The Storm Before The Calm

7

October 27, 2006

Editors Note: The following is an address given by Roger Ressmeyer, PACA President at the 2006 PACA International Conference in Key West, Florida. Ressmeyer outlines his view of some of the state of the stock photo industry and some of the challenges ahead. Ressmeyer is also CEO of Science Faction Images.

Hello! On behalf of PACA's board, committee chairs and staff, welcome to the 2006 International Conference here in exotic Key West.

Ever since PACA started planning this event, I've been worried about hurricanes. Big ones...the kind that could sweep us into the Gulf of Mexico. Luckily, the weather isn't being naughty at all this weekend. We are safe from Mother Nature.

But early last summer, I realized I was worried about the wrong kind of hurricane - I was looking totally in the wrong direction. We are already in the middle of a giant hurricane, and it is a most unusual one.

While conditions remain calm and steady for some of us, a perfect storm is battering huge sectors of the image licensing industry. Tumultuous waves are challenging us to re-think the very way we do business.

Just two years ago, many of us could not have envisioned the furious winds of change that are blowing today. For over a decade, back-to-back storms had already pummeled the industry. How could it get any worse? Easy...

Two years ago, we didn't imagine our professional, B2B market being glutted with millions of new images in such a short amount of time, driving down the "return per image."

Two years ago, although micro stock was already thriving, many of us did not imagine its profound implications for both the royalty free and rights managed sectors.

Two years ago, we could not imagine downward pricing pressures reaching a new level of epic proportions.

Just two years ago, we did not imagine the possibility that in 2006, the industry might be standing on the cusp of a recession caused by shrinking licensing fees. In the worst-case scenario, the stock image industry's revenue potential might shrink dramatically, even while the number of licensed images continues to increase.

That is our worst fear. But personally, I'm not very worried. Are you? Many of us feel or believe the storm will soon begin tapering off.

Yesterday we held a meeting of PACA's board and committee chairs. Overall, the meeting's spirit was very positive about the industry.

In any event, today's cyclonic business climate challenges PACA to adapt and evolve its mission. Not the words of our mission statement - they're still spot on - but the implementation of those words. That is what I'm here to discuss.

PACA's Mission Statement simply says "(the association exists) to foster and protect the interests of the picture archive community through advocacy, education and communication." Tactically, I believe we are right on target, yet there is always so much more to do.

We are strongly advocating the adoption of PLUS, the Picture Licensing Universal System, along with enhanced rights-identification metadata that is embedded within digital image files.

We're ramping up education at schools and within the trade via the creation of new presentations and through the sponsorship and promotion of PACA attorney Nancy Wolff's soon-to-be released book about copyright law. Due out this spring, the book will help define solutions for one of our biggest challenges: the full protection of intellectual property. Pre-order your copy today!

Regarding the mission statement's third and final requirement, communication, we're escalating communications almost exponentially. You will see it in many places...for example, next January in the form of a totally redesigned new website. But there's more.

Our executive director Cathy Aron, with help from Cathy Sachs at ASPP, has organized a meeting of 18 industry trade associations to discuss and begin working together on industry threats. That profound gathering, dubbed the Association of Associations, will take place later this month in New York City. PACA is largely responsible for making it happen.

Over the next two days, we'll explore what's new and hopefully enlist you and your comrades into the movement to sail our industry into calmer waters.

After nearly a decade of continuous change, I suggest to you that the stock image business is just about fully integrated into the free-market global economy. This final phase of change, which includes price wars and the advent of micro-pricing, has produced the strongest winds to date. Think of it as the storm before the calm.

While we're physically safe in Key West, let us not be lulled into a false sense of security. From end to end, our industry is very much in peril.

Now I know what you are probably thinking you've elected a lunatic as PACA's President. I admit I feel a little like the boy who cried "wolf!" one too many times. The last 10 to 15 years have ushered in changes so dramatic that it is hard to imagine anything that could be more upsetting, more traumatic or more destabilizing than what many of us have experienced already.

After what we have been through, we should be ready to handle just about anything!

Looking back ten years, the stock industry's landscape has already been transformed by the advent of digital technology, the creation of the internet, two waves of consolidations, the extinction of many venerable stock brands, new business models and the creation of large, publicly held stock photography corporations.

Yet we are still on the brink of what will be one of the most important periods in the history of our industry, a period that will shape stock photography for decades to come. Those that follow will either applaud or condemn us depending on how we handle it.

