iStockphoto has announced a major restructuring in how photographer royalties will be calculated in 2011 and beyond. In addition, within the next few weeks they will create a small, higher priced Agency Collection with images from shooters from some of the major traditional RF brands and selected iStock contributors who will be invited to submit images to the Agency Collection.
Royalty Adjustment
Starting on January 1, 2011 every iStock contributor’s royalty rate for the year will be based on the number of credits used by customers to download their files in the previous year. These are called “Redeemed Credits”.
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, with the present system royalty percentages vary based on the total number of images downloaded in a photographer’s 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 the image is in and the file size needed. There are six royalty levels referred to as “canister levels”
Under the new “Redeemed Credits” system the photographer’s percentage is based on the gross credits earned in the previous year, not in the photographer’s lifetime career. The gross credits necessary to qualify for a certain royalty percentage will be adjusted at the beginning of each year. I estimate that despite the wide range of possible credits that can be earned from a single download the overall average per download is four or five credits. The following chart lists the 2010 "redeemed credits" on which 2011 royalties will be based.
| Royalty Rate Levels |
: Photos |
|
|
|
Royalty Rate Levels |
: Illustration |
|
| Redeemed |
Non |
|
Vetta |
|
Redeemed |
Non |
|
| Credits |
Exclusive |
Exclusive |
Agency |
Blank |
Credits |
Exclusive |
Exclusive |
| 1,400,000 |
20% |
45% |
30% |
|
400,000 |
20% |
45% |
| 150,000 |
19% |
40% |
28% |
|
175,000 |
19% |
40% |
| 40,000 |
18% |
35% |
26% |
|
75,000 |
18% |
35% |
| 12,500 |
17% |
30% |
24% |
|
22,000 |
17% |
30% |
| 2,000 |
16% |
25% |
22% |
|
2,000 |
16% |
25% |
| default |
15% |
|
|
|
default |
15% |
|
| |
|
|
|
|
|
|
|
| Royalty Rate Levels |
: Video |
|
|
|
Royalty Rate Levels |
: Audio |
|
| Redeemed |
Non |
|
|
|
Redeemed |
Non |
|
| Credits |
Exclusive |
Exclusive |
|
|
Credits |
Exclusive |
Exclusive |
| 1,250,000 |
20% |
45% |
|
|
125,000 |
20% |
45% |
| 170,000 |
19% |
40% |
|
|
48,000 |
19% |
40% |
| 90,000 |
18% |
35% |
|
|
24,000 |
18% |
35% |
| 40,000 |
17% |
30% |
|
|
5,000 |
17% |
30% |
| 14,500 |
16% |
25% |
|
|
500 |
16% |
25% |
| default |
15% |
|
|
|
default |
15% |
|
If the traffic on the
iStock’s blog with the original announcement, COO Kelly Thompson’s
answers to some questions and
Microstock Group are any indication photographers are up in arms over these changes.
The principal reason for dissatisfaction with this change seems to be that the credits needed to qualify for higher royalty percentages seem to be out of line with the old system, particularly when photographers look at the “redeemed credits” they have earned for the first 8 months of 2010. Thompson argues that, “historically half of our annual credit usage takes place in the last four months of the year,” but many say that even if that is true it won’t get them to the same royalty level as they are now.
Thompson has acknowledged that “24% of exclusives contributors will see a rate decrease.” iStock currently has about 90,000 contributors. Of that number only about 10,000 have made enough sales to be eligible to be exclusive contributors. Of those eligible approximately 25% have chosen to remain non-exclusive and place their images with many microstock distributors. This leaves something in the range of 7,500 who are exclusive and by Thompson's estimate about 1,800 of them can expect to see a rate decrease.
All the contributors who are represented on a non-exclusive basis will see a rate decrease from 5% to 25% except for one who will continue to qualify for a 20% royalty by having earned more than 1,400,000 credits. That means that out of 90,000 contributors 84,300 can expect to see a decline in royalties paid and no more than 5,700 will possibly benefit from this change.
