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:
- 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?
- 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.
- 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.