Many of us, representing a new generation of stock professionals, inherit an industry badly in need of some healing hands.

Much as our imaginary storm-battered ship has sails to mend, leaks to plug, machinery to repair, the stock industry now must fix some badly damaged relationships, correct some hasty decisions and plan a course that benefits everyone including image suppliers, customers, stockholders and, of course, the distributors in this room.

We must regroup and make long-term strategic decisions that will benefit our industry while setting aside the barriers we put up in recent years in order to survive.

And, let me be perfectly clear here. I believe the place for the industry to regroup -- our safe harbor, if you will -- is none other than PACA itself.

At PACA's spring meeting last April, Jeffrey Burke, my immediate predecessor as president of this organization, introduced us to a phrase from the world of economics: "gales of creative destruction."

Though the phrase, coined by former Harvard academic Joseph Schumpeter, was first uttered during the early half of the 20th century, it is a safe bet that it was new to most of us in the room that day. It is easy to understand why Jeffrey introduced the idea of creative destruction.

The term refers to the process by which new ideas, inventions, procedures and business structures replace old ones and, in doing so, often lead to the formation of new businesses and the extinction of older ones. In stock photography, we have witnessed two waves of "extinctions" during the last dozen years. We called them consolidations.

Consider some of the names that once represented well-known, well-respected stock photography companies, but which have now either ceased to exist or have become simply brands of other firms: The Image Bank, The Stock Market, FPG, Tony Stone, Comstock, PictureArts, Photonica, zefa, WorkbookStock -- the list goes on.

These names have been replaced by Getty Images, Corbis, JupiterImages, Photolibrary, Alamy, Fotolia, Shutterstock, Veer and a number of others.

Interestingly, at roughly the same time Jeffrey was speaking to PACA, Pantheon was publishing the American Edition of Paul Ormerod's book, Why Most Things Fail: Evolution, Extinction & Economics.

Ormerod, a London economist, is, a bit of a rebel among economic scholars. Like Schumpeter, he is interested in processes rather than equilibrium. Ormerod compares patterns seen in business extinctions to mathematical models proposed to explain how natural selection and evolution occur. He finds some remarkable similarities.

Ormerod's theories will certainly be subject to the scrutiny of his peers over the next few years and it is hard to say how they will fare.

However, whether or not his work is judged solid, one of his conclusions seems to me to reflect good common sense about the consolidation and reorganization we are experiencing today, and it is worth quoting here:

"When we analyze the connection between the overall fitness of the system and the rate of extinction (of firms), we see clearly that periods immediately following large extinctions tend to have a relatively high overall fitness, as new firms are rushed in to fill the gaps opened by the eliminations. In other words, extinctions essentially play the role described ...in...(the) phrase "creative destruction." Weaker firms are eliminated and replaced by firms which, on average, have a higher level of fitness."

Ladies and gentlemen, Ormerod could not have described the stock industry's current situation better if he had studied it specifically. After all the trauma of the last few years, all the extinctions, if you will, the stock image industry now has the opportunity to forge ahead and reach new heights. It has a new level of fitness and the strength and energy to handle the challenges.

But for each of us to succeed, opportunities must be recognized and challenges accepted. To quote Thomas Edison: "Opportunity is missed by most people because it is dressed in overalls and looks like work."

So lets get down to work and talk about some of the things I believe we must correct in the coming years if this industry we love is to achieve its full potential. I see three crucial areas of concern - the control of copyrights, the pricing of imagery and our relationships with our suppliers.

Let us start with copyrights:

We all know that our industry loses massive revenue each year to infringement, maybe even more than we ultimately make. By providing large, easily downloaded imagery that could not be tracked, we are partly to blame.

We must accept some responsibility for this "Napsterization" of our imagery. We helped create a situation that makes image theft so easy that some people do not think twice before they snatch and use an image.

To make matters worse, the U.S. Congress will almost certainly pass some kind of orphan works legislation during its next session. By making it easier to use images when the copyright owner is unknown or cannot be found, Congress could open a huge hole in the copyright protections we have become accustomed to. Subsequent wholesale infringement of commercial and editorial stock images could drive many of us out of business.

