Pricing Images for Use in ‘Learning Objects’

Posted on 4/30/2010 by Jim Pickerell | Printable Version | Comments (1)

In the next few years, there will be two major trends in the education business: There will be less demand for books as a teaching resource. Electronic “learning objects” will be used to a much greater degree in classroom and online instruction.

Photographers who agree that these changes will occur, and who supply images to those producing materials for educational use, should begin to restructure their businesses and produce content that will be in demand by this new educational delivery system.

One of the things that seem likely is that there will be more demand for multimedia stories and less for single images. In many cases, stories will have video and audio elements, not just single images.

In order to adequately compensate image creators for their contribution to these learning objects, new pricing formulas and strategies will need to be devised. In some cases, publishers may choose to pay up-front for the full cost of a production (including profit for the creator) and then own it outright. However, it seems likely that many publishers or consultants packaging products will not want to pay the whole cost of owning the imagery, but rather will choose to “rent” images for a period of time, as is the case today when they license rights to use stock photos.

Background

It should be understood that once a digital file is licensed to someone for use in a “learning object,” for all practical purposes, it becomes impossible to track future uses of this product or control how many times it is passed around.

Such use could be controlled to some extent, if the publisher’s initial user license prohibited the copying or reselling of the product without the express permission of the publisher. This would at least inhibit the development of an open market for these products, similar to today’s used book market. If such a practice could be established and enforced, publishers would receive some payment from each user of its products and thus, in theory, could afford to charge each individual user less for the usage and still make a reasonable profit. However, since nothing like that is in place today, we must assume that once an image or a “learning object” is delivered, there is no control over its use.

Another way of looking at it is that it is a royalty-free license.

New strategy

The element of the sale that can be controlled is the length of time the publisher is allowed to license such a product before paying an additional fee. It is in this area that sellers are currently making a huge mistake that needs to be rectified as soon as possible. For little or no additional fee (over that paid for the right to print a certain number of copies of a title) publishers are regularly granted unlimited electronic use for 10, and sometimes 20, years. This is crazy.

A better system would be to negotiate a fee for unlimited distribution by the publisher for a period of time—perhaps one year. After that year, if the publisher wants to continue to distribute the “learning object,” an additional fee must be paid for each additional year. When the publisher decides that there is no longer any demand for the product and discontinues marketing or selling it, the annual fees will be no longer.

The seller will negotiate an initial fee based on several factors. Is the “learning object” one that will be of broad interest, and therefore likely to be used by all school children, or is it concerned with niche subject matter that is only of interest to a very small group of users? Is the learning object likely to have a long useful life, or will it need to be updated frequently? Was the image costly to produce?

The first year price becomes the base fee. It is agreed at the outset that the fee for the use in the second year will be 95% of the base price, 90% of the base price for the third, 85% for the fourth and 80% for each the fifth and succeeding years. It is also agreed that if at any time the number of units licensed in a single year falls below 75% of the total licensed in the first year, the new annual payment will be the new annual percentage of the base price. For example, if 100,000 units were licensed in the first year, but only 10,000 in the third year, the fee for the fourth year will only be 10% of the base price.

One of the big advantages for the publisher is that by virtue of agreeing on an initial price, all future payments are established for the use of this image in this specific product. The publisher would have the obligation to make future payments as long as the product continues to be distributed. In the event that it is discovered that the publisher has continued to license the product after the year but failed to make the required payments, the publisher would agree by contract to pay a retroactive license of 10 times the normal fee. Any revision of the product becomes a new product requiring that a new base price be negotiated.

This system makes life very simple for the publisher. There is no re-negotiation of rights for additional use. All publishers have to do is set up a simple database that records the base price and the first sale date of the product. Every year thereafter, a check is written until that time when the product is no longer offered for sale. In addition, in some cases the base price might be lower than what publishers might currently be paying, because the seller knows that he will be receiving a regular annual payment and does not have to front-load the price in order to get adequate compensation for the full term of use.

Will it work?

Some colleagues say publishers will never agree to such a payment structure, because in the long run, it will cost them more than what they are paying now. Granted, publishers have very little incentive to fairly compensate image creators, as long as they can get the images they need for free or almost free. But, despite the trend to use less rights-managed stock, publishers continue to purchase a huge number of rights-managed images from the three major agencies—Getty Images, Corbis and Alamy. These agencies have some leverage to bring about some change if they choose to do so.

If they were to simply refuse to license any more electronic uses of images under the terms of the old agreements, publishers would have to come to some agreement because they are unlikely to be able to do without all the images these three agencies represent. If even two of the three were to make such a move, publishers may have to give in. Surely, if even one agency were to set the example, many of the smaller specialized agencies and individual photographers would follow suit. It might mean a little less revenue in the first year, but a lot more in the years to come.

For the three agencies to work together on this would not be collusion or price fixing, because it is simply the establishment of a standard industry practice for licensing such rights in a new business environment. There is no effort to say what the base price should be, and each agency could negotiate different terms under the same general framework.

Some say that both sellers and publisher will not want to bother considering all the factors outlined above when establishing an initial fee. The publishers will want one price, regardless of how the image is used. There is nothing to stop the agency from negotiating a single flat base price for the use of all images, although that is not necessarily advisable. However, the important thing is that the length of time the product is sold is still a variable.

Publishers will probably save money in the initial years of publication. For example, in the fourth quarter of 2008, the average price for an editorial use on Alamy was $100. So let’s say a publisher is currently paying $100 for each Alamy license. Under the new system, Alamy lowers the base price to $70. The publisher saves $30 in the first year, but at the beginning of the second year pays another $66.50, and at the beginning of the third year—another $63.00.

The payment is less to begin with, but after three years, the seller has earned almost twice as much as what he would have under the current system. On the other hand, if the product bombs in the second or third year, the publisher has an opportunity to save some money. At these rates, and if the product sells well for 10 years, instead of receiving $100, the seller would earn a total of $539. And all these rates—the base rate and the percentages—are negotiable.

Also, keep in mind that electronic “learning objects” will probably all have a shorter useful life, because it will be so easy to update them. Publishers will have an incentive to update them, because then they have another new product to sell to their customers.

The alternative to something like this model is for those who specialize in producing images for the educational market to slowly go out of business, as all the images used for educational purposes are given away at much less than they cost to produce. If you believe this proposal has some merit, you might want to send a copy of this article to your agent.


Copyright © 2010 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

  • Jim Pickerell Posted May 1, 2010
    We had a little glitch here and some people were unable to post comments. Anyway, we have it fixed now. Here is a comment from Larry Minden from www.mindenpictures.com

    you say: ...publishers continue to purchase a huge number of rights-managed images from the three major agencies—Getty Images, Corbis and Alamy. These agencies have some leverage to bring about some change if they choose to do so.

    Problem is these three give the publishers exactly what they ask for in theirattempts to take business from one another and by doing so create the expectation - hell the requirement - that any of the rest of us who wish to license to txtbook publishers structure our licenses in the very same way

    Larry

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