No Bottom Line Pricing

Posted on 6/17/2020 by Jim Pickerell | Printable Version | Comments (3)

The stock photo industry has developed into a business with No Bottom Line pricing. Some customers can get as many images as they want for whatever they are willing to pay. That is why more and more frequently royalties paid photographers are in cents, rather than dollars. I can’t think of any other industry that operates this way.

I can’t go into a grocery store, load up my cart and when I get to the check-out counter say, “Here, this is what I’m willing to pay today.” That’s basically how it works in the stock photo business.

Photographers who work on assignment have some control over what they charge. They can look at what it costs them to run their business and then set a price for providing services that allows them to cover their costs and make a little profit. If a customer doesn’t want to pay their price, then the photographer doesn’t take the job or provide the service.



However, the problem with working on assignment is that often it is difficult to find enough customers willing to pay your price.

For this reason, many photographers turned to creating images on speculation during their down time between assignments. The shots taken on speculation end up as stock images. The problem that arises when trying to license rights to stock images is that most photographers need to work through a middleman whose job is to reach a broad cross section of potential customers in order to achieve a reasonable volume of sales.



In some industries, take clothing manufacturing for example, the middleman buys a certain quantity of the product from the producer at a specific, agreed upon price. The middleman may then sell the clothes to another middleman retailer, of even the eventual consumer. Each middleman marks up the price paid to cover his costs and profit. There may be negotiations about what the middleman is willing to pay for a certain quantity of product, but in most cases the manufacturer will know exactly what he will receive for delivered products before he starts the manufacturing process. If the price isn’t high enough to cover costs and realize a profit then the manufacturer won’t go to the trouble – and expense – of producing the product.

The money the manufacturer receives may be only a small percent of what the consumer eventually pays, but at least he knows exactly what he will receive upon delivery before beginning production.

Royalties




The problem with working for a royalty is that the producer or manufacturer has no idea whether he will ever earn enough to cover his costs. If the product can be sold for a high enough price -- and if there is enough volume -- then working for a percentage of what the customer plays can be a good thing.

For photographers that was the case in the 1980s, and to a certain extent into the 2000s. There was strong demand and relatively little supply of the most needed items. Producers received a 50% (sometimes even 60% and 70%) royalty share of what the consumer paid. The middleman could still cover his costs and earn a good profit from his share of the sale.

But, as competition among sellers increased that changed. All the sellers tried to expand their market share by going after buyers who had less need for photographs and were only willing to pay much lower prices for what they wanted.

When the middlemen eventually found they could no longer cover their costs on 50% of what the customers paid they decided that the only way to deal with the problem was to cut the royalty share paid producers. Now, in many cases producers only receive 15% of what the customer pays, and often there is a double-cut of that figure so the producer is actually receiving a much lower share of the much lower price the customer actually pays.

Getty Example


If we go back to 2006 the gross revenue generated by Getty Images was $807.3 million and the average price per RM image licensed from their Creative collection was about $536. That year they licensed rights to 607,452 RM images and 1,004,663 RF images for a total image usage of 1,612,608.

In 2019 gross revenue was about the same as in 2006, but the average price per RM image licensed was down to about $29. Based on my analysis of sales made for some of Getty’s leading contributors about one-third of the licenses were for prices of $5.00 or less. Getty probably licensed 10.7 times the number of Creative uses (not including Editorial or Video) in 2019 compared to 2006, but the extra sales didn’t do anything to increase their gross revenue.

Meanwhile they have added almost 17 times the number of images as they had in their Creative collection in 2006. And those images have been contributed by a much larger group of photographers, so the average photographer earns much less than 12 years ago. But, each photographer’s cost of producing is probably about the same, if it hasn’t increased.

]f you go to Getty’s online price lists you find that the price for an Extra Small RF image file is  $50; for a Small file it’s $175; for a Medium file it’s $375 and $499 for a Large file. Nobody pays these prices. Or maybe I should say, only the uninitiated buyer who have never purchased an image before and who know nothing about the other opportunities the market offers.

In fairness to Getty, they tried for a long time to maintain higher prices – the kind of prices they were charging in 2006 to use images. But, they eventually lost so many customers to the Microstock websites – particularly Shutterstock – that they finally “threw in the towel” and offered images to more and more customers for whatever they said they were willing to pay. They called this service Premium Access.

Can The Pricing Problem Be Turned Around?


Can the business be turned around in a way that will allow creators to cover their costs and earn a profit for their investment? In my opinion, there is no way that will happen.

1 - We have reached a point where the industry has reached all the potential customers willing to pay anything for images. There may be growth in the use of images, but it will be mostly free images. There may be very small annual growth in the number of customers worldwide willing to pay something for the images they use. But, if the total annual expenditure of each of these new customers is less the $100 a year it won’t make much difference.

2 – In the U.S. the Sherman Antitrust Act makes it illegal for companies to join together or collude to “fix prices,” even to establish a low minimum price because it is believed this could be harmful to consumers. It is believed that Price fixing works against open, competitive markets that allow prices to reach equilibrium between supply and demand.

But, if suppliers have no control over the price at which their product is sold, at some point they will no longer be able to justify producing the product and be forced to turn to some other way to earn a living. In the long run if the producer can’t cover costs, then the consumer will suffer because the product they want will no longer be available.

3 - In most industries as costs go up, prices go up. That is not the case in the stock photo industry.

4 – Price competition will get worse as large organizations try to hang onto the customers they have and take market share. It is hard to imagine that prices can get much lower, but where there is a will there is always a way.

5 – Middlemen will never start buying images outright. It is too difficult to figure out what future buyers might want. In addition, the middlemen don’t even seem to br collecting and analyzing the data that might help them in this regard.

6 – Since each image is unique and it is so difficult to determine exactly what customers will want in the future, the middlemen will never be able to raise enough upfront cash to buy a sufficiently broad based collection of quality images and hold them until enough customers are willing to purchase a sufficient number of the images for the middlemen to turn a profit.

7 – To build such a collection, the middlemen would need to make much better use of their historical data and hire a significant number of professional editors, both of which would cost lots of money they don’t have.

8 - If all many photographers want is for more people see their pictures then giving them away at a very low price, or for free, is satisfactory. In theory more people will see an image if anyone can use it for any purpose free of charge. More and more photographers are willing to give their images to middlemen distributors with little or no expectation of ever seeing a return on their investment.


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

Comments

  • Paul Melcher Posted Jun 17, 2020
    In the long run, it's a self defeating strategy by photo agencies. They continuously need to sell more photos (in volume) and take away more commission ( in %) in order to maintain or grow their business.
    There is a wall, both in the volume of images you can license a year and on how much commission you can take from creators. Question is : which one will they hit first ?

  • Tibor Bognar Posted Jun 20, 2020
    The whole industry will self destruct very shortly. What a waste, what a shame! How come everyone had such a narrow vision, a long term loss for a short term gain? Well, it was a good run while it lasted...


  • Bas van Beek Posted Jun 22, 2020
    Check https://www.pexels.com and https://unsplash.com/
    This is the dead end future of earnings in stock photography. There still is a strong market in editorial, documentary, entertainment, sports, historical, portraiture photography. We all should be more aware of this!


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