection seems to have less and less relationship to what customers are licensing.

Until recently all the big middlemen had to do to grow their businesses was license more uses at the best price they could get. If they had to lower their price, that was OK as long as sales volume kept increasing. The amount paid to suppliers didn’t seem important because there were always plenty of new suppliers willing to submit new images. A higher percentage of the images submitted might not be what the customers wanted to buy, but that didn’t seem important because the customer would end up buying something.

When sales start to decline, they cut costs by reducing staff, relying more on technology and putting more work on the customer’s shoulders. Next, they reduce the percentage paid suppliers who now get a smaller percentage of a smaller fee.

Is There A Way To Reverse This Trend?


It seems very unlikely that this industry trend will change unless image producers can find a better way to communicate directly with customers and dramatically reduce the percentage of revenue generated from image uses that goes to middlemen and outside investors.

See this story.  https://www.selling-stock.com/Article/new-stock-photo-marketing-strategy


Copyright © 2020 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

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