Royalties Adapt to Changing Biz Models

Take a look at the comments to my recent article Justifying 20% RF Royalties. Readers have conflicting opinions, but their calls for action may not be in the photographer's best interest.

Chris Ferrone pointed out that despite low royalty rates, "Plenty of photographers are clamoring to put their RF material with Getty for a low commission because they know Getty can deliver enough volume to make it worthwhile... [and they] find it financially expedient to accept the deal as is." I agree. The simple fact is that many photographers have been able to earn more money selling RF at 20% than they could earn making the same images available as RM at 50% or 65%.

How? There are several factors.

(1) Given that RF is nonexclusive, it is possible to have an image represented by more distributors than is the case with RM. The more viewers, the better chance of licensing.

(2) There is strong customer demand for RF images; on average, they sell twice as frequently as RM.

(3) Due to RF price increases, RF is often more expensive than RM. Not all RM sales are for huge amounts. Getty's average price has been about $500 for an RM image, compared with $250 for RF. Thus, if you made twice as many RF sales as RM, gross revenue generated was about the same. However, that still doesn't account for the royalty percentage differences (20% for RF at Getty compared with approximately 35% for RM).

(4) Volume producers have been able to get more images accepted from a given shoot by offering them as RF rather than RM.

There will continue to be more suppliers willing to provide images for 20% royalties than there is demand. Given that, efforts to get photographers to withhold images are more likely to damage creators by limiting their options rather than hurt distributors.

The above was true of RF in the past, but may not be true tomorrow, due to the tremendous pressure microstock is putting on traditional RF. The following chart should be sobering for both RF and RM shooters.

The projections for 2008 and 2012, based on Getty's internal figures, were included in a November 28, 2007 report prepared by Goldman Sachs in connection with the Getty Images sale to Hellman & Friedman.

Note the decline in Creative Stills (RM and traditional RF) revenue in the next five years. In 2007, RM was $305.26 and RF was $255.68. RF will take the biggest hit in the next five years, but both will lose significant revenue if marketing strategies remain as is.

Bill Bachmann said, "I do not sell RF and won't." Licensing images as RM has worked very well for him. But dramatic changes in the market are developing. We're going to see a steady decline in the use of RM images for big budget print projects, while photographers pump an increasing number of images into RM.

Tim McGuire points out are "plenty of new distribution outlets offering 50+% for RF licensing." But unit sales through these outlets are so comparatively low that even with their higher percentages, they don't produce the gross revenue for photographers that the lower percent operations do.

Traditional photographers don't like to hear it, but the market is headed toward lower priced uses, not higher. Volume will be the critical issue, not price or percentage. Look at the anticipated iStockphoto and multimedia growth. Multimedia uses will be online video, not still images, and at very low prices. Much of the editorial growth will be online as well as for personal uses on digital devices. Photographers need to view these options as real markets.

To be successful in a changing marketplace, David Liddle, of U.S. Venture Partners, said, "To a large degree, it's the willingness to move on and abandon something. It's the ability to let something go and move on to the next big thing."