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Industry Comment #22--Seasonality

Several artists have asked me to comment on seasonality in the stock industry.  They have asked if there is there a regular pattern of sales increases and decreases, over the course of a year?  How extreme are the differences, and has there been any change in the pattern, over the past few years?  Does the revenue we get from foreign agents have a different pattern?

I think I have a good resource to use, to answer these questions, in the 14 1/2 years of revenue information I have for my company, Index Stock Imagery.  I can't claim that we are representative of the entire industry.  But, our data is consitently recorded, and shows some interesting features that make sense to me.

I looked separately at our domestic revenue and our foreign revenue.  I ignored revenue from our electronic distribution effort, despite its rapid growth and increasing importance to our overall income.   I believe few other agencies in our industry have comparable amounts of this type of business.  I divided our domestic revenue into three five year periods:  1992 through 1996, 1997 through 2001, and 2002 through 2006.  (I only had 2006 data through June, but I felt this would not make too much difference.)

I was interested to see if there were differences in seasonality between these periods.  It had been my impression that there was a shift between the early 1990s (when we and most other agencies were doing most of our domestic licensing over the phone), the late 90s and early 00s (when we shifted primarily to on-line marketing), and the past few years (when everyone else went on line).  As you can see, there do seem to be some major differences between these eras.

First, let me comment on the overall pattern. Note that there seems to be a lot of differences between various months.  One twelfth of a year is 8.3%.  As you can see, the actual range of average monthly revenues is between a low of about 6% and a high of about 10%.  It appears to be "normal" for our monthly revenues to vary as much as 60% up or down.  The average standard deviation within the above figures is about 1.5%.  That means that there is a 5% chance that a month could have 3% above or below its "normal" its normal share of our total annual revenue.  In fact, within my data there are months where in one month we captured almost 14% of a year's revenue and others where we booked as little as 4%.

Now, look at the changes that have occurred, between the three time periods.  It appears to me that there has been a big rise in revenue early in the year--in January through March.  There has been an offsetting decline in October and December.  I can offer some possible explanations for these changes--although I am not certain that I am right:

1. Christmas buying has shifted earlier and spread out.  We used to have a rush of orders in October, from customers who needed images for holiday advertising and product launches.  It looks like our customers have shifted some of this activity to earlier in the year--perhaps as a result of an increase in overseas manufacturing of products that makes ad campaign lead times, longer?
2. More licensing may be tied to an annual budget cycle.  Our customers have increased the percentage of images they license as "royalty free."  We notice many seem to buy a chunk of their RF images early in the year, when they get their "new" art budget.  They then reuse these images as the year goes on, rather than licensing new ones.
3. Our clients take more vacation than they used to.  It seems that the art and design world tolerates vacations and days off, better than it used to.  Major holidays have become very quiet--even on our Web sites.  Months that have a heavy holiday burden (e.g., December and November), lose a lot of selling days.

I felt it might be helpful to contrast our domestic seasonality with our foreign seasonality.  Of course, there are some different factors at work, that we need to adjust for.  One thing that may be unique to Index, is that some of our agents still report their revenue quarterly.  This was the style many years ago, when we received reports in the mail.  Quarterly foreign reports tend to pump up the first month in each calendar quarter (January, April, July, and October).

Another thing to remember is that foreign agents report license AFTER they collect the money that is due to them.  So, a report we receive in July may be for a license that was made in January and collected in June.  I estimate that this timing effect shifts seasonality as we see it, to between two and four months later, than what our agents experience.

Finally, a number of agents are forced by their local tax laws to file special forms each year that allow them to avoid paying a withholding tax on their remittances to us.  These forms wend their way through the local tax beauracracy, and eventually get cleared.  Our agents then send us all of the reports they have held until that point.

I think I see this last event, in the pattern I show below.  There may also be evidence of a summer vacation dip, especially from our European agents.  Otherwise, there is no strong apparent correlation between the two seasonality patterns.

