Creative Eye

430

September 28, 2001

Creative Eye -- is it a good deal or not? We have looked at all aspects of this
project, and are pessimistic about its long term chances of accomplishing all its


goals. However, in the short term it can be very beneficial for stock photographers
who choose to participate. We recommend that they look to Creative Eye as one of many
marketing options for their work, not the sole option.

For photographers who have already gone to the effort of putting images into the MIRA
system, there is no question that they should pay the additional costs in
participating in the new Creative Eye and leave those images where they are. The fact
that they have earned little, or no, income from MIRA so far should not deter them.
MIRA was never promoted properly in the past, primarily because they never had the
necessary resources. Creative Eye is a whole new ball game.

Advantages

The big difference now is that Creative Eye seems to have access to capital to
properly promote the site. (It is unclear how much, and this could be a problem.) We
believe they have an intent to aggressively promote. In the short term sales should
increase dramatically due to that promotion. Buyers are looking for sources other
than (or in addition to) Getty and Corbis. Given the editing policies of the big two,
they often don't have a lot of the images buyers need. That fact, and the fact that
many buyers want more than two choices, aids any new startup that can effectively let
buyers know they exist.

Some of the other advantages for photographers are that the price of participation is
very reasonable, the contract is non-exclusive with few restrictions, and the
photographer can quit Creative Eye at any time on 30 days notice. This means that if
Creative Eye's strategies or policies change in any way that makes an individual
photographer unhappy, that person can easily leave and go elsewhere.

Many also consider it a benefit that ASMP is no longer directly involved. Creative
Eye is not a part of ASMP. ASMP, and specifically some of its members, assisted in
some of the foundational planning. Various ASMP chapters are also helping to inform
photographers of the potential Creative Eye offers by organizing meetings around the
country. But, ASMP now has absolutely no controlling interest in Creative Eye. Some
of the current board members of Creative Eye are also ASMP members, but every member
of Creative Eye will have a vote and can expel board members, if they are unhappy
with their performance. Given the co-op structure it should be much easier to expel
an ineffective board member, than has been the case with the ASMP board.

Photographers must be forgiven for being confused by the alphabet soup of acronyms
that has lead to Creative Eye. I'll try to break it down. First there was ASMP that
formed MPCA to try to help photographers sell stock images. MPCA contracted with AGT
to provide technology for the site and CCC to help with licensing. The three
companies MPCA, AGT and CCC became MIRA. AGT's participation ended around the end of
1999. Also in the fall of 1999 MPCA was unincorporated and became a committee of
ASMP. As of this writing MPCA holds the contracts of the photographers. However, as
of September 30, 2001 MPCA will be totally out of the picture and photographers must
re-contract with Creative Eye, or their images will be taken off the site.

On July 1, 2001 CCC gifted all their assets in MIRA to Creative Eye. CCC is presently
being paid a monthly fee to provide office facilities and to continue to operate the
technology that runs the MIRA web site. But, Creative Eye is looking for a new
technology provider and expects to have an announcement at Photo East. They expect to
be completely separated from CCC by early in 2002.

Problems To Overcome

There are several problems with the current web site that need to be improved.
Creative Eye is planning to offer a new interface before PhotoPlus in November 2001,
but the interface alone is the least of the problems.

What buyers want is to have a good selection of images on the subjects they need.
This necessitates a fairly large database of images, and a search system that works
efficiently. Creative Eye acknowledges that their current search system in not
satisfactory, and they are exploring other options. We have reason to believe that
the new system they are considering will be satisfactory, but until the deal is done
and photographers can see the new system in operation this is somewhat of an unknown
factor.

Keywording

The most important factor in improving search capabilities is the keywording. MIRA's
current system allows for only 250 to 300 characters of keywords. This is wholly
inadequate. Stock Connection has an average of 1,000 characters of keywords
per-image. The more images you have in a database the more keywords per-image you
need in order to be able to narrow searches. Some photographers believe that the way
to improve the site is by very tight editing of the images that go into the system,
and by editing out some of the images that are already there.

We disagree with this philosophy and believe the success of PictureQuest and to a
large extent Corbis, show that large sites with a broad diversity of images can be
very effective. The answer is not so much tight editing, but keywording that enables
the individual user to do their own editing to the area of specialization that
interests them.

Considering the average length of words, currently MIRA probably has no more than 25
to 30 words per image, and often many less. Images of people, lifestyles, business
situations (the best selling subjects) usually require many more keywords than
nature, scenics and wildlife.

Why so many keywords? In addition to describing the image there is need for concept
keywords. If there is a limit on keywords the concept words are usually the first to
be dropped. Adding these concept words helps sell images.

By way of comparison consider some of the following searches comparing MIRA.com and
Alamy.com. Alamy is a relatively new database and we suspect it has fewer images in
the system than MIRA.

Consider where the buyer is most likely to find something they can use. Are these
really all the images MIRA has that connect with these keywords? Probably not. It is
not that the images aren't there, it is more likely that the images just haven't been
properly keyworded.

