Recently, a new stock agency asked if they should develop a pricing strategy based on fixed prices, or prices based on how the images would be used? Here are some things to think about.
Fixed Pricing
In the stock photo business when we talk about “fixed pricing” most people think of Royalty Free (RF). With both traditional RF and microstock the price for a given file size is fixed, regardless of how the image will be used. There is no negotiation.
When the RF concept was invented in the early 1990s it was argued that customers wanted fixed prices:
1 – That were simple and easy to understand, rather than the complicated RM model,
2 – That were the same for all images regardless of quality or cost of production,
3 – That allowed the customer to use any image file they purchased for anything, forever, and
4 – Were cheaper than photos licensed as rights managed.
Over time, this strategy has been modified. Now, there are limitations that vary from company to company with regard to how any image file may be used. One of the most common qualifiers is that no more than 500,000 copies of any printed product can be made without paying an additional fee. These limitations often appear in the fine print of license agreements and are easily overlooked.
Initially, to try to get higher prices for some uses, RF producers charged more for larger files sizes. That made some sense in the early days given the limited bandwidth. It actually cost more to deliver large files. Today, that is no longer a justification. The size of the file needed for most uses has very little to do with the actual value the customer places on the use.
In order to get even higher prices for some images, RF sellers have designated certain collections as “Premium”. For example, the majority of the images iStockphoto represents are non-exclusive and priced at iStock’s base level. But the company also has 4 other collections -- Exclusive, Exclusive+, Vetta and The Agency Collection (TAC) – that are priced at various higher levels. This enables iStock to get higher prices for a selected few images. Unfortunately, while this premium strategy increases revenue for the creators whose images are accepted into these collections, and for iStock, it limits the choices of many image users who cannot afford the higher prices. As a result most of the images in the higher priced collections do not sell as frequently as those offered at the base price.
To get an idea of the range of pricing in traditional RF collections, check out the various RF collections on the Getty Images web site. Getty has 72 RF brands. Prices for any particular file size can vary by 75% and more between brands. The fact that an image is RF tells the customer very little about what it will cost to license that image. Customers must check the pricing on each image to determine actual cost.
Despite the concept of a “fixed price” there are often more variations in the price from image to image than there and in the rights managed systems where the price is based on use. In 2008 I did a story entitled, “
Is Microstock Pricing Simple?” While it looked complicated then, by today’s standards it was simple.
The fixed price strategy, as currently implemented, is far from ideal. However, one advantage to RF fixed pricing - for both buyer and seller - is that there is no negotiating on price. The customer either accepts the stated price or she doesn’t get the picture.
Use Pricing
The other pricing model is Rights Managed (RM). The first thing to recognize is that a very small percentage of all the images being licensed today use the RM model. Based on my research I believe that annually, worldwide, about 1.5 million images are being licensed using RM use pricing. Probably somewhere in the range of 2 million images are licensed using traditional RF pricing and over 100 million images are licensed at microstock RF prices.
With RM the intended use of the image is taken into account when establishing the price, and sometimes the quality and cost of production. With this strategy, when the use is extensive, it is theoretically possible to get HIGHER fees and earn more money than is charged for RF licenses.
But, with a negotiable price it is also possible to negotiate prices that are LOWER than the initial asking price. It is important to note that in recent years the major distributors have been negotiating lower and lower deals for RM images, particularly to volume customers. It is not uncommon for the price charged for an RM image use to be lower than what would be charged to use a microstock RF image. Alamy licenses rights to both RM and RF images. On average, the price Alamy receives for RM licenses (
see previous story) is less than what they receive for RF licenses, despite the fact that occasionally Alamy licenses an RM image for a fee that is much higher than it costs to use any of their RF images.
The major arguments against pricing based on use are:
1 – In some cases the price charged is too expensive.
2 – Customers don’t want to take the time to negotiate.
3 – Customer believe that how they use the product should not be a consideration.
4 – Customers don’t want to have to keep track of all the uses they make of an image.
5 – Even when it is possible to price a use online the process is too complicated for many customers and often requires the customer to supply extensive detail about the planned use.
