192
PICTURE PERFECT IN ARREARS
January 19, 1999
Picture Perfect and Todtri Productions, Inc. are seriously delinquent in their
payments to stock agencies and photographers. Both organizations are owned by
Robert Tod and based in New York City.
Todtri Productions is a publisher of picture books and has obtained pictures from
a number of U.S. and foreign stock agencies. The first public indication of
trouble came in mid 1998 when Art Resources reported to PACA (Picture Agency
Council of America) members that Todtri had failed to pay them for many pictures
used in a number of Todtri books. The books in question had been released and
distributed a year, or more, earlier.
At one point the total usage fees owed to Art Resources was about $80,000. Early in
1998 Todtri made a few small payments after repeated requests by Art Resources.
By mid-1998 those payments stopped and Todtri would no longer respond to
telephone calls. They still owe Art Resource about $42,000.
At that time Robert Tod told Selling Stock that he was having some cash flow
problems because book distributors were delaying payments to him for some of the
books they had purchased. He also explained that distributors were returning
many more unsold books than had originally been anticipated. It is a practice in
the industry that book stores can return unsold books for full credit. Tod
assured Selling Stock at that time that all payments would be caught up soon.
Meanwhile in late 1997 and early 1998 Picture Perfect released its PP12 catalog
containing about 2100 images. Over 900 of these images were supplied by Nawrocki
Stock Photo Inc. Zepher Pictures, and a number of foreign agencies also supplied
images for this catalog.
A few photographers supplied images direct to Picture Perfect rather than going
through another agency. We have been unable to locate a single photographer or stock
agency who has received any payment for images licensed through this catalog.
Picture Perfect handles all sales in the U.S., and has distributed catalogs
through between 20 and 30 agencies outside the U.S. In most cases, the foreign
agencies are required to remit 60% of the gross sales to Picture Perfect in New
York.
We believe that about 100,000 catalogs have been distributed around the world
with 30,000 to 40,000 of them being distributed to U.S. buyers.
Not only have image producing agencies and photographers not received payment,
but as of the beginning of 1999 only one had received any type of sales report. Even
when photographers would see their image used by major advertisers
Picture Perfect refused to supply any information as to the fee charged for the
usage.
Photographer Andy Goodwin had a picture of his two sons used in a major ad
campaign by Kellogg foods. Given the number of places that photo has appeared
one would expect that the fee would have been at least $20,000 but as of the
beginning of 1999 Picture Perfect would not tell Goodwin, or his agent Nawrocki
Stock Photos, what they billed for the usage.
We know that some foreign agencies have made sales and have submitted quarterly
payments to Picture Perfect according to the terms of their contracts. We also
know that some foreign agencies are withholding the fees collected because Robert
Tod owes them much more for sales he has made on other projects than they owe
Picture Perfect and Todtri.
Based on certain information we have obtained relative to early sales in the
U.S. we estimate that gross sales from the Picture Perfect 12 catalog through
the end of 1998 were between $700,000 and $1,000,000. Based on industry averages
we estimate that sales outside the U.S. should have been about equal to, or
slightly greater, than U.S. sales,
This means that the average gross sale per catalog image in the first twelve months was
between $333 and $476. The average photographer share of these sales would
probably have been between $80 and $114 per image.
Robert Tod is traveling in the Far East until the end of January. Selling Stock
submitted written questions, but neither Mr. Tod, nor his second in command, Mr.
Fred Harris, were available for comment. The questions are attached at the bottom
of this story
Capstone Financing
In the last few days some claimants have received an offer to settle claims for
monies owed through November 30, 1998. Tod has made arrangements for financing
through Capstone & Company,
515 Madison Avenue, 21st Floor, New York, NY 10022. Mr. Joseph Ingrassia is the
investment partner handling the arrangements. The explanation they are providing
to trade creditors is as follows:
"Todtri Productions, Ltd. ("Todtri") has been, and still is engaged in the book publishing
business on an international acale. In 1997, because of the difficult environment
affecting the industry, a major account went bankrupt and several others were so
adversely affected that their payments became extremely overdue. In addition, Todtri's
largest account changed the manner in which they did business and is no longer a
customer. In 1998, the international monetary crisis further negatively impacted on
Todtri's finances. While Todtri has continued in business and has replaced the accounts,
the process was painful and prolonged. As a result, Todtri has incurred diverse debts that
is unable to either pay in full or in all cash.
"Because Todtri's basic ongoing business is sound, it has received a commitment for a
significant new financing which will enable Todtri to begin paying back debts and to
continue in business stronger than ever. The lender has required, however, as a
condition of making the financing, that Todtri's existing debts be restructured in an
Agreement of Composition with its trade creditors.
"Todtri has engaged Capstone & Company, LLC to organize that Agreement of Composition.
