Pricing Future Magazine Uses

Posted on 10/25/2010 by Jim Pickerell | Printable Version | Comments (2)

“Our contention is that the iPad version of a magazine is part of the rate base of that magazine,” said Condé Nast vice president of editorial operations Richard Levine at the recent conference of the Picture Archive Council of America. “A new strategy for acquiring content is needed because it will be impossible to anticipate how imagery initially acquired primarily for print use might be repurposed,” he continued. This is not unique to Condé Nast issue, but rather a position other publishers have already taken or will need to take in the near future.

As previously reported, Condé Nast has established the following principles for acquiring content in the future:

  • The company must secure digital rights for all content originally published in print.
  • Contracts must stipulate use in all media.
  • Vendors should be informed that “magazines” are not limited to print distribution.
  • Outtakes and other additional materials should be available for use on the iPad without further negotiation.
  • There can be no time period limitations, since digital editions live forever.
  • The rights obtained must be broad enough (even for uses that are only “possible”, not definite) that the publisher will not have to go back to clear further rights, because that is time-consuming and difficult.

Since Condé Nast has structured its business so that other uses of content offered in its print magazines become part of their rate base for print advertising, the company is no longer purchasing single images to be used in a defined and limited way.

The company also makes the point that is already spending huge amounts of money on content. In addition, it has huge development and start-up costs as it tries to turn a vision for what the future could hold into a profitable business.

During the question-and-answer session after his PACA keynote, Levine emphasized that electronic delivery of content is not yet a “business” but rather a startup trying to find its way. He further stressed that Condé Nast cannot afford to pay additional fees over and above what it is currently paying for print use due to their huge start-up costs, but the company may be willing to revisit this position when digital content delivery becomes a “real business.”

Levine spoke of how That Condé Nast is already paying $80,000 and more for some photo shoots. It is easy to see how this is possible when you look at some of the sets, props and overall production values the company has employed in some of the more elaborate still and video productions in its Wired iPad presentations. Part of the cost of such productions also goes to paying talent like Will Ferrell. In contrast, the small percentages of total production costs that were paid to the still photographer or videographer on these projects were not mentioned.

A letter to one magazine supplier said: “Accordingly when we buy rights in a photograph from your agency it will now be necessary that we acquire the rights to use the photo(s) in any media or format in which The New Yorker may be published or distributed in whole or in part…. We will not be able to pay an additional fee for tablet rights at this point. As our payment schedule with your agency is dependent on The New Yorker’s circulation, we are hopeful that these new formats will bring a higher paid circulation and ultimately that we will be able to pay an increased license fee for such higher circulation.” It appears that this is representative of the general philosophy for all Condé Nast magazines.

The good news is that Levine did agree to have one of his senior staffers sit down with representatives of the American Society of Media Photographers, PACA and other photographer and agency representatives to discuss compensation issues.

Pricing work in the future

It seems there will be no way to predict circulations, so establishing fees based on circulation may no longer be practical. Publishers want unlimited rights forever, so charging more for extended uses of time must also be taken off the table.

An upfront base fee plus a small royalty share of the revenue collected over time might be one approach. In such a case, the creator would accept part of the risk for unsuccessful projects with the hope of benefiting in the long run from those that are successful. Publishers will argue that such a system would be difficult to administer, conveniently forgetting that computers can easily do this kind of thing. Ultimately, publishers are likely to find any such proposal unacceptable—they want creators to support them by providing free content while they experiment in developing new lines of business, but are unwilling to guarantee any type of additional compensation when the projects turn profitable.

Creators and agents may be forced to turn away from the whole concept of pricing based on usage and begin looking at each sale as an all-rights assignment transaction. To bid jobs in this way, agents will need to know a lot more about the creators whose work they represent.

Assume a “professional” photographer wants to net $40,000 a year and that the photographer is able to shoot 100 projects a year ($40,000 is a little more than the average photographer earns today, and very few solo practitioners are able to shoot as many as 100 projects a year). To bid such projects successfully, the photographer and his agent would need to have some idea how many projects the photographer could shoot and the revenue the photographer needed to earn to sustain his business. For most photographers, overhead costs are usually 2 to 3 times net revenue, so a photographer who wants to earn $40,000 needs to gross $80,000–$120,000 annually. 

Thus, on average, the photographer who wants to end up with $40,000 should earn, per project—or between $800 and $1,200 plus all expenses related to the project. If he can only do 50 projects a year, which is not all that unusual, then he needs to get double these numbers. If instead of $40,000 his goal is $80,000, and he can only do 50 projects a year, then he needs to earn between $3,200 and $4,800 plus expenses per project. If an agent is involved in getting the work, then the agent’s fee must be on top of these numbers. Remember, the magazine wants all rights to the project, including the outtakes, because they don’t know how they will use the material, and they don’t want to come back to negotiate additional rights later.

Photographers would need to do such calculations and then give their agents a minimum number that should be charged for each use of their work if it is sold for any publication use. Agents would need to honor those request.

Obviously, publishers are not going to pay these kinds of figures for most uses, but they should recognize that it will not be long before a lot of what they need will no longer be available as stock, and they will need to assign photographers to shoot projects. If the photographer expects to earn a living from the work he produces, then he must be doing this type of calculation. If the photographers is working for fun; doesn’t need any specific level of income and is not expecting to profit from his efforts, then anything the publisher is willing to pay will be satisfactory and better than nothing.