We created this problem; now we must fix it. We must tighten our practices so that infringement becomes both difficult and costly. To do so, among other things we must vigorously support the PLUS coalition as it works to standardize licensing practices. How often do our customers use images in ways not covered by the license either because they do not fully understand that license or because the complexity of licensing practices gives them a handy excuse? It is imperative that buyers and sellers understand the language of licensing in exactly the same way. Tomorrow afternoon you'll be hearing more about the great strides PLUS has made over the past few weeks. You'll finally see the fruits of their efforts in the form of actual metadata panels that will soon be integrated into digital image files.

Going forward, we must consistently use embedded metadata to make sure clients remember the terms of their licenses. In today's marketplace, with licensing models proliferating, imagine how hard it must be for clients to keep track of which rights packages go with which images. If we want our customers to comply with the terms of sale, we must make it manageable; embedded metadata is the key.

We also must make extensive use of advanced technological services that help us find infringements. We must pursue infringers in the courts when necessary. We must support the creation of sophisticated digital image registries so that image users can find lawful copyright holders whenever they need to.

In addition, as orphan works wends its way through Congress we must make sure our legislators understand how certain provisions of the bill works will damage the visual arts and how these provisions could harm visual creativity itself by making it more difficult for creators to make a living.

PACA, ASMP, SAA, GAG and other groups have already managed to get some significant changes made to the most recent version of orphan works, but more can happen if we all work together.

Moving on to pricing:

I believe that the entire stock photography industry, from micro stock on up, is supported by the pricing of imagery at the top of the pyramid. We all depend on a healthy rights-managed stock offering, and it is in all of our interests to protect that class of highly-priced and expensive-to-produce imagery.

And, parenthetically, let me add that I personally would support the creation of super rights-managed collections containing only the most fantastic and creative images from any RM library. Such "jewel box collections" could command the highest prices we have yet seen in stock photography and, thus, raise the pricing bar for the first time in many years. Exclusive by Getty Images and Corbis Outline appear to be attempts at something like this with celebrity imagery. I see no reason why we can't extend the jewel box concept to general and boutique stock collections as well.

Furthermore, the pricing of standard rights managed and royalty-free imagery must be protected in ways they are not protected today.

Too often, today's archive sales departments become the tails that wag the industry dog (pardon the cliché). Sales departments are motivated to make sales-lots of sales. What better way to guarantee a sale than to lower the price? But if the price is lowered too far, or lowered too often, overall prices go down. And then everybody loses.

Strategy radiating from every company's top level must align sales departments with the interests of the industry, which is, surprise, usually identical to the interests of each individual company and their image contributors. Simply put, we must re-learn how to say "no" to customers who want too much for too little. Not only for our own good, but for the health of our industry and, yes, even for those customers.

Wait a minute, for our customers? Don't they keep telling us that they want ever-lower prices? Of course. But they also want access to quality stock imagery produced by high-end professional photographers.

They may grumble a bit about prices and budgets and such, but if they were not willing to pay higher prices, rights-managed imagery would not remain a viable product today. Royalty-free sales are up, but rights-managed remains a very financially rewarding product.

Our clients speak with their mouths, but they vote with their pocketbooks. It is clear that there is much money to be spent on the highest quality (and highest priced) imagery. Lets not leave that money on the table.

Our Suppliers:

It pains me to say that the relationships that exist between stock distributors and image suppliers have never been as tenuous as they are today. This is truer at the top of the industry than at the bottom.

The micro stock suppliers often do a significantly better job of communicating with, and meeting the emotional needs of their photographers. Micro stock's community-based approach provides a mechanism for better distributor-photographer communications and for much better links between the photographers themselves. The rest of us can learn a lot from these young companies.

Photographers, especially high-end professional freelance photographers, aren't always the easiest people to get along with. They are trained to be pushy, arrogant and domineering. Timid people don't convince CEO's to stand on top of the Seattle Space Needle or entice celebrities to pose nearly nude in a bathtub filled with roses.

Photographers can be a pain. I'm a recovering photographer myself, although some in this room might dispute that I'm in recovery.

But, for all their bravado, all their rugged-individualist posturing, they can be just as insecure as any of us -- probably more so.

I'll never forget an event in 2002, when I walked the late Arnold Newman into a museum's lecture hall before his speech to art patrons. When he saw that the room wasn't packed, he started shaking and practically collapsed. Leaning on me he asked, "what's wrong, have I lost my appeal?" Of course he hadn't lost anything, the promoters had simply targeted a narrower audience. Feeling much like Arnold's dad might have felt in the situation, I told Arnold that he's loved by me and by thousands of admirers and book buyers around the world. He ate up those words. Then, I led him up front and pushed him onto the stage, where he gave one of his most engaging talks ever ... to an audience of "only" a couple of hundred art buyers.