The purpose ot this letter is to describe the terms and conditions under which your
trade payable due from Todtri will be paid. We ask that you return this document in the
enclosed self-addressed stamped envelope. We are seeing to close the financing for
Todtri at the end of January, 1999, provided the requisite number of trade creditors
join in the Agreement of Composition. It is anticipated that the first payment
would be made in February, 1999. To accomplish this, we need your cooperation in
sending back your signed document as soon as possible, but no later than January 15, 1999."
In this agreement Todtri is offering to pay creditors 100% of what is owed, but the payment
periods are stretched out over long periods and vary from creditor to creditor. We know of at
least one creditor whose debt is scheduled to be paid off in six months and others where the
payments are stretched out over two years.
Other unique features of this agreement are:
In order to particpate in this payment plan they were required to return the document by
January 15th. Many didn't receive the document until the 14th and some have still not
received a settlement offer.
Some who have received the offer indicate that their are conditions which are unacceptable
and this could result in a delay or cancellation of the offer.
An amount has been stipulated as to what each creditor is owed, but if the creditors
wants to be paid he has to stipulate that this is "payment in full" and give up his right
to audit the books. In some cases there are legitimate questions as to whether the amounts
stipulated really cover all sales.
It is clear that Todtri has used the photographer share of monies collected in the past
year to pay off debts in other lines of business in which the company engages. Now, they are
proposing to stretch out payments to photographers so they can pay other trade creditors in
a more timely manner. There is no obligation to the photographer until the company has
actually been paid by a client. Therefore, the argument they make that some of their book
publishing clients didn't pay their bills should have no relation whatsoever to why the
photographers are not being paid.
Many stock agencies put receipts from licensing in a separate account, and do not pay anything into their
operating account until the photographer's percentage has been paid. This is the way a
stock agent should operate. Obviously, Todtri does not operate that way.
Moreover, it is
clear from the agreement creditors are being asked to sign that all future income
will be used to pay off any and all debts. The debts to the photographer for the
licensing of their work will have no greater priority that a debt to a printer, a stationay
store or for office rent. There is no sense that a portion of the monies collected in a usage
fee do not belong to Todtri, but are a direct obligation to the photographer or agent who
provided the product for licensing.
Income Breakdowns
The situation at Picture Perfect has given us a chance to explore the current
economics of catalog marketing, for the sellers, catalog producers and
photographers. The following numbers are hypothetical, but based on interviews
with a number of people involved. We believe these numbers are realistic and probably
close to the actual earnings in this situation.
For purposes of this analysis we assume that sales break down 50% U.S. and 50%
foreign, although it is possible that the foreign share may be a higher
percentage.
We also assume that half the images were supplied to Picture Perfect by an Image
Supplying Agent. We know that somewhat more than half the images in the catalog
were provided by secondary agents, but we are unsure as to exactly how
many of the catalog images were supplied directly to Picture Perfect by
photographers.
Sales Level
|
|
$1 million
|
|
|
|
$700,000
|
|
|
Domestic
|
|
Foreign
|
|
Domestic
|
|
Foreign
|
Gross Sales
|
$500,000
|
|
$500,000
|
|
$350,000
|
|
$350,000
|
Selling Agent Share (40%)
|
$200,000
|
|
$200,000
|
|
$140,000
|
|
$140,000
|
Catalog Producer (40%)
|
Selling Agent in U.S.
|
|
$120,000
|
|
Selling Agent in U.S.
|
|
$84,000
|
|
|
|
|
|
|
|
|
| Amount Left For Split
|
|
$480,000
|
|
|
|
$336,000
|
|
| Image Suppling Agent Share
|
|
$240,000
|
|
|
|
$168,000
|
|
| Photographer Share |
|
$240,000 |
|
|
|
$168,000 |
|
Costs Breakdowns
Above is how the income should have been divided had everyone been paid according
to contract. Now, lets look at the probable costs of each participant in this marketing
venture.
Foreign Selling Agents - Foreign agents purchased and distributed between 40,000
and 70,000 books from Tod. We believe they paid about $3.00 for each book
received which would make the total paid to Tod in early 1998 somewhere between $120,000
and $210,000. It
appears that some dupes were included in this $3.00 price, although certainly
some agencies would have wanted extra sets of dupes. The dupes were 6x9cm and
these may have cost $2.00 each to produce, given the volume.
On top of this, agencies had postage costs to distribute the books. It would
probably have cost at least $3.00 per book to ship these books. In some
countries shipping heavy print catalogs is even more expensive so we think $3.00
per book is a minimum for distribution costs.
Thus with purchasing the books and mailing, the agencies had a combined estimated
outlay in early 1998 of somewhere between $240,000 and $420,000. As we can see
from our chart above their 40% share for this catalog was at best $200,000. This
does not include any of their staff and overhead costs in actually making the
sales.