I believe artists, distributors, and even investors in the stock photo industry, should not read too much into any short term variations in licensing revenue.  Our industry has a lot of monthly revenue volatility, and a big one-time change in any direction, may not be the sign of a sustainable trend.  It seems that there is a general shift towards a pattern of bigger first quarters and smaller fourth quarters.  And, it seems to be a good thing for agencies to have two (or more) different sources of revenue (such as domestic, foreign and electronic), since the changes in these sources do not seem highly correlated.

Searching for Truth #10--Organic Search Traffic

When I want clear explanations of technical stuff, I often turn to Wikipedia.  It defines Organic Search as: "a process by which World Wide Web users find web sites having unpaid search engine listings, as opposed to using the pay per click advertisement listings displayed among the search results."  When you go to a search engine such as Google or Yahoo! and perform a search, you will see the "organic" results surrounded by "paid" results.  Many companies are spending huge amounts, to put their message into these paid ad locations.  Most (including the company I work for, Index Stock) are also spending time and effort to get a top ranking in the organic results.

Thanks to this hard work and the good "content" we offer, Index Stock's various Web sites get hundreds of thousands of "organic search" visits, each month.   Rather than offering my ideas on how to tune a site to get more of these visits (a process known as Search Engine Optimization or SEO), I thought I'd tell you a little about the search phrases that seem to bring people to us.   To do this, I looked at what keywords led visitors to our core www.indexstock.com site, during the first half of 2006.

Our visitors came via more than 10,000 different search terms, during this period.  (There are also thousands of non-search sites that link to us and send us traffic--a part of the traffic-building story that I may talk about on another occasion.)  I decided to study only the top 150 organic search terms, since these accounted for more than 80% of all of our search engine-originated traffic.

The most common search terms were also the easiest to guess.  About 40% of our search visitors had entered a phrase such as "stock photography," "stock photos," "stock images," "royalty free photos," or "free photos."  The first three of these alone accounted for about 30% of all search-origin visits.  I counted 40 generic terms for stock photography, in the top 150.  Some of the less frequent ones were things like "stock de fotos" (we probably should provide foreign-language descriptions of our site, to make it easier for foreign searchers to find us), "stock photo search" and "photo subscription."

The next most common terms related to our name.  Yes, it seems about 35% of the folks who came to us via major search engines knew (or thought they knew) our name, but not the URL of our Web site.  A few (about a third of these visitors) got our name right (we respond to either "Index Stock" or "Index Stock Imagery").  The rest tried a number of creative alternatives such as: "Index Images," "Index Photos," "Image Index," Indexstock Imagery," and "Index Stock.com."  Given the trouble I've had my whole life with my own name (which seems hard for just about everyone I meet to understand, pronounce, and spell!) I wonder if we should change our name to something even simpler (along the same lines, several people have suggested that I give up and just change my name to "Bob").  We may also need to embed name variants in our pages, to make it easier for the search engines to connect our page with what our spelling-challenged and memory-inhibited visitors are looking for.

Third on the list at about 10% of our organic traffic, are people who are looking for a specific artist.  I was pleased to see that more than 60 of our artists were included the top 150 search terms.  This suggests to me that our customers are interested in the individuals whose work is the foundation of our success.  We seem to be building a pleasant synergy with our artists, that combines our marketing power with their personal fame and reputation.  The special portfolio page we build for each artist (http://www.indexstock.com/content/artists/artists.asp) and an advanced search that makes it easy to find each artist's images, contribute to this traffic.

About 0.3% of our visitors got to us by asking what sites are similar to those of one of our major competitors.  I like that, because it says that at least some people out there want to see fresh images and new choices.  We subscribe to the view that is unethical to use our competitors' names on our site.  Otherwise, we could probably spoof and spam a lot more of their visitors, to come to us.

Only a tiny sliver of visitors were looking for what I expected to see--specific topics.  While there was one off-color cluster of searches ("arab gay photos") and a few mundane pro photographer-related items ("photo model" and "photo release"), most highly specific search term items are buried far down in our search stream.  That may change as we continue to expose more of the meta data in our images to search engines.