DC - Reviewing Market Segments

528

January 9, 2003

The first step in determining whether you should begin to get involved in digital capture is
to consider your area of specialty within the broader industry known as stock photography.

As photographers look to their future as producers of stock images they need to recognize
that the industry can be divided into at least three separate types of stock photo users.
Each of these user groups has distinct and very differing needs. In some cases the same
image can be used effectively by all user groups. But in others -- and this may be where the
greatest near term opportunity lies -- the users need a type or style of image and/or
information that goes way beyond the more generic images that are produced to fulfill the
requirements of the advertising community.

To explain this I must begin by defining these segments and their general needs. Then I will
discuss in more detail how digital capture may offer opportunities for those interested in
producing imagery for each of these market segments.

The three major segments are:

• High Demand generic subjects that are used repeatedly in advertising all
  types of products and services;
  
• Editorial subjects that are used primarily to educate and inform people on
  certain topics; and
  
• Niche subject matter where image needs are very specific and a specialized
  knowledge of the subject matter is necessary, or at least very helpful, in producing
  marketable images. The range of imagery needed by such niches is broad but also very
  specific. The number of users with an interest in any particular niche subject is small when
  compared to the high-demand generic subjects and thus the number of sales of any particular
  image is likely to be relatively small.

Digital capture at its current stage of development can be of tremendous advantage in at
least two of the three segments of this market.

I'll explore each of these segments in a little more detail and I'll call them: High Demand,
Editorial and Niche.

Market Segments

1 - High Demand. Most photographers chased the High Demand market in the 1990s
because it tended to generate a high volume of sales for each image produced and higher
dollar sales. Most of the images were used in some type of advertising. Through careful
analysis of past sales it was possible to determine the subject matter that is used over and
over again. The challenge is to produce new images that illustrate the same concepts in a
slightly different way. Examples of some of these concepts are: Couples enjoying life,
Communications, Business and the office, Babies, Mother and child, Father and child, Senior
Citizens, Love and Romance, Health, Travel, Technology, Recreation, etc. A more extensive
list can by found in my book Negotiating Stock Photo Prices on pages 55 and 56.

Photographers frequently ask their agents, "What's in demand?" The answer is that these
general subject areas haven't changed in 30 years. All that's changed is new styles of
illustrating the same timeless subjects, and new technology when it replaces old -- cell
phones instead of pay phones and laptop computers instead of typewriters, and of course new
clothing styles.

The market for this type of imagery is big. Probably in excess of 80% of the revenue of
Getty Images, or in the range of $370 million in 2002, came from users of this generic type
of material. Certainly it's a market well worth pursuing, and one where many photographers
have focused their energies.

However, in producing imagery of this type there is one critical issue that photographers
must not ignore. That's Royalty Free. Precisely because this subject matter is generic it is
easy for big companies to analyze what is needed and produce it. Because those who sell RF
offer images on these generic subjects a low prices, it is becoming increasingly difficult
for photographers producing Rights Managed images of this type to make enough sales to
offset their costs of production.

It seems entirely possible that this segment of the market will eventually go entirely to
RF. While there will always be some demand for unique images of these subjects, there is
beginning to be a serious question as to whether RM photographers will be able to earn
enough from this type of production to continue in it.

2 - Editorial. Editorial falls into two sub-categories. There are the major news
stories that are relatively easy to define. Digital Capture is being used heavily, if not
almost exclusively, in the coverage of such news events. It is producing perfectly
satisfactory results for all types of magazine and newspaper reproduction.

There are also feature material and special interest images. These may deal with issues of
interest to a smaller group of people and are usually not published as broadly. In some
cases they may provide more detailed analysis of issues related to the major stories. Much
of the imagery needed by this market is less set up and arranged than the images that sell
to the High Demand buyers.