Our independent suppliers are the source of our most creative, interesting and valuable imagery. We must once again learn to treat them with the respect they deserve, not only because they deserve it, but because in the end the industry rests on their shoulders.

Think of the golden rule. Treat others with honesty and fairness. Communicate clearly and openly. Share market information generated with suppliers' images.

So where does Picture Archive Council of America fit into all this? If PACA has any value going forward (and I believe it has much value today and in the past) PACA must be the catalyst for positive change. And I'll tell you a little secret. We're already moving in this direction in a big way.

Let me review with you just a little of what we are doing. Our own Cathy Aron, PACA's Executive Director, and Cathy Sachs, Executive Director of the American Society of Picture Professionals, have organized a first-ever meeting of the leadership of 18 creative industry organizations. It will happen just over a week from now, on October 31. Think of it! Organizations representing our customers, our suppliers and other stock industry-related groups sitting at the same table searching for common ground-I hope orphan works will be at the top of the list.

In addition, we are looking into several possible opportunities to bring copyright education to the masses, including to children in the schools, which, as we all know, is where many people learn their cavalier attitude toward intellectual property.

On another front, we have convinced PLUS to adopt all but one of the metadata fields recently proposed by PACA to meet the needs of stock distributors beyond specific licensing history - needs that include whether or not model releases exist.

We are very hopeful that PLUS will quickly become an industry standard.
Finally, we have revitalized our committees with some very energetic members who are already getting to work on major issues.

For example, PACA board member Michael Teaster from Getty Images heads the sub-committee on surveys. Michael has worked closely with Deutsche Bank to produce the current survey on the North American stock industry. We had incredible response to the survey. But even though a strong majority of PACA archives answered all the questions, Deutsche Bank has requested a few more weeks to complete their report, rather than presenting rushed results this weekend.

Because of this delay, and at Michael's request, we expect to release the survey results during the week of November 13th. Deutsche Bank has agreed to host a Wall-Street style conference call for PACA members. For those who can't attend the call, it will be recorded and posted on the members-only section of PACA's website.

There's much more going on. Membership committee chairperson Lauretta Dives is working with Jack Hollingsworth and seven other members on a new PACA membership drive. The potential to grow our membership is clear. Over the past two months we've been joined by our first film-only archive, by our first school member, and by our first two micro stock companies. Now we need you to help recruit new members. Send any and all interested parties - organizations that license images - Lauretta's way!

Special thanks must go to executive director Cathy Aron for processing and recruiting most of the many new members in addition to the ones mentioned above. Cathy is awesome, and we're lucky to have her. But there are so many others to thank as well, including JupiterImages' Lynn Eskenazi who put together this conference, our webmaster and master web designer Doug Dawirs, and our attorney Nancy Wolff. Nancy works tirelessly, sometimes for nickels and dimes on the dollar, vigorously supporting the legal interests of every one of us.

Unfortunately, we do not have time for a love fest around our volunteer help today. Please check the badges everybody is wearing, and when you see something like "committee chair" or "executive committee" or "past president", give that person a hug and say "Thanks!" Every volunteer is working hard, and enjoying their involvement with PACA.

To be truly effective, PACA must represent companies from all facets of the stock photography industry and from all continents of the world. We need your help to convince these folks to join us.

However, it is not enough to grow our numbers; we must also deepen our level of involvement. We need each of you in this room and all those members who could not make it to this meeting. We need a new level of participation from our international members.

I challenge all of you to make a greater commitment to PACA - to join in and help. Tomorrow afternoon we will pass around our committee list. We will ask you to put your name next committees you are willing to join. You won't regret it.

We also need to reach out to other organizations with concerns similar to our own. The differences between PACA and ASMP or SAA, for example, are far fewer than our shared interests. We all want a healthy, stable industry, don't we? We must cooperate.

Like our industry as a whole, PACA stands at a crossroads. We can grow and seek partnerships with those who share our concerns, or we can drift down a path of relative insignificance.

I'll leave you with this thought: reaching out to others is not always easy, especially when there is a history of distrust. But I assure you, the alternative is much worse. Only by working together can turn the tide and confront the hurricane-forces head on. The choice is, of course, ours. We choose to stand united. Join us!