Several major image producers that license their work through microstock distributors have told me that their revenue from
iStockphoto (IS),
Fotolia (FT) and
Dreamstime (DT) was down 25% to 30% in 2012 compared to 2011. What’s more, based on current trends they are predicting 2013 revenue will be down 35% to 45% compared to 2011.
Revenue from
Shutterstock (SS) is increasing, but not nearly enough to make up for the losses from the other three of the big 4 players. Revenue from the smaller mid-tier distributors has also been growing. But that revenue is insignificant compared to that generated by the big 4 and does very little to improve the overall revenue picture.
At this point in this article many macrostock producers will be cheering and saying, “I told you so,” but this is not just bad news for microstock producers, it’s bad news for the industry as a whole. It doesn’t mean there will be more customers for high priced RM. More likely it means prices will go even lower.
Some microstock producers point to the Shutterstock IPO as a major reason for the problem. They say that since the successful IPO Shutter has had a lot more money to invest in marketing. As a result it is converting a lot of IS, FT and DT individual image buyers to subscription customers. Shutterstock subscription customers can get most of the same images found on IS, FT and DT at dramatically discounted prices.
When customers download an image at Shutterstock they get the maximum file size available for one fixed price. About 60% of SS revenue comes from subscriptions that give customers 25 images a day. The other 40% of revenue comes from single image purchases. One image is $19 and a package of 5 is $49. In Q4 2012 the average price was $2.26. Photographers get about $0.38 for each download.
Compare this with IS, FT, DT and most of the rest of the microstock companies that vary the price based on the file size the customer needs. These companies have also developed a variety of systems that charge more for some images than others. SS believes that every image should be priced the same no matter how popular it is, how unique or how much it cost to produce. All these companies have a few exceptions for Extended Licenses, but in general the above is true.?
In 2011 there were
58 million images downloaded from SS. It is believed that about 74 million were downloaded in 2012. Based on calculations I did at the
beginning of the year I estimated total IS 2012 downloads in the range of 10 million and down 46% compared to 2011.
Thus, while a contributor might have had 7 times as many downloads from SS as from IS the $0.38 per download from SS would yield only $2.66 for 7 downloads. Many of the top producers at IS, FT and DT are earning much more than this per download.
Other Factors That Contribute To Falling Revenue
Many iStock image suppliers are also customers. In the last two years a large number of them have become so dissatisfied as a result of lowered royalties and lower position in the search return order that when it comes time for them to purchase images they go to SS rather than IS.
In addition there is a segment of the customer base that has been priced out of the major agencies, particularly IS. When the number of downloads first reached a plateau and then started to fall the major microstock distributors raised prices in an attempt to continue to grow revenue. The more downloads fell the more they raised prices and pushed the most expensive images forward in the search return order.
A big reason for switching to SS and many of the mid-tier distributors was to find more predictable pricing. SS is the most predictable because all images were priced the same. Mid-tier sites tend to have fewer price variations, lower prices and they change prices less frequently. With the exception of a few exclusive images on the major sites, most of the sites have access to all the same images on a non-exclusive basis. Thus, customers can find the same non-exclusive images anywhere they go.
As an example, on IS there are at least 6 different price points for the same file size. It is hard to search for pictures that are at the price point the customer feels she can afford, particularly if the customer is only interested in seeing images priced at the non-exclusive level. If the customer decides to look through 200 thumbnails maybe only 33 of them will be priced at a level the customer can afford. Add to this that Getty keeps manipulating the search algorithm to deliver the more expensive images near the top of the search-return-order in an effort to try to trick the customer into paying more than she really wants to pay. So there may be many fewer than 33 appropriately priced images in the first 200 the customer is asked to look at. Is it any wonder that customers have come to the conclusion that images on IS are too expensive and have started looking for other options?
There are similar problems at FT and DT, but it isn’t quite as bad. Of course, price is not an issue for some customers if the image is right for their purposes, but there seem to be fewer and fewer customers where this is the case.
Exclusive vs. Non-exclusive
At Exclusive contributors at IS get a royalty that is 2 to 3 times, and sometimes even more, per download of what non-exclusive shooters receive. Not only do they get a higher royalty share, but their images are priced higher. Even with these advantages many of these exclusive contributors are reporting a drop in revenue of as much as 40% compared to what they were receiving in 2011. Because they are exclusive they have no way to make up the loss by making the same images available through other distributors. MicrostockGroup recently posted some preliminary results from their 2012 annual survey. 708 IS contributors responded. Of those with images on iStock (probably most of them) 2% that are non-exclusive hope to change to exclusive in 2013. However, 52% of those that are already exclusive plan to go back to non-exclusive in 2013 so they can place their images on other microstock sites.
The revenues for non-exclusive contributors don’t seem to be dropping quite as fast and they have the advantage of being able to license the same images through other distributors where sales are growing. Still, as we pointed out above, the non-exclusive contributors are also losing ground fast.
Many of the contributors who are producing the bulk of the revenue for the microstock distributors are spending so much producing quality images with great models and expensive production values that they must get volume sales and higher prices in order to justify continued production. Most are doing everything to cut costs to the bone, but there isn’t much more they can do and still produce the kind of images that are in high demand.
Is There A Solution?
The movement from the industry leaders (IS, FT and DT) to SS and the Mid-tier distributors seems to indicate that there are two distinctive customer segments – those that are very price sensitive and those that are willing to pay higher prices for the right image. The size of these groups and the point of price sensitivity is unclear.
Up until maybe 2011 microstock prices satisfied both groups although the ones who could justify paying more for certain images were getting a real deal. Now, clearly customers are segmenting into at least two groups.
The question is whether there is a better way to segment the offering so the higher end, more costly to produce images are only available to those willing to pay more and unavailable to what we assume are the vast majority of customers that can only afford pay low prices. And finding price points for both that maximize sales.
And then the next question is, “will either of these groups generate enough revenue to justify dealing with them alone.”
A little look at history may be useful. In the 80s there was RM. Then in the early 90s many buyers wanted cheaper images and RF was born. RM continued to be the quality offering for a while, but it suffered a decline as RF took market share. In the early 2000s RF sales reached a plateau and the only way to afford to produce higher quality work was to raise prices. Average prices rose 150% in two years. But then many buyers wanted cheaper images and microstock was born. Microstock took share from both RM and RF. Now, it appears that microstock sales have reached its plateau and the only way to grow revenue is to raise prices. Is a new model needed? What’s the next step?