There are several interesting things about this "feature" market. First, it is large. Based
on surveys done by PACA in 2000 and CEPIC (European Picture Agency Association) in 1999 [the
latest comprehensive data available] gross worldwide stock revenue of editorial uses in 2000
was probably between $600 and $680 million. This does not include sales by AP, Reuters, AFP
and other wire services that work almost entirely with staffers. It does include all hard
news editorial sales made by stock agencies, so the "feature" part of this figure and the
images used by small specialized publications would be quite a bit less, but still
significant. (Note that the number is significantly larger than Getty's share of the
commercial and advertising market.)

This "feature" part of the market is an area that RF will never be able to penetrate to any
significant degree because at RF prices producers can not afford to create images that won't
generate a high volume of sales. By its very nature the feature part of the market is often
aimed at a small population with a specific interest. The images needed usually require that
the subject be explored in some depth, or in a detailed way. If RF touches such subjects at
all, it will usually seek to produce very generic images that have a chance of being of
interest to a much wider market.

Getty Images has only barely penetrated this editorial market and seems to be aiming
entirely at the hard news, high demand subjects. Getty's sales of News, Sports and Archive
images will probably be in the range of $40 to $50 million in 2002 -- a very small part of
the total editorial market. Getty has removed from its files and rejected a huge body of
work that would be of interest to this market. Presumably this was done because Getty
determined that it would not be cost effective to add such images to its search engine given
that the average image would not sell enough to offset the expense of preparing and
digitizing the images.

We believe, based on reports from photographers, that sales by Corbis of this editorial type
of imagery is a much higher percent of their total revenue than is the case with Getty.
Unfortunately, Corbis does not supply gross revenue numbers so assumptions about what is
happening there may be inaccurate. Corbis has always been much more willing to accept and
add new editorial images to its collection than has been the case with Getty Images. This
has been particularly true of subject matter that might be of interest to book publishers.
But even assuming that Corbis makes significant sales into this market there are still
significant opportunities for photographers and other stock agencies to produce imagery for
this segment of the market.

3 - Niche markets are those that have a special interest, but require a depth of
understanding and coverage of their particular interest area that is well beyond what
general agencies are likely to provide. Some examples of large niches are: Agriculture,
Elementary Education, Underwater, Aviation, Food, Flowers, Science, Music, Hunting &
Fishing, Environmental Issues, various sports like Golf and Tennis and various locations
like Alaska and Hawaii.

A large portion of the uses of niche images tend to be for editorial/educational purposes in
publications that cover the subject matter in some depth. Some images produced by a niche
provider will sell to a larger more general interest market, but the general interest
markets tend not to be the major source of revenue.

There are also companies that sell products and services to these markets. They need images
for their advertising that will resonate with their customers. That often means that their
image needs are very specific and such images are not likely to be found in a large generic
file.

Opportunities

The prevalence of RF makes the High Demand advertising market a very difficult one to
penetrate unless the photographer is shooting RF or working on assignment for one of the
major agencies.

In the near future the best opportunities for photographers shooting RM images may be in the
Editorial and the Niche markets. Editorial and Niche need lots of images but they also need
variety and their needs tend to be very specific. This means that agencies that concentrate
on handling high demand generic images are unlikely to have much that will satisfy the needs
of these buyers. The fees these customers can afford to pay for this niche material are
often modest, although usually not as low as RF prices. This market area offers an
opportunity provided photographers can find a way to show customers a wide variety of images
with minimal after production costs.

The dilemma for producers is how to cover the costs of showing many images online that will
sell only once, or not at all. Digital capture technology may be the break through that's
needed to dramatically reduce costs of scanning, keywording and storing images and enable
photographers to keep these after capture costs under control.

While producers of this type of imagery will make occasional high dollar sales for
advertising, their business model must be designed to sustain itself by making lots of sales
for relatively small uses. The occasional sales made for high dollars and outside the
primary market will add to profits, but can not be depended upon to provide a regular
sustained level of revenue that would offset costs on a month to month basis.