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.

Comments

[Granville Bennett]

Can a CD from Tower Records be used to entertain a football stadium or to sweeten a radio promotion WITHOUT asking for permission and WITHOUT paying further royalties to the artist or rights owner?
Business to Business contracts and negociations are in most industries (e.g. car rental or leasing) at least as (or even more) complex/complicate as licensing a rights managed picture. For a somewhat professional image buyer it's part of the trade. (Even ordinary people are expected to tell their car insurance the mileage the expect to drive per year). The above comments quite ignore an important value advantage rights management offers - knowing WHEN was the image used by WHO for WHAT purpose. A future based on mass downloads will see a good number of competitors ending up with exactly the same picture in their presentations (and yes, readers and customers do recognise). Stock photography prices are small expenses compared to other production costs and esp. the costs of ad space. A certain amount of exclusivity or at least not getting a worn-out mass product could soon be worth again a bit of extra money and effort to picture buyers who value their projects more than just a Dollar.

[Jeff Greenberg]

Subdividing RF as follows might allow price increases:

RF1 -- RF for one year
RF3 -- RF for three years
RF5 -- RF for five years
RFU -- RF for unlimited years

(make RF3 or RF5 equal to current RF pricing)

[Tim McGuire]

When you write about buying CD's of music, Newspapers, and the watching of a television show you are talking about media marketed to the consumer market. Stock photography is largely licensed into the Business to Business market where complex licensing is the norm.

Surely if you were Starbucks and you wanted to make the New York Times available to all your customers in your stores, let's say you pasted it on your walls so customers of Starbucks could read it without paying, surely the New York Times would demand to license that right to you based on very specific numbers of stores, regions and time limitations.

If Starbucks wanted to play rolling stones CD's in all their stores surely Mick Jagger would negotiate a deal with Starbucks based on very complex set of use parameters.

And surely if Starbucks wanted to show a television show on a big screen in their stores this right would have to be carefully negotiated with the television shows producers on a complex set of rights allowed including duration, territory, and size and scope.

Art buyers are far different from teenagers at the local CD store buying a cd to RIP to their itunes. Professional art buyers buying for companies who spend thousands and millions of dollars in order to use stock photographs can handle a certain amount of complexity in the licensing process though maybe they tell you otherwise in order to get you to give it all away for almost nothing.

Bahar, in my humble opinion and with all due respect I think your comments are dead wrong and do a diservice to this industry that long suffers from a lack of professionalism in it's licensing practices!

Thanks for listening.

Tim McGuire

[Bahar Gidwani]

Thanks to the folks who have commented on this so far. I don't have answers, but I have responses (if you know what I mean!).

Re Granville's comment re a risk of overlap. I agree that this is a concern for the high end of the market. If an image licensor is going to spend $1,000,000 on a marketing campaign, he or she won't care about an extra $5,000 to protect an image and make sure the whole campaign is not ruined by an overlap. That client is also quite likely to assign the image--same money and she or he gets complete control. Remember, 95% of all images used are RF (this data from client surveys I have done). So 95% of the market already doesn't care about overlap and probably will like to get each image for $1 instead of $399. (They are already getting most of their RF images for $0, from previous jobs and from CDs or subscriptions, they have already purchased.)

Re Jeff's suggestion for a better RF pricing system. I'd vote for it...but I don't think customers will. It is like asking someone to vote to raise taxes. We all know that we need better schools, fewer potholes, and better social support systems. But, we'd rather have someone else pay for them. Customers will keep voting for whatever system is cheapest and simplest--regardless of whether or not it is good for artists and the overall health of our industry.

Finally, re Tim's comments. I've been fighting the good fight regarding prices for fifteen years. In general, our agency has won those battles, and kept our average prices at or above those of most of our competitors. However, when we get new competitors who are pricing at $1 or $0.50, it is unreasonable to blame the change on existing agencies like us! We can't stop progress or change the market--even though many of us tried to do it for years, when faced with royalty free and fixed price contract demands from book publishers, etc. I think it is a disservice to the industry to label those who tell the truth as the cause of the problem. Remember Cassandra and the battle of Troy...

Hope I'll get more input on this one. Thanks again for your comments.

[Tim McGuire]

Bahar,

Again, it may be true you've fought the good fight for a long time. I hope it is true. My point is that stock photography is licensed to other businesses not "Joe Consumer". Other businesses, unlike "Joe Consumer" can and will put up with a certain amount of complexity in the licensing process just not unneccesary complexities.

I do not label you or the company you run (Bahar)as the cause of the problem. The cause of the problem falls directly on the heads of photographers and their collective unwillingness to demand and uphold any professional standards of licensing for their work. A lost cause, yes, but the cause none the less.