Getty Images has made a number of strategic decisions in the past few years that have resulted in declines in both its “Creative” (RM and RF) and microstock lines of business. These decisions have also aided Shutterstock in its rise to a commanding position in the market with its subscription licensing model. I want to emphasize that when I talk about declines I am not referring to Getty’s other lines of business - Editorial, Footage, Other or B2B music – which as far as I can tell are still growing.
To set the scene, by 2007 it was easily predictable that the traditional model of licensing imagery based on use was in decline. The microstock model (low price, high volume) was about to become a dominant player in image licensing. Getty’s major “Creative” line of business (RM and traditional RF) generated $561 million in revenue in 2007.
Goldman Sacks estimated that would decline to $348 million by 2012. In fact, I think it dropped to somewhere in the range of $200 million.
In 2007 Getty’s iStockphoto brand was the industry leader in microstock and growing rapidly. It seemed to be the new wave of Getty’s future. By 2010, I believe iStock was generating in excess of $300 million and was certainly Getty’s premier line of business. But the growth in the number of
units downloaded annually was slowing compared to what it had been from 2006 to 2008. Virtually all the people who needed stock photography were now using iStock to one degree or another.
Growth Of Image Use
In 2009 and 2010 many people believed that as long as more images were being used on the Internet the number of microstock images licensed annually would grow forever. From the time Getty acquired iStockphoto they had slowly raised microstock prices and despite the price increases the number of images licensed each year had always grown. But as the percentage growth of images licensed was slowing. It turned out that the small price increases of the past were not enough to meet revenue expectations. Getty’s solution was to find ways to dramatically increase prices, not to adjust expectations.
Getty seemed to feel that because iStock was the industry leader customers would go to iStock first as long as its prices were cheaper than RM and traditional RF because it was still the best buy for customers. They failed to take into account that customers also had the option of going to other microstock competitors. Consequently, Getty pushed iStock prices much higher than every other microstock company and opened the door to their microstock competitors. This also made subscription a more attractive option.
Subscriptions
In early 2010 Getty entered the
subscription business with Thinkstock. They priced Thinkstock subscriptions competitively with Shutterstock, but put very little effort into growing this line of business. It appears there were two reasons. First, they felt that the subscription business was unlikely to grow to any significant size. They also recognized that if they promoted Thinkstock heavily it could be a threat to their other lines of business, particularly iStockphoto.
As a result Thinkstock sales never seemed to take off. Most photographers either ignored it as a marketing option, or earned very little from it.
Traditional Creative Suffers
Getty’s focus was to grow iStock, but in the process it found that many of its traditional “Creative” customers were turning to iStock for many of their image needs. To try to hang onto these customers Getty offered them tremendous discounts if they would continue to license RM and RF images from Gettyimages.com. This move steadily brought Creative image prices much closer to iStock prices.
In a recent analysis of some of Getty’s major suppliers of RF imagery I was able to determine that the average price of an images licensed in 2008 was $219 and that dropped to $126 in 2012. In addition to falling prices these photographers licensed fewer than half the number of images in 2012 as they licensed in 2008. More than 25% of the 2012 licenses were for gross fees of less than $25. In many cases the fees were significantly lower than those charged for microstock images.
Exclusive Microstock Collections
Getty concentrated on building an exclusive microstock collection feeling that they could charge more for exclusive images. They tried to make iStock the only place where customers could find certain images and ignored the fact that popular iStock exclusive images were used by hundreds of different customers for different purposes indicating that customers didn’t really care about having exclusive rights to use an image.
Over supply in the industry also provided customers with lots of choice in the popular subject areas. Customers might not be able to afford the perfect images for their needs, but they had lots of image choices in their price range that were almost as good. It turned out that customers were much more interested in efficient search, price and general customer relations than exclusive images.
Downhill Slide
Looking back, I believe iStock’s peak was probably in 2010 when they had something in the range of
25 million downloads and gross revenue in excess of $300 million. Since then I believe iStockphoto unit sales have been in steady decline. Based on the
first 6 months of 2013 downloads for the entire year should be around 10 million -- or the same as 2006.
Cutting Royalties
When, even with price increases, revenue wasn’t growing as fast as Getty needed it to grow Getty decided that the only way to maintain profits was to cut royalties paid to image creators. In September 2010 they
announced a royalty cut that would take effect January 1, 2011. For some this was a 25% cut of an already low royalty share of sales.
This move had several ramifications. Obviously, image suppliers who had worked hard to produce the images that had led to iStock’s growth were upset and felt betrayed. While they all faced a decline in revenue Getty thought the suppliers had no other alternative because iStock was still an important source of their revenue.
What Getty seems to have forgotten was that a significant percentage of iStock’s image suppliers were graphic designers and illustrators that were also
image buyers. While the microstock revenue was important to them, their design and illustration businesses were their major sources of income. iStock was founded by image buyers who decided that stock photo prices were too high. The Internet made it possible for them to share images they had created for their own projects with other designers that might be able to use them. A new business was born.
