Shutterstock: Opportunity For Investors?

Posted on 8/11/2016 by Jim Pickerell | Printable Version | Comments (0)

If you’re curious as to why Shutterstock’s stock price keeps rising while from the perspective of many in in our industry Shutterstock’s long term growth prospects don’t appear to be that favorable, David Trainer offers some interesting insights. See here. Trainer is CEO of New Constructs (www.newconstructs.com), an independent research firm that leverages proprietary technology to find key insights from the Financial Footnotes of 10Ks and 10Qs. After studying his analysis here are a few of my thoughts.


Dear Mr. Trainer:



You said “Media companies crave unique content.” That’s not necessarily true. Many companies tend to use the same images. Seldom are they looking for an image that no one else has ever used. Everyone looks for the best image that tells the story or illustrates the point they are trying to make. Since most are addressing different segments of the market, those making image purchasing decisions could usually care less if someone else has used the same image. The fact that others have used an image is often considered an acknowledgement of the image’s value compared to all the other options and thus a plus rather than a minus.

iStock used to tell customers how many times an image had been used. Many were used over 1,000 times by a 1,000 different customers. At least one images was used over 25,000 times in about 7 years. iStock allowed customers to organize their search returns by most used. An image used 110 times was shown before one used 105 times. Photographers discovered that once one of their images hit a few hundred uses then it really started to get used a lot. A huge percentage of customers preferred to search for the “most used” images, not the “newest.” They liked to rely on what other customers had found to be the best images because it saved them search time. They were not willing to spend hours searching for something unique that no one had ever seen.

This points to one of Shutterstock’s major problems. Their current strategy of trying to get more and more images as fast as possible actually works against them. Customers have to spend more and more time looking through a lot of irrelevant images to find something that is useful. The customer always feels that if they had just spent a little more time searching they might have found something better.



Customers want someone to do an initial culling and present them with a limited number of the best options in the subject area they are currently researching. For the most part Shutterstock is doing the opposite by flooding the market with more choice. They do have their Offset collection and provide a research service for Enterprise customers, but they are a long way from giving most customers a reasonable sized, professionally edited collection which is what more and more customers crave.

You say, “The largest bull case around SSTK revolves around its ability to continually grow its content library, attract more users.” From my perspective growing the library in the way they are doing it is a disadvantage not an advantage and I think is causing many of the better customers to look for alternatives. The average customer spends about $312.50 per year with Shutterstock. What the company needs is more Enterprise customers who will pay higher prices for some images, but they have trouble raising prices very far because AdobeStock, iStock and others are offering lower prices, or at least a very competitive service.



iStock used to be much higher priced. Since 2009-2010 Shutterstock has taken a huge market share from iStock and Getty Images. But, finally iStock and Getty have gotten themselves into a much stronger competitive position. It will be very difficult for Shutterstock to take much more market share from these companies.

You say, “SSTK can ill afford to get into a pricing war.” That’s true now. Shutterstock got to its current position because it was the underdog in a pricing war with Getty, Alamy and others. Now, for all practical purposes the others have matched Shutterstock prices.
Adobe is Shutterstock’s biggest threat. They have underpriced Shutterstock and they offer their customers that use Adobe software for graphic design, illustration and image manipulation a service that it will be impossible for Shutterstock to match. In addition, Adobe doesn’t need to make money selling images. They can look at AdobeStock as a loss leader while they make all their money on software subscriptions. On the other hand, as you said, “For Shutterstock though, where image distribution is its main business, the firm doesn't have this luxury of profitable business lines that can support a pricing war in another segment.”
Adobe is moving slowly to take full advantage of what the acquisition of Fotolia offers them. But Fotolia contributors seem much happier than Shutterstock contributors and report that their sales are rising while the sales of most Shutterstock contributors are declining.

You also talked about “Original content, whether it be videos, images, or both, while costly, can be highly profitable.” That used to be true, but the industry has moved so fast toward low priced, less frequently sold content that most photographers can no longer afford to produce the high cost original content.

More and more of the production is coming from amateurs. Some amateurs are willing to spend a lot of time and money to produce certain pictures, but those pictures are what makes the amateur happy, not necessarily what customers want to buy. Professionals, tend to try learn what customers have used in the past and are currently asking for. Then they go about finding good locations, building sets and using professional models to produce the top quality images that meet the customers need. All this takes time and costs money. Now these professionals are getting out of the business because the return isn’t sufficient to justify the expense.

In Q2 2014 the average Shutterstock contributor had 84% of his images licensed once in the quarter. In Q2 2016 that was down to 47%. The average license fee was $2.81 up from $2.52 and the contributor gets 29% of that. The average contributor earns about $1,100 a year and has 708 images in the collection. At most a few 100 out of 130,000 contributors are making any serious money with Shutterstock. One of the big questions is whether the company, or the industry as a whole, can sustain itself with the production of part-time amateurs if all the professionals leave the business and turn to other ways to earn a living.

I like your “stupid money risk” analogy and it does seem to be a way for Jon Oringer and the other top insiders to take their money and run. It seems unlikely that any of their competitors who understands the stock photo business would be willing to buy them. But, I guess someone like Microsoft or Google that has lots of cash to throw around and little or no understanding of the stock photo business might buy them.


Copyright © 2016 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

Jim Pickerell is founder of www.selling-stock.com, an online newsletter that publishes daily. He is also available for personal telephone consultations on pricing and other matters related to stock photography. He occasionally acts as an expert witness on matters related to stock photography. For his current curriculum vitae go to: http://www.jimpickerell.com/Curriculum-Vitae.aspx.  

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