Performance Bonds

582

September 22, 2003

Given that it is getting very difficult for a stock photographer to get a significant
number of images into marketing -- even for those most experienced and most productive --
maybe a new approach to production needs to be considered.

Traditionally, the stock photographer has produced images entirely on speculation at his
or her own expense and then presented them to various agencies to consider for
marketing. After the photographer has gone to all this effort and expense it is
critical to get a significant percentage of the work accepted for marketing (often
referred to as "keep rate") so the image at least has a chance of being purchased. The only way
the photographer earns anything at all for his efforts is if someone eventually licenses a
use of one of the images. In some cases the keep rate can be enhanced by working closely
with the agency's art directors during the planning and execution of the shoot.

I remember talking to a Jewish photographer friend a few years ago. He had occasion to
explain how the stock photo industry works to some of his Jewish friends who were engaged
in other types of business. They were amazed that there was such a
stupid business. Their idea of a "good business" was one where you sell the product
first and then produce it. They thought it was crazy to go into production until you
know you have a buyer for your product. Interestingly, that's exactly how the assignment
side of this business works. In assignments we get a commitment from the customer before
we start spending time and money to produce.

It is also worth reflecting that the stock photo business got started as a way to resell
outtakes from assignments. In such a case, the cost of production was paid for by the
original assignment and the photographer had very little addition expense to make the
secondary sales. Only later did the idea of shooting stock on speculation come into
play when it was discovered that it was possible to predict that certain types of
imagery would be in relatively high future demand and that it was economically
worthwhile to produce such images in advance so they could be immediately available when
customers needed them.

However, given the current oversupply of imagery, and the difficulty of getting new
imagery seen by buyers, the logic of that strategy may no longer be valid for the
photographer.

When the old system was working well the photographer who was willing to take lots of
risks -- and was skilled, and calculated properly -- had the potential for high upside
returns. For many
the risk of receiving no income was worth taking given the possible returns. In recent
years the cost for the photographer have increased, the percentage of gross revenue the
photographer receives has been reduced and for many the number of sales per image
produced has declined. Thus the
photographer's upside potential has been greatly diminished while the risks have increased.

Guarantees

Now, some photographers, particularly in Europe are taking a different approach. They
want to transfer the risk from them to the production company that has better statistics
as to what will sell and control over how the images will be marketed. They are willing
to accept a very small upside potential in terms of a royalty in exchange for a
significant upfront payment and some guarantees.

These photographers also believe that working in this manner also helps them build and
solidify a long term relationship with the agency or production company.

The deal is usually referred to as a "performance bond". Something like the following
is usually negotiated.

Assume that the photographer's normal day rate is $1500 per day. The agency agrees to
pay the photographer $750 a day plus expenses up front and a lower than normal
percentage of the revenue generated from the images produced (this may be as low as 10%).
The agency also has an exclusive right to license the images for a certain
number of years, but the photographer retains the copyright.

In addition the agency gives the photographer a "performance bond" that stipulates that
if the photographer's royalties for the images produced on this shoot don't generate a
certain fixed number (lets say $1,000) over the next three years the agency will make up
the difference.

Thus, the photographer is absolutely guaranteed to receive some payment upfront and a
fixed amount over a period of time. Of course, the upfront number and the long term
number are open to negotiation. This is a lot like doing an assignment except that the
photographer receives some of the payment over time and has a small upside potential if
the images sell well. The big advantage for the photographer is that his downside risk is
eliminated.

The agency also has a lot more incentive to make sure the images produced will be in
high demand and that they are marketed extensively because they have production money
invested in the project.

This practice is common in Europe, but U.S. photographers have tended to berate agencies
that do it and insist on higher royalties with the photographers taking all the risks.
It also appears to be more common in the RF environment than in RM. Some companies have
even said that such deals are available to their European photographers, but not to any
of their American photographers.

In today's environment all photographers who can get such deals need to consider them.
They are usually done on a project basis. The ideal solution is to do one or two
projects in this manner, and others on a normal royalty basis, and then compare results.

Even if a photographer can afford to assume all the upfront risk and wait for sales to
receive revenue it may be advisable to do some "performance bond" projects to insure a
more serious commitment from the agency to the work.

Many agencies may reject this idea out of hand either because they don't want to commit
any of their capital to production, or because they don't want to set the precedent of
doing it with some and not everyone. On the other hand many good photographers with
experience in shooting stock have already moved away from producing new stock images
because they have determined that the upfront risks are too great when measured against
the likely returns. If agencies have any interest in keeping these photographers
producing they may have to compromise.

Photographers who have already made the decision not to do new productions on the old
basis have very little to lose in proposing such an idea to their old agency, or a new
one, to see what reaction they get.