DIMdump

Industry Comment #23--New Pricing Models

Recently, there has been a lot of interest in "new pricing models" for stock photography.  The success achieved by the royalty free license model has encouraged interest in subscription models (like our Index Open product) and the microstock model (like our Photos To Go Unlimited product).  Now, the biggest player in our industry, Getty Images, has announced plans to introduce a new variant of the rights managed model.

I believe this new approach will not be very successful.  I have three lines of thought that I have divided into "logic," "experience," and "analogy."  These lines of thinking lead me to conclude that the royalty free, subscription, and microstock models will tend to dominate any other choices--with the leading model in the long term most likely turning out to be microstock.

Logic = Why pay more for something that is hard to understand?

Despite an increase over the past few years in the price of royalty free licenses, they remain cheaper on average than rights managed licenses.  At our agency, Index Stock, the average rights managed license remains around $600 per image, with the average royalty free license around $300 per image.  Furthermore, if one considers that a royalty free license gives the recipient unlimited rights to use an image over and over, in perpetuity, the value difference is even more in favor of royalty free.

To get a rights managed license, a customer has to define exactly how she or he plans to use an image, for how long, and in what industry or context.  This creates a more complex buying situation, that may have multiple approval steps and require several adjustments to the rights managed license.  Obtaining a royalty free license is simple and direct.

If one puts the industry's licensing models on a two dimensional chart, with cost on one axis and complexity of use on the other, the differences are easy to see:

Even one-off royalty free licensing does not look to be the long-term winner.  Both subscription and microstock appear to be more attractive, from both a convenience and cost perspective.  It is logical for clients to avoid rights managed licenses, whenver they possible can.

Experience = Been there, done that!

I hate it when I start talking like a geezer, but "back in the nineties..."  Yes, back in the 1990s--in 1995 to be specific--my company introduced the industry's first microstock product.  We called it Photos To Go, and we continue to offer the product, today.  We started with a license fee of $3 per 2MB image, for use by small businesses and consumers--and gradually increased it to $39, today.  We included both rights managed and (when they came along) royalty free images.  We limited the use to one year and in certain types of printed and Web materials.  All licensing was done online, with no negotiation or haggling needed.

How was Photos To Go different from istockphoto, fotalia, and the rest of the microstock guys?  It wasn't.  It was just so early that no one back then could figure out what to do with it.  Actually, that is unfair.  Over the years, about 400,000 people have licensed images through Photos To Go or registered on its site.  That probably makes it still one of the biggest microstock products, in the industry.

So shouldn't our Photos To Go experience indicate that microstock will never be a big factor in the industry?  Sorry, but no.  Instead, it has given me ten years of experience about what people really want from a stock photo site.  Those who learned about Photos To Go LOVED it.  They couldn't understand exactly what we meant by "rights managed" and they had a very hard time understanding why they might have to renew their license to an image after one year.  They also didn't understand why they couldn't use the image in major projects, with large companies.  But, they loved it and kept coming back for more.  That is one reason that we introduced a simplified subscription-based version of Photos To Go last year, called Photos To Go Unlimited.  By offering access to more than 85,000 2MB images for only $99 (for six months), we broke into the microstock market.

I am also enough of a geezer in this industry, to remember some previous experiments that did not work so well.  I recall clearly that two of my competitors (both now under different management or different owners) tried out "simplified" rights management approaches.  Both of these experiments failed so miserably, that they were withdrawn without any further announcement.  Thanks to dedicated snooping and probing (yes, we do gossip at those industry conferencs we go to), I learned that the customers of these companies did not understand or appreciate that these new licensing systems were "simple."  They asked over and over again, if the new system was the same thing as royalty free.  When they got the bad news that instead, there were being offered a flavor of rights managed licensing, they were disappointed.  Further, it seemed that any effort to combine rights managed price categories together and reduce their complexity tended to reduce average rights managed prices.  In other words, if an agency stopped distinguishing betweeen quarter page and half page size, or between one insertion in a magazine and three, most of its customers expected to get the lower of the two former price choices, rather than a midpoint between the two.

Analogy = What other industry even tries to hassle people, so much?

It is hard for me to think of another business that expects so much knowledge and understanding on the part of its customers.  For instance:

1.  When I buy a music CD from Tower Records, do they ask me to tell them where I intend to play it, how often, how loud, and with or without watching the associated video on my TV?  If they did, would I tell them, or just go home and download the CD for free, from the Internet?
2.  When I turn on the TV to watch a program, does the TV ask me what I am wearing, what type of soda I plan to drink during the program, and if anyone else is in the room, with me?  I am sure there are certain members of Congress and our Government, who might approve of the networks doing this, but I don't think most Americans would agree with them.
3.  When I buy a newspaper, do I have to sign a document in advance agreeing not to give the newspaper to anyone else or to tell anyone about the stories I've read in it?