You need to have both singulars and plurals in the keywords because some buyers may
use one and some the other. Consider a search on MIRA for maps. If you search for the
word "map" you get 34 hits. If you use "maps" you get 37 hits. If you search for "map
and maps" you get 62 hits. Most buyers will use one word or the other. They will not
use the "and" phrase. Whichever single word they use they are going to miss almost
half the images. There is no consistency in the way the keywords have been entered,
and the singulars/plurals problem is throughout MIRA.

There are also some very incorrect hits. If you search for "rock" in addition to
rocks and mountains you get a couple pictures of cows. If you search for "warm" in
addition to some warm things you get pictures of a bird in snow.

According to Kristen Giordano, Creative Eye CEO, the new search system they are
considering has no limit on the number of keywords. That's good, but at some point
Creative Eye will need to go back and re-keyword many of the images that are
presently on MIRA. Ms. Giordano believes that a "category" system will help solve the
problem of the lack of keywords. We strongly disagree, based on our experience.

One of the issues for photographers will be the degree to which Creative Eye
institutes a new keywording policy, and goes back and re-keywords images already in
the system. However, even with the system, as bad as it is, some images will be found
if customers just begin to use the site.

For those skeptics who think keywording is not a big deal consider the experience of
one photographer Stock Connection represents. This photographer has less than 100
images on PictureQuest through Stock Connection. SC extensively keyworded these
images. Seventeen have sold for a total gross sales paid by the clients of $13,595.
This same photographer has more than ten times as many images on PictureQuest through
another agency. The other agency did a poor job of keywording. The photographer has
made 6 sales from this group of images for "very little money". Anyone entering a
keyword on PictureQuest should be able to see all the images from both Stock
Connection and the other agency that have that keyword. The only difference in this
comparison is the keywording.

Pricing

Another question is the pricing. While every photographer will be able to set their
own prices, it is not clear exactly how that will work. From their explanation at a
recent meeting in Baltimore with photographers, we believe it will work something
like the following:

Creative Eye will have a standard set of prices that they will publish to members.
They will also have recommended minimums for each use. The Creative Eye sales people
are given the flexibility to negotiate the price between the "standard" price and the
"minimum," (or to ask for more if they think their is some justification for it.) If
the client doesn't want to pay the minimum Creative Eye will not pursue the sale.

Each photographer will be allowed to either accept the standard prices, or say that
they want 5%, 10% etc. more on all sales. Creative Eye will maintain a database that
tells them what the photographer expects relative to the standard price. We will be
greatly surprised if every photographer is allowed to submit an entire price list. At
a minimum it would be a huge data entry problem, but then most photographers wouldn't
bother anyway.

Assuming the above is put into effect, and the base prices are higher than average,
it still will do nothing to enforce higher prices across the industry. The Creative
Eye photographers will get higher average fees for the sales they make, but they are
likely to make fewer sales because many buyers will not pay the higher prices and go
somewhere else to get a comparable image for a lower fee. There is nothing wrong with
this strategy so long as photographers recognize what they may be giving up. I'm not
sure all photographers do.

In addition, no standard price list can deal with the whole variety of options that
come into play when it comes to actually licensing images to buyer. The new
Negotiating Stock Photo Prices (NSPP) list is 55 pages long and covers nearly all
potential one-time uses. Still, we clearly state that these numbers are a starting
point, and there are many other factors that must be taken into consideration. Two of
the major ones are multiple uses of the same images and the use of multiple images
for the same project (such as a textbook). Each of these situations usually has to be
dealt with on a case by case basis, and it is important that the negotiator be given
some flexibility.

In using the old NSPP prices as a starting point, Stock Connection had an average
gross fee-per-image-licensed of $975 in 2000. This is possible even when the agency
is given negotiating flexibility so long as it is the policy of the agency not to go
below certain minimums.

Photographers should recognize that when it comes to pricing Creative Eye is not
going to be all that different from any other stock agency. Photographers will be
able to prevent Creative Eye from selling their images for low fees, but they need to
recognize that this may result in fewer sales.

Co-op Structure

The big advantage to using the co-op structure is that it has led to significant
financing from the National Cooperative Bank. Other than that, photographers should
think of Creative Eye as just another stock agency.

There is no magic in the co-op structure that will automatically lead to success and
satisfaction for the photographers. Magnum is a cooperative, and while they have been
around for a long time, they have had certain problems from time to time in complying
with the varying needs of their members. They also keep 50% of gross on stock sales
to run their operation, not just 30%. Despite this percentage of revenue, I don't
believe they have been able to rebate large "profits" to the photographer shareholder
as Creative Eye implies might happen in their case.

Another photography cooperative was Impact Visuals. They have recently gone out of
business. They were originally established about 15 years ago in an effort to market
the images of photographers who wanted to produce a certain kind of editorial and
documentary image. The problem was that the market for the work they were producing
wasn't large enough to offset the basic costs of running the operation.

Creative Eye has received a lot of organizational support in setting up their
operations from Cooperative Solutions. This company is also a co-op and employs about
30 people supporting seven successful co-ops. The problem as I see it is that most of
these co-ops have been "purchasing co-ops" which benefit their members primarily by
getting discounts on large quantity purchases and passing those savings on to their
members.

