Beginning in 2011, iStockphoto will implement major changes to how it calculates photographer royalties. In addition, the company will soon launch a small higher-priced Agency Collection containing images from some of the major traditional royalty-free brands and invited iStock contributors.
Royalty adjustment
Starting on January 1, contributors’ royalty rate for the year will be based on the number of “redeemed credits”—those used by customers to download each contributor’s files—in the previous year.
Currently, the value of each credit is determined at the time of sale and credited to the photographer’s account. The actual value of a credit ranges from $0.95 to $1.52. In the new system, the actual value of a credit will be determined in exactly the same way.
However, the present system varies royalty percentages based on the total number of images downloaded in a photographer’s entire iStock career, regardless of how much money each of those downloads generated. Some downloads only require a single credit, and other can require as many as 80 credits, depending on the collection an image is in and the purchased file size. There are also six current royalty—or “canister”—levels.
Under the forthcoming redeemed credit system, the photographer’s percentage is based on the gross credits he or she earned in the previous year, not entire iStock lifetime. That means the royalty percentage is adjusted at the beginning of each year. Despite the wide range of current iStock pricing, I would estimate the average at four to five credits per download. The tables at right show the new royalty percentages.
If the activity following the original announcement, Kelly Thompson’s follow-up post that answers some questions and a related thread on the Microstock Group forum is any indication, photographers are up in arms over these changes.
The principal reason is that the break points for higher royalty percentages seem to be out of line with the old system, particularly when photographers look at their redeemed credits for the first 8 months of 2010. Thompson argues that half of iStock’s annual credit usage takes place in the last four months of the year, but many say that even if that is true, it will not get them to the same royalty level as they are at now.
Thompson also acknowledged that about a quarter of exclusives contributors will see a rate decrease. iStock currently has about 90,000 contributors, only about 10,000 of which have made enough sales to qualify for exclusivity. Of those, approximately 25% have chosen to remain non-exclusive, leaving some 7,500. This means about 1,800 shooters can expect to see a rate decrease.
Non-exclusive shooters will see rate decreases between 5% and 25%, except for those who will continue to qualify for a 20% royalty by having more than 1,400,000 credits. Out of 90,000 contributors, 84,300 can expect to see a decline in royalties paid, and only 5,700 can perhaps benefit from this change.
Another big concern is that longevity with the company does not mean what it used to. Every year, the photographer’s royalty rate resets based on the redeemed credits of the previous year. This forces the photographer to be much more intentional about “feeding the beast.” Being forced to pull back from stock shooting for a while will not only reduce his sales, it will also lower a photographer’s future royalty share.
Sean Locke, one of iStock’s leading contributors, pointed out in a blog post that some photographers have been asking for this for years. He asks: “Should [productive photographers] get more reward based on the value that a buyer spends at the site? Should someone who brings in 100 single-credit sales get the same ‘reward’ as someone who brings 100 30-credit sales? Or in other words, should those that continually bring in more money get a higher bonus from the base level of 25% [for exclusives]?”
Locke also makes a prediction. “Now we are in a system where far-reaching historical performance is not as important as recent (last year’s) sales data. It looks like it will require a concentration on constant creation and updating,” he writes.
The Agency Collection
The Agency Collection is expected to launch later this month, containing 10,000 to 20,000 images produced by the top contributors from a few Getty Images-represented traditional royalty-free companies. All images will be exclusive to Getty and iStock.
Most of the traditional royalty-free companies find it necessary to license their work through multiple distributors around the world in order to generate enough revenue to cover costs. Thus, as long as exclusivity is required, it seems unlikely that this collection will grow into a major competitor to existing royalty-free distributors.
The Agency Collection will be added to the four differently priced collections that are already part of iStock’s offering and sold through both gettyimages.com and istockphoto.com. The Agency Collection will be priced higher than Vetta, iStock’s current premium brand. Vetta prices are also expected to go up. Prices for the Agency Collection are expected to be about the same on both Getty and iStock Web sites, taking into account that the licensing terms and rights vary between the two sites. For example, virtually unlimited uses are allowed for royalty-free images licensed through Getty, but iStock limits print runs to 500,000 and requires an extended license for larger quantities.