Of course, there are some buying decisions that have a level of complexity that is equal to the rights managed buying process.  For instance, ordering coffee at Starbucks (I marvel at the specificity of the instructions I hear--and that they appear to be understood and correctly followed, most of the time!), leasing a car (don't try to read the contracts, just sign and hope you never have an accident or problem), or buying a computer on line (menu after mind-numbing menu of options that no ordinary person could understand).  However, if you ask people how they feel about these processes, many will tell you that they hate them.  Offer them simpler and cheaper approaches (coffee at the corner deli, buying a car at the "employee price," or getting a pre-packaged computer model) and many will choose simplicity and low cost, if they can.

If you are an artist and agree with my analysis, you should be shifting your production towards royalty free material.  I have offered suggestions in previous posts about where opportunities remain for new royalty free images.  If you are one of our artists, we can give you more direction, want lists, etc.  Please contact your editor.  If you are artist who disagrees with my analysis, I will be happy if you are right, and promise not to gloat, if you are wrong!

If you are a customer and disagree with my analysis, please visit our site.  We continue to list hundreds of thousands of GREAT rights managed images--and hope you will license a lot of them, from us.  In fact, we intend to continue marketing images under any license that both protects the copyright of our artists and makes them money.  I don't know if you noticed that I slipped in one model that trumps them all--"Free."  Our industry needs to be realistic that there is a threat that our customers' desire for less cost and more simplicity will eventually drive them into this model.  We need to work hard to increase the value we offer and make it clear why all of our models are better than this one.

Searching for Truth #11--Have We Saturated the Market?

The library of my agency (Index Stock), passed the one million image mark, late last year.  At the time, it seemed a momentus occasion, well worth celebrating.  After all, I recall when we put our first image on line (1992) and when we passed the 10,000 image mark (1993).  I believe we hit 100,000 in 1996, so it took nine more years to add another zero to our image count!

I've recently read and seen announcements of stunning rates of image growth, from other players in the image distribution area.  These didn't reduce my pride in our achievement, but they did make me wonder about how much value we would create by adding our next one million images.  Have we reached the point as an industry, where we have saturated our market?

I did a simple study of seven major image distribution sites.  I searched for eight terms on each site, and recorded how many images each site claimed for that term.  Take a look at the results:

 

There is a little overlap between these sites.  For instance, some of the images that are on the Getty Images' site are also on our site.  Some of our images are on the PictureQuest and Alamy sites, and some artists may contribute the same images to iStockPhoto, Shutterstock, Alamy, and/or Flickr.  However, even with a 10% deduction for overlap, the number of images available on these and most other subjects is overwhelming.  How can any potential user of images carefull review and consider more than 3,000,000 people images?  How would someone who was looking for a man shaking hands or a good shot of Paris, wade through 8,000 manly handshakes and 800,000 bistros and Eiffel Towers, without falling asleep!

I've only included seven sites on my list.  There are hundreds of other good collections.  For instance, our good friends at Design Pics in Canada, have 13,430 great people images.  Our U.S. based contributors at VStock have 2,955 brand new people shots.  Our industry probably has created more than 5,000,000 people images--and maybe has 10,000,000.

Notice also that even subjects as mundane as "toothpick," return more than 3,000 images.  Exotic subjects are also heavily covered.  The "puffin" is a cute seabird that lives in Iceland.  There are more than 6,000 images of this odd bird, just on these seven sites.  I doubt I could find any concept, race, place, animal, or thing for which there are not now at least 1,000 images available, commercially.

Alamy announced that it added more than 100,000 images in the past quarter.  Shutterstock has gone from a few thousand images to almost 1,000,000 in two years.  Major consumer photo-sharing sites such as Snapfish, dotPhoto (recently renamed Exclaim!), and Webshots, are adding hundreds of thousands of images to their sites, every day.  A search for "people" on Google Images returns 4,560,000 of them.

In my humble opinion, I feel the above is proof that we have saturated the commercial image market.  Is this a good thing or a bad one?  I found a nice article on Sticky-Marketing.net that I think describes the potential downside of saturation.  The article points out:

1. Once a market reaches saturation, customers stop buying new images and are only trying to replace ones that have gotten old or overused.  This leads to a drop in volume.
2. Competition heats up, as providers realize there are relatively few new potential buyers to serve.
3. Some sellers will try to convince customers that the products offered by other suppliers are obsolete or poor quality.  There creates a shift from selling the positives of one's own product, to pointing out the negatives of the products from competitors.

Saying the market is saturated is not the same thing as saying images are a commodity.  There are still huge differences between the quality of the images on each site and the accuracy of the keywording that produces these searche results.   However, saturation can lead to commodity-type behavior, quite quickly.  At present, I think many customers can tell the difference between what they get from a site like ours, and what they get from searching on a site that does not have solid editing and controls over how images are "tagged."  However, those differences can be eroded over time by technology that ranking systems that push up the better images, and software that automatically improves or adjusts keywording.

I see no simple solution or magic strategy, for escaping from these issues.  Index Stock will try to post new fresh images on its sites, so we can capture our share of the "replacement" market.  We will continue to look for (and probably find) new customers and new market segments.  And, we will refrain from focusing on the negatives of competing products and focus on our own positive aspects.  Unfortunately, I suspect that other players in the image licensing market will find it hard to do the same.