Issue 5 - Basing price on the size of a digital file is extremely unfair to the customer, as well as the seller. File size has almost no relationship to how an image will eventually be used, or the value the customer will receive from its usage.
Pricing images based on file size was first introduced by the developers of RF, which look at stock photography as nothing but a commodity. Originally, it was favored by users because it was cheaper. Now, in many cases, images sold in this way are no longer cheaper, but the pricing system is still prized for its simplicity.
One of the big problems with pricing based on file size is that sellers end up knowing almost nothing about how the image will be used. Should they care?
RF advocates argue that if a user is going to make a "larger" use of an image, he will need a file with more pixels. But that defines large in terms of square inches of the eventually display, which has only a minor relationship to the worth for any specific customer. Yes, size - one-quarter, one-half or full page - has always been a factor in determining usage, but circulation has been a much more important factor and that is totally disregarded when we price based on size.
Let's look at a few uses. A picture might be used on a student's personal Web page, or by a nonprofit or repeatedly on CNN. They all need the same file size. Should they all pay the same? Â Are they all getting equal value from the usage?
What about users who intend to reproduce an image quarter page? They all need the same file size for reproduction. One is a national nonprofit creating a fund raising brochure to be mailed to 100,000 people, another a textbook publisher that wants 10-year use for 2 million impressions in print and on the Web, and a third is a small local business that intends to use the picture in his Yellow pages ad. Based on the value each receives, should they all be paying the same price?
One way to solve this problem and maintain simplicity is to price the usage so the customer receiving the smallest benefit can still afford to use the image. This is the microstock model. Granted, customers who could afford to pay more will get their usage at bargain basement prices, but the theory is: we'll make it up in volume. That can work for a little while, as long as the market is growing exponentially. But when it begins to mature and there is no longer a host of new customers entering the market, there is a problem.
(It is interesting that microstock started out making images available for free. Then they discovered there were costs involved in delivery and raised the price to $1.00 to cover their costs - not the costs of the producers.)
Consider what happened with traditional RF.
Initially, it was offered on CDs with large numbers of images at a fixed price for the CD, or at very low single image prices. But when the number of users began to plateau, they realized there were only two ways to grow revenue. In the CD environment, they started to cut the number of images offered on a given CD and create more titles, all at the same prices they had previously charged. With single images, the only way to grow revenue was to increase price. The problem: budgets of many of the low-end users had little elasticity, and they were forced to drop out of the market. For a long time, that didn't present a big problem for the RF seller because the higher revenue who could pay, more than made up for the loss of revenue at the bottom end.
But there were a couple of unintended consequences. That group of users who could no longer afford RF began to look for other alternatives. Welcome microstock.
And a couple years ago, traditional RF discovered that they had reached a point where they could no longer raise prices without losing more in volume than gained by the higher price.
Don't jump to the conclusion that if RF is so bad, we should return to RM pricing based on narrowly defined usage parameters. I'm not suggesting that. Remember RM has a major problem also. It is too complex, and a high percentage of customers demand a simpler system. Also, it really has no strategy for dealing with low-end users. What I said when I began this series is that we need to develop a new business model that combines the best features of existing models and minimizes the weaknesses. I'll explain this point in more detail when we get to my recommendations for a new business model.