This is a very different business model than the licensing of rights to freelance
photography. Cooperative Solutions has no previous experience in dealing with our
industry. They have recommended, and Creative Eye plans to implement, at least three
different income streams for the company.

Income Streams

Creative Eye is an umbrella organization under which a number of services will
co-exist. The first is MIRA - the online stock photography database. The second will
be a Purchasing Program which they hope to have ready to launch by the beginning of
2002. It is in this area that Cooperative Solutions has their experience, but I am
skeptical that this will turn into a profitable line of business for Creative Eye.

Remember Exactly! which failed less than a year ago, after a lot of hype. Photography
trade associations have also tried to supply this type of thing and for the most part
have failed even though all the associations were interested in doing was providing a
member service and covering their costs, not making a profit. Photographers can
already get discounts on most things they buy by getting them through discount
stores. I don't believe additional discounts are likely to be significant enough, or
that there will be enough additional discounted items, to make going through Creative
Eye attractive for most photographers.

The third proposed income stream is called IRIS. This is to be an
editorial/assignment licensing division. This division is only at the very beginning
concept stage. Their hope is to have this division operational within 18 months. I
think this is a very ambitious plan unless they throw a lot of staff at this and they
have plenty for their staff to do in just getting MIRA to work.

The first thing we'll probably hear about IRIS will be in the form of a white paper
sometime in 2002 outlining the plans in more detail. Creative Eye also needs to
recognize that the whole editorial assignment business is in decline. Only if they
can get the majority of photographers to agree to run their assignments for the major
magazines through Creative Eye, and agree not to work for anything less, do they have
any hope of affecting assignment rates. I doubt that will happen. It certainly will
not happen without the full cooperation and endorsement of Editorial Photographers
(EP) group, and they seem very cool to Creative Eye.

There is one point here where I disagree with EP. They believe a group of
photographers can not join together to set a minimum price. I believe they can in the
coop structure, or for that matter in the stock agency structure. A stock agency, as
an independent company, can set the price for the services they provide. Creative Eye
could say to Time that the rate to use one of their photographers is $800 a day. Time
then has the choice of paying that, or finding a photographer not affiliated with
Creative Eye somewhere else. If all photographers who want to work for Time
individually agree to only accept assignments for Time through Creative Eye, I don't
see how that is a violation of any kind of anti-trust rules. The photographer has the
right to choose who they want to be their representative, and the companies they want
to work for.

On the other hand, the chances that Creative Eye is going to get enough of the
photography community to agree to join their co-op so they have overwhelming control
in their negotiations with any corporation are slim. That's why the Magnum co-op has
not been able to dictate rates for the industry. They can set rates for their
photographers, but there are enough other photographers around who are willing to
work for lesser rates that Time (or other publications) usually have plenty of
choices.

Oversold

Creative Eye is trying to do too many different things. I believe that will dilute
their overall effort. If they were focused on any one of their efforts, it is my
belief they would have had a better chance of success. However, the bank's support
was contingent upon the cooperative "servicing the majority of photographers and
illustrators in the marketplace. This meant stock, editorial and assignment
photographers."

By trying to be all things to all photographers Creative Eye got a big hunk of money.
But they may work through it quickly. As I said in the beginning, I'm not optimistic
for this operation in the long term.

One of the concerns is that they will spend so much time and energy trying to get the
purchasing division and the editorial assignment division to be profitable that they
will get distracted from the MIRA division that has the best chance of being
profitable. Time will tell.

They have 230 members now and another 200 contracts in the pipeline. Their goal is
1,000 members by December 31, 2001 which may be possible given that most of the
existing MIRA members should re-up. They believe it will take them ten months to
reach a critical mass of members and they have a goal of 10,000 members in five
years. That goal seems to me to be totally unrealistic, unless the purchasing program
comes up with some miraculous offerings.

In addition, because they are doing so many different things, and reaching out to so
many different segments of the market, it makes it harder to explain to potential
members.

They expect to reach profitability in 3 to 5 years. If they must pay back a
substantial portion of the principle on the loan to be profitable then I doubt they
will meet their goal in that time frame. If profit is calculated after deducting
interest on the debt, but no principle, then reaching profitability may be possible
depending on how much money the bank is willing to throw at marketing.

No Perfect Solutions

Even with all the reservations I've outlined, I believe stock photographers can still
benefit from being a part of Creative Eye.
The MIRA element of the plan has a much better chance of success than the other
elements, and it is much further along in its development.

I would strongly urge photographers to either do the scanning themselves, of pay a
little more to get access to the scans so they can place the images on other sites
in addition to Creative Eye. Creative Eye's marketing will be important, but don't
limit yourself to this marketing option alone. Remember, this is a non-exclusive
agreement so there is no reason why you can't offer the same images through other
outlets.

The same goes for getting access to the keywords. Assuming that Creative Eye does a
good job or keywording, the ideal situation would be to be able to use the same
keywords on other sites. Or, go to another site where you create the keywords and
then see if you can supply the same keyword list for Creative Eye.