Justifying 20% RF Royalties

Posted on 5/8/2008 by Jim Pickerell | Printable Version | Comments (6)

Photographers regularly ask why the royalty paid on RF sales is only 20% of the net received by their agent, when the agent pays 40% to 65% on RM sales that are made in the same manner.

Royalty percentages have little to do with reality, and nothing to do with the cost of production. It started when RF, then often referred to as clip-art, was introduced in the early 1990s. The first company to really go after professional images was PhotoDisc (then known as 21st Century Media). They made a deal with the Seattle-based stock agency, West Stock, to supply images for their first discs. The first three discs, which held 400 images per disc, started selling in early 1992 for $299.95 each. Image file sizes varied from 6.5MB to 10MB.

The discs were originally designed for photo users who couldn't afford traditional stock photography and professional photographers were assured that the discs wouldn't be sold to their traditional customers. Many West Stock photographers agreed to let their images be used for this purpose to "test this new market." They expected the clip-photo discs sales to produce additional revenue, without risking sales to traditional outlets.

However, it wasn't long before PhotoDisc discovered that there weren't enough small users to build a viable business. At that point, it created more titles and cut the number of images on each disc, while keeping disc prices about the same. Most companies eventually settled on the idea that 50 images was the ideal size for a title. They also discovered a client base. As a result, PhotoDisc made efforts to get better quality images, provide the larger file sizes professional users needed and aim its marketing toward traditional image buyers.

Pricing



The price charged for discs had absolutely nothing to do with cost of production, but was based on what PhotoDisc believed customers would pay..

PhotoDisc had lots of startup and overhead costs to develop this new business. It had to scan the film, cleanup and color correct the digital files. Then produce the CDROMS. The company planned to sell a significant portion of discs through distributors, who received a 50% commission. In order to enable distributors to deliver discs overnight, PhotoDisc and other producers had to insure distributors had sufficient quantity on hand to fulfill orders.

The principle disc-selling tool was direct mail. Thus, it was necessary to print paper catalogs with samples of a few images from each disc title. Millions of catalogs, which were expensive to produce and sent monthly, were distributed. Catalogs tended to be 64-page products with a few sample images from each of about 200 different titles. Each title was built around a theme, such as Business Symbols, Money and Finance, Industry, etc.

Given these costs, and PhotoDisc's need for a profit, the company calculated that they could not afford to pay more than 20% of their net revenues for the photographs. To make it attractive for the photographers, West Stock tried to use several images from a photographer on a given disc.

Breaking It Down

A 50-image disc might be sold by a distributor for $300. The distributor kept $150 and sent the rest to PhotoDisc. PhotoDisc kept $120 and sent $30 to West Stock. West Stock kept $24, and the remainder was split among all the photographers with images on the disc. A photographer with one image got $0.12 for every $300 sale.

Industry Develops

Some might argue that this was reasonable when the industry was in its infancy, but the situation has changed. Print catalogs are no longer needed and all related costs have been eliminated. Images are now shown, ordered and delivered through the Internet with costs exactly the same as RM images.Disc sales are almost nonexistent and represent a very small percent of total RF revenue. Agencies no longer have scanning and color correcting costs. Now, nearly all images are shot digitally and image suppliers absorb all other costs.
The reason the royalty is still 20% is that those who have structured their businesses around getting a larger percentage of the gross sale don't want to give it up.


Copyright © 2008 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.  

Comments

  • Chris Moran Posted May 8, 2008
    Nice writing style. Looking forward to reading more from you.

    Chris Moran

  • Bill Brooks Posted May 9, 2008
    Your last two paragraphs could apply to the low royalties paid for RM as well. There are some libraries that pay higher royalties for both RM and RF and photographers should work with them.

  • Betsy Reid Posted May 9, 2008
    "Images are now shown, ordered and delivered through the Internet with costs exactly the same as RM images."

    Jim,
    I am so glad that you agree with what the Stock Artists Alliance has been saying for years. A major objection to RF for many photographers has always been the royalty rate.

    SAA has raised this question many times with stock distributor management and the answers have always been unsatisfactory.

    A frequent explanation, which we cited in our SAA white paper on Licensing Models, has been that the volume offsets the lower rate.

    Another response is that "we're asking the wrong question" and that it's all about the return on investment.

    The only real explanation seems to be that once established, enough artists were willing or compelled to accept it. I can't imagine any artists submitting to RF defending the rate; they just live with it.

    Betsy Reid
    SAA Executive Director

  • Bill Bachmann Posted May 9, 2008
    I do not sell with RF and won't. I make too much money from RM images to literally "give my work away" with RF. But I do wish the RF photographers would stand up and get paid what they should be paid.

    Stand up and demand a higher percentage and start a movement. The agencies can not make any sales without you so YOU HOLD THE POWER!!

    Bill Bachmann Orlando, FL

  • Tim Mcguire Posted May 9, 2008
    So, after reading this article it seems there is no "Justifying 20% RF Royalties".

    The only answer to this problem is for photographers to stop submitting their work as RF or to stop submitting their work to distributors who require 80% of the licensing fees (20% for the photographer).

    There are plenty of of new distribution outlets offering 50+% for RF licensing. Alamy, Digitalrailroad, Photoshelter, are a few. I'm sure there are more. Please list them here if you know of others. The more RF licensed through these other, more fair minded outlets, the more pressure will be put on those who cling to the poorly concieved revenue splits of the past. There is absolutely no reason for them to change if they don't have to?

    Only photographers can fix this. Make them change.

    Tim McGuire
    Seattle, WA USA

  • Chris Ferrone Posted May 11, 2008
    Jim makes a good point: the economic rationale for the low commission rate established in rf's infancy no longer applies in today's market conditions. Today, a different rationale applies, however, which does justify the lower rate, at least for many photographers; the revenue the stock photo companies can generate for their contributors, even at 20%.

    Plenty of photographers are clamoring to put their rf material with Getty for a low commission because they know Getty can deliver enough volume to make it worthwhile. Yes, photographers do have the power and the right to decline to work with any company. Some, however, find it financially expedient to accept the deal as is.

    When enough photographers reject the deal that the big rf producers can no longer sustain viable image databases, then they'll raise their commissions. But I wouldn't hold my breath. For every photographer that walks away from a deal with one of the big rf companies, countless others will gladly take their place.

    Whether to accept a 20% commission is a business decision that each photographer must make for himself or herself, which is as it should be because stock photography is a business activity, first and foremost. Exhorting all photographers to blow off the 20% rf deal is a complete waste of time. What’s worse, it’s entirely unfair because it implies the one doing the exhorting knows what’s best for everyone else.

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