On May 26th Shutterstock announced that in an effort to cut costs and increase profits as of June 1, 2020 it would dramatically reduce future royalty rates paid to contributors.
The new rates will no longer be based on a contributor’s lifetime earnings. At the beginning of each year all contributors will start with zero downloads/licenses and a 15% royalty rate. Previous sales history will be disregarded when it comes to determining royalty percentage. The number of downloads needed to rise to a higher royalty level are as follows:
| |
Photos, Illustrations |
|
| |
and Vectors |
|
| |
Licenses Needed |
|
| Level 1 |
Up to 100 |
15% |
| Level 2 |
101 to 250 |
20% |
| Level 3 |
251 to 500 |
25% |
| Level 4 |
501 to 2,500 |
30% |
| Level 5 |
2,501 to 25,000 |
35% |
| Level 6 |
Over 25,000 |
40% |
| |
|
|
| |
Video |
|
| |
Licenses Needed |
|
| Level 1 |
Up to 10 |
15% |
| Level 2 |
11 to 50 |
20% |
| Level 3 |
51 to 250 |
25% |
| Level 4 |
251 to 5,000 |
30% |
| Level 5 |
5,001 to 25,000 |
35% |
| Level 6 |
Over 25,000 |
40% |
These new rates will affect each contributor differently. A very small number of contributors with huge collections of high demand images could actually benefit if they can reach the 35% and 40% levels early in the year. Back in 2013 we were able to
compile a list of 100 contributors each with over 17,000 images in the collection.
Among the contributor with the largest collections currently are
Rawpixel with over 1,000,000 images and Wavebreakmedia with close to that number, if they haven’t exceeded it. These are some of the small number of the organizations likely to see revenue growth.
On the other hand, the average Shutterstock contributors is likely to see a significant decline in annual revenue. With over 1,000,000 contributors and roughly 188 million annual downloads the average contributor will have about 350 images in the collection and 15.6 downloads per month. Thus, the AVERAGE contributor will start out at 15% royalty in January and never get above 20% before the year end. Currently, Shutterstock has been paying out, on average, 28% of its gross revenue in royalties.
It should also be noted that given the few huge collections that are part of the 348 million pieces of content, the number of contributors with fewer than 350 images in their collection is probably much greater than 500,000. I would not be surprised if 80% to 90% of all contributors have very small image collections.
Thus, in 2021 the majority of contributors are likely to see a decline of 23% to 42% in gross revenue generated by the same number of downloads they had in 2019. 2020 won’t be quite so bad because contributors have the advantage of starting at a level that counts all the sales they had up to May 26th rather than starting at zero.
Subscriptions
Probably the biggest problem with the new strategy is in the way subscription sales will be calculated. In the old system creators were paid a fixed fee for each Subscription download, based on their career downloads, and regardless of the number of images actually downloaded by the customer. Many customers who purchase 750, 350 or even 50 images subscriptions never download all the images allowed. In the past, Shutterstock has recognized this and established a royalty rate per download based on actual overall downloads, not the number customers were allowed.
Now, the royalty will be based on a percentage of the total fee paid for each subscription. Customers pay $199 for a 750 images subscription, $169 for a 350 image package and $99 for one that only allows 50 downloads. The value of each download is based on dividing the total fee paid by the customer by the total downloads allowed. Thus, the value of a download from a 750 image package is $0.27; $0.48 for a 350 images package and $1.98 for a 50 image package.
If a customer who purchases a 750 image package only actually downloads 200 images each download is still valued at $0.27 and Shutterstock reaps the extra benefit from the value of images not used.
Fifteen percent of the above gross revenue figures works out to $0.04; $0.07 and $0.30 depending on package size. Shutterstock has generously agreed to pay a minimum of $0.10 for downloads from the 750 and 350 subscriptions. In some cases, photographers were receiving as much as $0.38 per download before. Now, they may only get $0.10 for a high percentage of subscription downloads. One major photographer reports that 44% of his total downloads are Subscription sales.
Were Photographers Overpaid Before?
In 2019 the gross royalty paid out to contributors was about
$181,730,000. There were 187.8 total downloads for the year meaning that the average return per download for contributors was about $0.97.
I know of one photographer with about 2,000 images in the Shutterstock collection who had about 2,700 downloads in 2019 and earned a total of almost $2,700 for the year. Another major contributor with over 12,000 images in Shutterstock’s collection averages about 1,300 downloads monthly and receives about $1,000 in monthly royalties. Thus, his average royalty per download is only about $0.77. But, he has about 1.3 downloads per image in the collection which is better than the average Shutterstock contributors who only have about 1 download for every two images in the collection (187.4 downloads from a 348 pieces of content in the collection).
Thus, the average photographer currently receives about $0.52 annually, per image in the collection.
The photographer above with 12,000 images is at Level 5 and will receive a 35% royalty for the rest of 2020. He should do alright. But he will start at 15% in 2021. It also seems highly unlikely that he will ever be able to have enough downloads to reach the 40% level.
Fortunately, this photographer has the same images with a number of other distributors which is the only way he could possibly justify producing new, high value images of people and lifestyle. He figures that his total cost of production is about $15 per image. If Shutterstock were his only distributor at the $0.77 per download it would take him over 12 years to recover his overhead costs. Fortunately, many of his images were produced when return on investment was much higher. In looking toward the future, he has decided that he can no longer justify producing new images.
Why Cut Royalties Now?
It is understandable that Shutterstock is looking for ways to cut costs. Despite doubling the number of images in their collection in the
past two years sales per quarter are flat and may be starting to decline. To keep investors happy, they must grow profits.
If they can’t grow unit sales and can’t raise prices, then the only way to grow profits is to cut costs. They can reduce staff to a certain degree which may explain why they have cut back on the number of new images they are willing to accept. But, that’s not enough. The only other way to really cut costs is to pay suppliers less.
The Shutterstock stock price is down 17% compared to its latest high on January 17th. That is actually an improvement over what it was on April 1st when the stock price was down 34% compared to the January high.
Jon Oringer, former CEO and current Executive Chairman of Shutterstock’s Board owns 45% of the stock. At the current share price of $36.78 his holdings are worth a little over $600,000,000. Since July 2018 he has lost over $300,000,000 and at one point his holding were worth over $1 billion. According to a recent
Simply Wall Street story the value of Shutterstock shares have dropped 43% in the last five years.
Photographer Reaction To The Cuts
Photographers are furious and looking for ways to protest. Check out the comments on
MicrostockGroup . Some are
signing petitions, others are recommending a boycott which I guess means they will stop adding new images. Some want to form a union. Others are threatening to pull their images, but that is unlikely to have much impact on Shutterstock. It just eliminates one source of a little income from the work the photographer has already done.
Maybe it is time to write a “Dear Jon” letter. It could go something like this.
Dear Jon:
As suppliers we’ve supported you for 17 years while you consistently discounted the value of stock imagery and destroyed the market. It seems the goal of the “Free” economy has been to give everyone “something for nothing,” or whatever little value they happen to place on what they are receiving. In the process you have become rich by licensing our content for less than it costs to produce, while most of us barely earn enough to cover our production costs.
Would you please share a little of your wealth so that we might be able to earn enough to justify continued production of new imagery.
Your humble servants,
Such a letter is unlikely to have any effect, but it may make you feel better to have written it.