Many of these buyers became so upset that they took at least one of four actions. First they stopped buying from iStock and took their business to other microstock sites. Instead of encouraging their colleagues to use iStock when they needed images they started bad-mouthing iStock. A number of them that had been exclusive turned to non-exclusive and started making their images available through other non-exclusive microstock sites. And finally, some pulled their collections from iStock.
Shutterstock Rises
Many of these former iStock buyers turned to Shutterstock for most, if not all of what they needed. Shutterstock had a major growth spurt. Meanwhile Thinkstock languished.
Recently, I was able to track the sales of some photographers with significant collections on both Thinkstock and Shutterstock. These photographers had a combined total of over 5,000 images on each of the sites. The subject matter supplied to the two sites was very similar. In a 9-month period there were about 750 Thinkstock sales. In that same period there were over 26,000 Shutterstock sales. At Thinkstock photographers receive from $.25 to $.40 for each image downloaded through a subscription. The price varies depending on the total number of career downloads the photographer has had. (They receive a higher royalty when images are downloaded at Image Pack prices.)
It is easy to see that unless an image creator has a significant number of downloads it is hardly worth the trouble to license images via subscription sites. It has been reported that the images or Yuri Arcurs were being downloaded 4,000 times a day before he decided that given the cost of producing quality images he couldn’t earn enough via subscription selling to cover his costs of new production. It was at that point that he went
exclusive with Getty Images hoping there would be enough volume at higher price points to make up for the loss of Shutterstock sales. As far as we know Yuri’s images are not being made available through Thinkstock.
The Higher Price Solution
In mid 2010 Getty introduced The Agency Collection (TAC) at iStockphoto in an effort to bring higher quality images to iStock from it’s Getty Images suppliers. To get the suppliers to participate they had to charge even higher prices than iStock’s already highest prices in the microstock business. Getty also pushed TAC images high in the search return order so they would be among the first customers would see when they conducted a search. Initially this was a great success. Some seller reported gross royalties per-image-in-the-collection in the range of $1,500 annually – an unheard of amount.
But, the high sales volumes didn’t last. Art directors and image buyers loved that they could find these high quality images on iStockphoto and, at first, bought a lot of them. But sales began to decline rapidly. We suspect that when accountants watching the money saw what their art directors were paying for microstock images they demanded that the art directors find other image sources.
Sales dropped so much that top contributors stopped supplying images for the TAC collection. By mid 2013 sales had deteriorated to the point that
Getty retired the TAC brand and lowered the prices of all the images in that collection.
Full Functional Integration
Throughout 2011 Getty started making efforts to cut costs and exercise more direct control over the iStockphoto operation that was headquartered in Calgary. They moved some managers to Seattle and New York and moved the operation of the web site to Seattle.
In January 2012 they dismissed 30 iStock staffers and senior management. Getty Images' co-founder and CEO Jonathan Klein said, "We are completing the process of full functional integration across the two brands" (Getty Images and iStockphoto).
The goal was to bring more efficiency to the iStock operation. Many relatively high salaried people were replaced with people who were willing to work for less money. However, in the process they lost much of the “institutional knowledge” that had built a successful company. They lost people who had strong relationships with some of the most important image producers and many of those producers stopped supplying new images.
There have been constant staff changes and inefficiencies for almost two years now. Based on comments on the blogs, the level of unhappiness among image suppliers has reached a new low. There have been constant technological problems with the web site that seem to take forever to fix. There are indications that Getty is trying to do too much with too few staff and has set unrealistic revenue goals.
Underestimating Their Customers
Getty also seems to believe that its customers are not good shoppers. Their latest iStock offer of
“1/2 our imagery at 1/2 price” is a case in point. They only cut the price of the non-exclusive contributor images. Exclusive images are still priced at the same high levels. Moreover, virtually all the images that come up first in the default search are images from exclusive contributor. It is the prices of these images that those who have left iStock have been saying are too high. Yes, it is possible to adjust the search with the “price range slider” and see only the inexpensive imagery, but Getty certainly hasn’t made it easy for customers to find those inexpensive images.
Former customers who go to the site based on the new promotion are likely to conclude after a few searches that nothing has changed. Getty’s prices are still higher than the customer wants to pay and once again Getty is misrepresenting its offer.
Getty also seems to think that customers that find an image on Gettyimages, Jupiterimages or iStockphoto are either too busy or aren’t smart enough to check and see if the same image is available at a much lower price somewhere else. Certainly many customers have been doing this for quite some time and they have discovered that with some effort they can find the same images at lower prices on other microstock sites or Shutterstock. But, now Getty, with its Thinkstock “Search by Image” feature (See
Thinkstock vs Shutterstock) is almost begging customers to see if the same images they find on Getty’s premier sites aren’t available for a fraction of the cost on Thinkstock.
What will they gain if most of its customers start going to Thinkstock first and only turn to Getty’s other sites in those rare cases when they can’t find anything suitable? It seems Getty is determined to see how much they can lower the price of photography.