Vetta contains about 50,000 of the approximately 7.4 million total images on the iStock site. Vetta and the forthcoming Agency Collection aim at the high-end premium buyer and will not be attractively priced for low-end users. The lowest Vetta price is now at 20 credits, with the price of a small number of credits ranging from $1.40 to $1.50. Prices at this level will force most Web users to seek less expensive images. The lowest price for an agency collection image will probably be higher.
Thompson believes that there are certain types of images that customers with lots of money want to buy, and that customers who cannot justify paying much for an image want a totally different type of image. He also believes his team can identify which images belong to which group and says the images placed in Vetta and the Agency Collection will be those of interest only to the premium buyers. “The Agency Collection will feature some of the world’s best photographers and agencies, selected by the content teams at Getty Images and iStock,” Thompson said.
Potential outcome
While photographers often react negatively to new strategies, some have pointed out that after a few weeks they tend to quiet down and accept the new fait accompli. What alternative do they have?
Non-exclusives will simply put more emphasis on dealing with other microstock sellers and spreading their risks, because they have no faith in what iStock might do next. Many believe that each year iStock will simply continue to raise the number of credits required to reach a certain percentage, so they will never be able to move to a higher royalty level. Most believe it is likely that they will continually drop to a lower royalty level, no matter how hard they work. iStock has already announced that the credits for each royalty level in 2012 will be different from those needed in 2011, but the company has not disclosed specifics.
Many non-exclusive content providers are already making more than 50% of their income from agencies other than iStock. For them, iStock will simply become a more marginal part of their overall stock revenue. Others, particularly the part-timers, will cut back on microstock production as it will no longer be worth the effort. Clearly, iStock is not worried about losing them.
The company has been focusing its efforts on photographer exclusivity from full-time microstock shooters. Now, many photographers who recently converted to exclusive status feel betrayed. Colleagues cautioned them not to put all of their proverbial eggs in one basket, but they thought iStock would always take care of its exclusives. One photographer says, “Boy, was I wrong. Greed has taken over iStock. I fear there will be no going back with Getty calling the shots.”
A significant number of image creators are graphic designers who purchase images from iStock for their clients. Many are threatening to take their business elsewhere, which would mean fewer sales for iStock. Many believe that a number of customers have already turned to other microstock sites as a result of iStock’s 2010 price increases. If more go to other agencies—like Fotolia, Shutterstock and Dreamstime—in 2011 because they feel they have been mistreated by iStock, the company’s sales will decline further.
There are indications that the number of units licensed declined in 2010 due to price increases at the beginning of the year. However, revenue is up and may be close to $300 million this year. Despite the decline in units licensed, many photographers may see higher gross royalties this year, but their reduced number of downloads and lower number of credits earned will result in a lower royalty share for 2011.
One of the big selling points of microstock in the early years was that any amateur could sell their images. Now, iStock makes it harder for those people to get their images accepted, and with the 15% royalty rate, the company is doing very little to attract such photographers. iStock seems to be aiming to work with a relatively few aggressive producers that are willing to make a full-time commitment to producing stock, rather than opening stock photography to everyone.
I estimate that the most productive 1% of contributors (about 900) represent in the range of 25% of total images in the iStock collection and 66% of its total revenue. iStock does not need a lot more images. It does not need all the little guys. The company would be happy to see many of them go and reduce the administrative overhead necessary to service them.
Finally, I have to thank Lady_Aqua for this quote from Lewis Carroll’s Through the Looking Glass:
“Well, in our country,” said Alice, still panting a little, “you’d generally get to somewhere else—if you ran very fast for a long time, as we’ve been doing.”
“A slow sort of country!” said the Queen. “Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!”