Image Supplying Agents - We know that in excess of 50% of the images in the
catalog were supplied by other agents. These agents will receive 60% of what
Picture Perfect receives from each sale and split that with their photographers.
If Picture Perfect makes the sale in the U.S. the ISA gets 60% of the gross fee
paid. If the sale was made by a foreign country the ISA get 36% of the gross
fee. The income that should have been paid to these ISA's would have been
between $336,000 and $480,000.
As of 1 January 1999 they had received no payments. If and when these agents get
paid they will keep half of this income, or between $168,000 and $240,000, and
must remit the rest to the various photographers who actually produced the
images.
The agent had costs of collecting the images from the photographer and editing.
In some cases the agent may also have been required to pay something up front to
Picture Perfect to help offset the initial production costs of the catalog. In
this case the ISA's have also had legal expenses to try to enforce their
contracts and collect the funds owed them by Picture Perfect. In addition the
credibility of the ISA's with their photographers has been severely damaged as a
result of the actions taken by Picture Perfect.
Photographers - They owe $150 per image to help offset the costs of producing the
catalog. This amount is to be paid to the catalog producer out of the first
dollars owed to the photographer. This would be a total of $270,000. Since the
most that is believed to be owed the photographers for 1998 is $240,000, on
average the photographers are probably not owed much money for 1998 sales.
Of course, some photographers will do much better than the averages and others
will earn little or nothing.
Picture Perfect - We estimate that printing, design and separations cost them
something in the range of $300,000; that postage, mailing lists, and mailing
house fulfillment cost were at least another $45,000 and that the production of
large format dupes added another $100,000 in costs for a total of $445,000.
This is minimum cost of catalog production and distribution.
Picture Perfect has received between $120,000 and $210,000 from the foreign
selling agents. Their legitimate share of sales would have been $224,000 to
$320,000. In addition, it is believed that some of the Image Supplying Agents
made some up front payments to help offset the production of the
catalog. This gives Picture Perfect an income in the first year of between
$344,000 and $530,000.
Given the cost that Selling Agents, Image Supplying Agents and Photographers are
likely to have had -- even if they were paid what they are owed -- nobody would
be doing very well after the first twelve months of sales.
Given the number of catalogs currently being produced, many in the industry
believe the average useful life of current print catalogs is not much more than
18 months. If that is the case it will be hard for anyone involved in this
project to end up making money.
Granted, a few of the major catalog producers are getting much better returns per
image than this, but they accomplish their market penetration through
overwhelming presence and huge expenses in supplementary advertising. The fact
remains that there are too many pictures chasing too few buyers.
If these statistics are at all representative, those who are not market leaders
and who want to compete are going to have to find a more cost effective way to
show their images to clients.
Questions
The following are some of the witten questions we sent to Robert Tod and Fred
Harris in an effort to get their side of the story. They failed to respond by
our publication deadline.
1 - I understand you distributed about 100,000 copies of the Picture Perfect 12
catalog. Is that correct?
2 - How many different catalogs has Picture Perfect produced in the past?
3 - For how many catalogs, produced by other agencies, has Picture Perfect or
Todtri acted as distributer?
4 - I understand that agents in 26 countries are handling sales for your PP12
catalog. Is that correct?
5 - I understand that no agency or photographer who participated in PP12 has
received any payment for sales of the images in this catalog. Is that true?
6 - If someone has received payment will you please give me one or two names so
I can confirm that fact.
7 - I understand that Nawrocki Stock Photo Inc. has terminated their contract
with Picture Perfect as of December 31, 1998 due to non-payment. Is that true?
8 - It is my understanding that in the letter of termination Nawrocki agreed to
allow you to continue to market their images through PP12, provided there is
prompt payment for 1998 monies owed. Is that true?
9 - It is my understanding that you are required by the termination clause in
your contracts with stock agencies to return original images once the contract
has been terminated. Is that true?
10 - Do you agree that you have voided your contracts with stock agencies by
refusing to pay according to the terms outlined in those contracts?
11 - Why are you unwilling to place the original images from PP12 in escrow with
a third party as has been requested by some agencies so the photographers will
have some assurance that they can eventually recover their images, if not
payment of usage fees? Wouldn't this demonstrate some evidence of good faith?
12 - Do you believe you have the right to continue to market all images in PP12
despite the fact that agencies have given you written notice of their
termination of their contract with Picture Perfect based on the fact that you
have made no payment to them?
13 - Given that you have withheld sales reports for so long, how can agencies be
assured when they finally do receive sales reports that what you claim as sales
are really all the sales that were made?
FEEDBACK
After this story appeared Robert Tod sent us a letter with his comments. You can read
these comments in Story 195.