Given the wide spread between what a “professional” photographer needs to earn to stay in business and what publishers are willing to pay for stock images, photographers need to seriously consider whether they can afford to produce images on speculation.

Levine stresses how much the publisher is being required to invest to develop this new business. Content creators will also be required to invest in new equipment and in the process of learning new skills. Tablets will make extensive use of video in a host of new ways—and this is just one example. Creators will need to learn how to deliver the new content needed.

No guarantee

One strategy being discussed is to get publishers to agree to pay a little more for those electronic uses as a way of “establishing the principle” that the extra use is worth something. However, if the amount of work the creator is required to do, or the secondary sales he is required to give up, are greater than the additional compensation, the creator could end up in an even worse situation.

The aforementioned letter stated: “As our payment schedule with your agency is dependent on The New Yorker’s circulation, we are hopeful that these new formats will bring a higher paid circulation and ultimately that we will be able to pay an increased license fee for such higher circulation.” If Condé Nast wants creators to help during the start-up phase of building this new business, then as costs decrease and revenue goes up, should not creators also benefit in some proportional fashion?

Publishers should supply creators with some figures as to the percentage of a magazine’s gross revenue that is paid out for content. To be meaningful, that number should not include expenses — only the creative fee — because expenses vary greatly depending on the kind of project a publisher decides to do and are ultimately publisher-driven. The amount spent on creative may only be 3%, 2% or less — it may even be a fraction of 1%.

Further, publishers should agree that creators are entitled to at least that same level of revenue on a continuing basis. Under those conditions, many creators would be willing to work with them during the “building a business” phase of transitioning into a new market, because there might be some reasonable assurance for creators that they might be fairly compensated when profits begin to roll in.

If publishers want creators to take risks during the “building the business” phase, there needs to be some guaranteed creator upside. This is critical, because creators have been asked to participate in such activities before and have repeatedly been royally ripped off. One example is book publishing: when they only printed 40,000 copies of a book, publishers used to be able to pay around $150 per image, and they made a profit. If they printed another 40,000 they paid the creator an additional 75% of the original license fee. Then they started finding ways to sell 500,000 to 1,000,000 copies of the books while only paying for image licenses in the first 40,000 copies. The cost of paper, printing and delivering the product to customers went up proportionally — and publishers raised the prices charged for their books, yet the amounts paid creators rose very marginally, if at all, and the reprint fees all but disappeared.

Investors pocketed the difference. Investors may be entitled to that additional revenue, because they were smart enough to figure out how to rip off the people who created their product without getting a whole lot of complaints.

Another example is the once-new photography business model of royalty-free images, developed back in the early 1990s. To sell it at all, customers had to be given a great deal, and there was a limit as to how much they would pay. Prices were established based on what producers believed customers would be willing to pay. In order to introduce such a revolutionary product, it was necessary to spend huge amounts of advertising and promotional money to make customers aware of the product’s existence and benefits. Developers printed and distributed millions of copies of 64-page promotional catalogs annually to “build a market.” And build a market they did.

In the beginning, developers argued that because they had this huge marketing and production expense (of pressing and shipping CD-Roms), they could not afford to pay a traditional 50% creator royalty. All they could afford was 20%, and they needed the creators to work with them to “build the business.”

We all know how this business matured. Now, 20 years later, royalty-free prices have risen significantly despite the fact that when the business started, customers could buy a royalty-free image for less than they are paying for microstock today. Today, traditional royalty-free images are more expensive than those licensed as rights-managed. In contrast, distributor expenses as a function of generated revenue have dropped dramatically; nobody mails print catalogs or generally spends anywhere near what they did in the 1990s to market the product. Yet creator royalties have not gone up. In fact, iStockphoto now argues that they can no longer be profitable paying creators 20% of revenue collected and must reduce the royalty to 15%.

What can really be done?

There is probably no chance of publishers agreeing to anything along the lines of percentage-based compensation. Still, creators need to recognize just how critical this issue is to their futures—or they will be ripped off again.

Some want to see supplier associations band together to present their case to the publishers. That’s a good idea. But, the danger is that publishers will throw photographers a little bone to quiet them temporarily, and an unsatisfactory industry standard will be established. The principle that is established will be much more important than a little money in your hand right now.

A few suppliers say that if the publishers do not agree to give creators what they need, creators should withhold content. That’s a great idea in principle, but unfortunately content creators are not a union, nor are they monolithic. Creators have no way to stop some suppliers from continuing to supply at whatever price is offered. Thus, publishers will still be able to satisfy most of their needs. Maybe some of the top-quality material will be withheld, but it seems unlikely that suppliers can withhold enough and for long enough to severely affect the development of this new product.

Creators need some recognition that they are entitled to a fair share of revenue generated. If they can’t get that, then creators should take pictures for fun, and think seriously about some other way to support themselves and their lifestyle.

Fool me once, shame on you; fool me twice, shame on me. We’ve already been fooled at least twice. Shall we try for three times?


Copyright © 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

  • Sarah Saunders Posted Oct 26, 2010
    I agree with your comments. BAPLA is also dealing with this issue and there was agreement that the industry could develop so much it's not advisable to give unlimited rights at this point. Interesting to see how it all develops.
    Sarah

  • Paul Melcher Posted Oct 26, 2010
    Some good points Jim. We at EPAG are very busy addressing these issues directly with publishers. Funny that the New Yorker will pay 80 K for a photo shoot and nothing for stock. This shows how poor of a job we have done to market our images. They are now considered "worthless" even when they are not.

    - Paul Melcher-
    EPAG founder

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