Digital Railroad Explains Price Change, Strategy

Posted on 7/7/2008 by Julia Dudnik Stern | Printable Version | Comments (0)

The Digital Railroad blog has published details on the rationale behind the company's 50% increase of its share of image sales through the Marketplace. CEO Charles Mauzy also revealed some useful sales statistics and planned allocations of the newly generated revenue.

Aiming to offer independent stock producers an alternative to large agencies, the company launched the online stock-licensing platform last April. For over a year, Digital Railroad Marketplace has divided revenues in a 20% to 80% split between the company and image owner, respectively. In last week's email to Marketplace contributors, Digital Railroad said it was raising its cut of the proceeds to 30%. The new commission structure will be implemented at the time of renewal for existing Marketplace users, who will continue to receive 80% for the duration of their current agreements.

According to Mauzy, this change and the recent adoption of PLUS-based pricing tools signify the Marketplace's official exit out of beta. He also said that the change was in plans from the early business-modeling days. At the time, Digital Railroad decided to reward early adopters with a higher revenue percentage, while knowing that a 30% transaction fee would likely be required at a later point.

Mauzy was braced for criticism. "We did this in the face of many advising us that changing to our required margins later would engender some flack and possibly ill-will," he said.

In addition, the company plans to drive up average license fees by increasing buyer activity among advertising and graphic-design agencies. Photographers who contribute to the Marketplace express concern that the majority of sales are in the editorial market, where per-image fees are substantially lower. During the first six months, 54% of images were licensed to magazine publishers, book publishers and newspapers. Corporate buyers comprised 23%, and ad agencies and design firms combined brought up the rear, with 19% of total sales. In contrast, low-volume segments brought in the highest per-transaction fees, with ad-agency sales averaging $609 and magazine publishers at $243.

Mauzy also reiterated Digital Railroad's commitment to the independent photographer, echoing company founder Evan Nisselson. Mauzy said the company remains on "a mission to challenge the existing legacy model that is choking the life out of our creative community... [to put] the economic power back in the hands of the people who create the work and those who use it creatively."

While Digital Railroad has built a loyal following, its has also endured a fair share of criticism. Early this year, the company shifted focus from its online-archiving services to stock licensing. Mauzy has previously said the move was driven by both market forces and, in larger part, contributor feedback. Though contributors welcomed the launch of the Marketplace, the execution of this shift was abrupt and accompanied by massive January layoffs.

Mauzy responded by posting a letter of explanation to the corporate blog, in much the same way he is responding to current contributor concerns of commission changes. Though such responses acknowledge the issues, there is a fundamental flaw in such a communications strategy: It does not address the underlying cause of the criticism.

Concerns over declining prices and insufficient revenues are not specific to this company or even this industry. It is not about the what, but the how. It is now obvious that photographers are willing to give Digital Railroad the chance to become a viable business. But they do not appear to be willing to be continuously surprised by major business-model changes, particularly those that affect their earnings. A community-based business cannot make all of its decisions behind closed doors and not expect the community to feel excluded.

Yet Digital Railroad seems to be doing just that, inviting a comparison to the type of agency it says it is trying to counter. Last week's change in pricing offers a case in point: If the commission hike was inevitable, why were many contributors caught by surprise? Perhaps the company should put some of the additional revenues into public and community relations. Using the corporate blog to explain major events after the fact is losing the goodwill Digital Railroad needs to succeed in the long term.

Copyright © 2008 Julia Dudnik Stern. 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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