Most RM pricing schedules are more complicated than they need to be. While parsing each use in a very detailed way does lead to a slightly fairer pricing schedule there is no denying that it can get complicated.
Pricing Images Based On What They Are Worth
Another factor to consider is that photographers believe they should be paid more for images that cost them more to produce. That’s the way assignment fees are established, but the concept doesn’t work with stock.
With assignments the fee is negotiated before the photographer does the work and incurs expense. If the photographer and customer can't agree on the fee the photographer doesn’t do the work. With stock, the photographer makes an independent decision to incur the expense and produce the image before any customer has shown an interest. At that point the photographer has given up most of his leverage to establish a price based on the cost of production.
From a stock point of view, it is impossible to say that a certain image has a certain value based on what it cost in terms of dollars, time and creativity to produce. The value is entirely dependent on who the customer is and how he intends to use the image.
Customers will never pay more for an image than they perceive it is worth to them for their planned use. Production costs are not a factor for purchasers of stock images. In addition, as the customer’s choices increase the value of specific images tend to decline because it is easier for the customer to satisfy his needs in other ways.
A high price limits the number of potential sales because fewer customers will feel they can afford the image, based on their planned use. By setting the price low the photographer may make a lot more sales, but there is no guarantee that the revenue generated will cover his costs, or that he will make any sales regardless of where he sets the price.
Is it better to insist that an image is worth $500 and only sell it once, or price it at $5 and sell it 120 times? (While this ratio may seem unrealistic to some, many microstock sellers are seeing this kind of multiples in sales compared to the average number of times RM images tend to be licensed.) Many photographers feel they undervalue their work if they allow their images to be licensed for low prices. Rather than thinking about what publishers pay to use their images many may need to start thinking about what the individual magazine reader, or purchaser of a poster or postcard is paying to view their work. The future market is direct to consumers, not solely to businesses.
Problem With Quality Baskets
There are two problems with the photographer or his agent trying to assign certain quality levels to different images and price them accordingly. Someone will see what the photographer thinks is one of his best images, but only want to use it for a personal web site or in a powerpoint presentation. That customer simply can’t afford a “best image” price. So the photographer loses that potential sale.
People argue that if a great image is licensed at a fixed RF price it can never be licensed to someone for lots of money for exclusive rights. It is important to remember that exclusive requests are very rare. Most people don’t care if someone else has used a particular image as long as the image works for the project they have in mind.
However, more frequently a photographer will decide that a certain image is a generic/commodity image and price it very low with the hope of making volume sales. Then a customer comes along and decides that the image is perfect for a billboard, or a major promotional marketing campaign. Because the image is priced at a fixed commodity level that customer gets a tremendous break. The photographer may still sell the image many times, but he missed out on a really big sale because he wasn’t pricing based on use.
Two examples. A few years ago I licensed rights to a picture of leaves on the ground for $10,000. The picture was a generic image if there ever was one. However, the customer was a pharmaceutical company that wanted to use the image on the cover of a major marketing brochure that would be widely distributed. The price was reasonable given the use. The customer wasn’t worried about exclusive rights.
Another example is a Time Magazine cover. A couple years ago Time decided to use a simple photo of a jar half full of coins on its cover. They got the picture from iStockphoto and paid $30 for it. The normal rate for a Time cover is usually in the thousands of dollars range. All that money was left on the table because the image was a simple studio shot priced at a commodity level. Pricing needs to be based as much as possible on how the image will be used and who is using it. If that jar of coins would have been used on a personal web site or a poster for a local animal shelter then $30 might have been a reasonable price, or even excessive.
Middle Ground
Back in 2007, when I developed the
Modificed Rights Ready (MRR) pricing model, () industry experts argued that Microstock and RF were so successful because customers were demanding a “simple” pricing structure.
MRR was an effort to:
1 - Simplify the RM pricing model,
2 – Take circulation and type of use into account in a simple and easily understandable way,
3 – Eliminate other factors related to usage such as: size of display on the page and length of time of use,
4 – Make it easier to complete transactions automatically and find a price for any image with two clicks, and
5 - Eliminate much of the need for negotiation, but leave negotiation in place as an option for unique uses which don’t fit any of the categories and make up less than 1% of total licenses.