Another big concern is that longevity with the company which used to a benefit no longer has any value. With the royalty rate being reset every year contributors are now forced to be much more intentional about “feeding the beast.” If for some reason a photographer needs to pull back from shooting stock for a while not only will his sales decline, but his future royalty share is likely to decline as well.
On the other hand one of iStock’s leading contributors, Sean Locke, has pointed out on his
blog that at least some photographers have been asking for some type of change in the royalty system 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 1-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 (for exclusives) of 25 percent?" He predicted. "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."
The Agency Collection
The new Agency Collection is expected to launch later this month and contain 10,000 to 20,000 images produced by the top contributors from a few of the traditional RF companies represented by Getty. All of these images will be exclusively represented by Getty Images and iStockphoto.
Most of the traditional RF 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 the offering of existing RF 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 iStock's Vetta collection which is currently iStock’s premium brand. Vetta prices are also expected to be raised from where they are now. Prices for the Agency Collection are expected to be about the same on both Getty and iStock taking into account that different rights are licensed on the two sites. For example, virtually unlimited used is allowed of RF images licensed from the Getty site. On iStockphoto uses in print runs of up to 500,000 are authorized for the base fee. If customers want to print more than that amount they need to purchase an “Extended License.”
Currently about 50,000 of the approximately 7.4 million images on the iStock site are in the Vetta Collection. Vetta and the Agency Collection are aimed at the high end, premium buyers and will not be priced attractively for use by low end buyers. Currently, the lowest price for a Vetta image is 20 credits. The price for a relatively small number of credits ranges from $1.40 to $1.50. When a single image costs in the range of $30.00 most web customers will look for something different and less expensive to use. 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 can’t justify paying much for an image want a totally different type of image. He believes his team can identify which images are which. The images that go into Vetta and The Agency Collection will be those that are only of interest to the Premium buyers. “The Agency Collection will feature some of the world’s best photographers and agencies, selected by Content teams at Getty Images and iStock,” Thompson said.
Potential Outcome
While photographers often react negatively to new strategies, some have suggested that after a few weeks they tend to quiet down and accept the new “fait accompli.” These people ask, "What alternatives do photographers have?"
Non-exclusives will simply put more emphasis on dealing with other microstock sellers and spread 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 making it impossible for them to ever move to a higher royalty level. Most believe there is a likelihood 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 they are unwilling to define what they might be until early next year.
Many non-exclusive content providers are already earning 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 those who are part timers, will cut back on their microstock production as it will no longer be worth the effort. Clearly, iStock is not worried about losing the smaller contributors.
Recently, the company has been focusing its efforts on getting more photographers to work with them exclusively and devote their full time effort to producing microstock images. However, many photographers who converted from non-exclusive to exclusive recently now feel betrayed. They were warned by colleagues not to put all their eggs in one basket, but they thought iStock would always take care of its exclusive contributors. One photographer puts it this way, “Boy was I wrong. Greed has taken over iStock. I fear their will be no going back with Getty calling the shots.”
A significant number of image creators are graphic designers who also purchase images from iStock for their clients. Many are threatening to take their business elsewhere which would mean fewer sales for iStock. It is believed that many customers have already turned to other microstock sites as a result of iStock’s price increases in 2010. In 2011 more may go to other agencies like Fotolia, Shutterstock and Dreamstime for the images they need. Many, praticularly those that are exclusive, feel they have been mistreated by the company they loyally supported and promoted for many years.
There are indications that the number of
units licensed has 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. Thus, despite the decline in units licensed many photographers may see higher gross royalties in 2010 than in previous years. 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 it was a place where 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 they are doing very little to attract such photographers. iStock seems to be aiming more 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 up to everyone. I estimate that the most productive 1% of contributors (about 900) represent in the neighborhood of 25% of total images in the collection and 66% of the revenue generated. iStock doesn’t need a lot more images. They don’t need all the little guys. They would be happy to see many of the marginal producers leave 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!"