Is 20% Royalty For RF Reasonable Today?

The concept of royalty-free stock photography was invented in the early 1990s because many picture buyers felt that it was unfair for image prices to be based on how the image would be used rather than their cost to produce. The pay-based-on-use system (rights-managed wasn’t even a term used at that time) was a particular problem for picture buyers because they needed to track future use of any image they purchased to make sure the use wasn’t exceeding the license. Customers wanted a way to avoid this extra administrative hassle.

Many of the first generation CD-Rom disks producers approached photographers with niche collections and purchased images outright. They would select 50 to 100 images on a particular subject and purchased full ownership for an average price of about $50 per image. Usually the images were outtakes that had been sitting around in the photographer’s files for some time, and $2,500 to $5,000 was a good deal for a batch of images that had never been used.

By early 1992 there was demand for a higher quality product and Photodisc went looking for images of quality equal to those that art directors could find at professional stock agencies. The first Photodisc titles were priced at $299.95 and contained about 400 6.5MB image files. Many of the images on the initial disks were supplied by the Seattle based stock agency Weststock. These images were produced by professional stock photographers and more tightly edited for quality than was the case with many of the competitive disk offerings. Among the images used were some from Weststock’s print catalog (which upset many of its photographers). Photodisc quickly became the industry leader in sales of Royalty Free CD-Rom disks.



Rick Groman, one of the owners of Weststock, negotiated the deal for photographer compensation with Photodisc. Given that this was a new and unproven business model using a new technology Photodisc argued that a new method of compensation was needed.

Photodisc pointed out that they had huge expenses for high quality scanning of the film images, color correcting the digital files and creating the CDs. They also had huge expenses in printing and mailing the print catalogs necessary to show potential customers the product they had to offer. Finally, in order to sell this new product it had to be priced low enough to be attractive to customers with limited budgets.



Therefore, Photodisc could not afford to pay a traditional stock usage rate of 50% of the gross fee collected. It was agreed that the maximum Photodisc could pay to use of the images was 20% of fees they collected. Weststock took its normal agency share of this 20% so in effect image creators shared 10% of gross revenue. Thus, when a disk was sold for $300 a photographer who owned one the 400 images on it earned about 7.5 cents. This is how a 20% royalty became an industry standard for the licensing of Royalty Free images. There was a general understanding, without any formal guarantees, that if the photographers helped get this business off the ground they would eventually share in the wealth.

Is The Photographer Share Still Reasonable?

The 80% of revenue Photodisc retained enabled the company to grow rapidly. In 1997 it was sold to Getty Images for in excess of $150 million, none of which was shared with the image creators who had provided Photodisc management with a product they could sell.



But, as the business moved ahead it is interesting to consider how costs declined. As the delivery system moved from CD-Rom to the Internet there was no longer a need for all those disks. Print catalogs were no longer necessary for marketing and the cost of postage for shipping those catalogs was eliminated. With the Internet it did become necessary to keyword the images so they could be found, but it is hard to imagine that the keywording cost wasn’t more than offset by reduced marketing costs.

In addition, improved digital camera technology eliminated the need for scanning and digitizing film images. For a while agents and distributors did have some costs in color correcting digital files photographers provided, but now photographers are required to deliver ready to use digital files or the images simply will not be accepted.

There are costs for online storage and bandwidth, but it is hard to imagine that these costs are greater than those that Photodisc had back in 1992. For the most part the sellers of the product have never felt a necessity to share the wealth with the image creators. If the creators are willing to produce the product for less then that is all the sellers think they deserve. There are some exceptions. Alamy pays RF contributors 60% of the monies they collect – the same as they pay RM contributors – and interestingly they have a profitable business. Some microstock companies pay higher royalties to at least some of their suppliers, but iStockphoto has determined that even 20% is more than its non-exclusive contributors should be paid.