SAA On Royalty Free

587

October 8, 2003

Editors Note: The following is a response from the StockArtistsAlliance to
my Story 580
entitled "Re Evaluation of Royalty Free". We always welcome well thought
out opposing points of view and would also welcome any additional thoughts relative
to these two articles from someone on the RF side of the business.

The leadership of StockArtistsAlliance takes issue with many of the points made in
recent Selling Stock reports which espouse the merits of the Royalty Free
business model and the business opportunity it represents for stock photographers.

As you know, the Stock Artists Alliance is as an organization dedicated to the
interest of the Rights Managed stock business model, which we see as the most
equitable deal for photographers and their agents. That said, we respect that each
individual needs to develop their own roadmap (and avoid the potholes and stones on
the road). What is most critical right now is the dissemination of information that
can assist individuals making those personal business decisions, and not the rhetoric
of emotion or promotion.

We question the validity of the argument and numbers you have presented which lead
you to conclude that stock photographers should seriously consider shooting RF. Your
implication that those opposed to the RF business model are ignoring the realities of
the current marketplace is not necessarily true. Those people may simply find RF to
be a poor business model for professional photographers and are looking elsewhere for
more equitable ways to market their work.

The SAA concurs that RF is indeed a reality of the current stock marketplace and is
most certainly not going away, however, we do not see it as a foregone conclusion
that any savvy stock photographer needs to seriously consider shooting RF (in
addition to or in lieu of RM) to be successful going forward. In fact, it can also be
argued that shooting RF would be detrimental to an individual photographer as well as
short sighted.

In the Selling Stock article, a recent Graphic Design USA survey was
referenced which found that 89% of stock buyers license RF and 69% use RM. You
conclude that anyone who ONLY shoots RM is missing 20% of potential buyers. We would
put it another way: that a business model that reaches 69% of a potential market is
an impressive target for any individual photographer to base their business.

We question the accuracy of the royalty figures upon which you base your analysis.
We feel that your estimate of 20% as a standard RF photographer royalty is far too
generous and misleading. It is the "top end" figure rather than an accurate median
figure. It is far more common for RF photographers, who do not fully control their
own distribution, to get less than 20% (often down to single digit royalties) after
the agent and distributor take their share, and they certainly are netting far less
on licenses made through any 3rd party distribution deals which are widespread and
growing (as stated in your article). Even using the exaggerated 20% figure, your
analysis shows the photographer comes out behind when shooting RF versus RM.

We also take issue with the examples you provide of Tom Grill and Ron Chapple as RF
success stories which attest to the opportunities RF can provide. Rather, they are
misleading, as Tom and Ron are both unique cases that are not at all representative
of most individual stock photographers. First of all, both were incredibly successful
as RM shooters first which puts them in the tiny minority of the stock "elite". As a
result, both have the resources and "deep pockets" to be able to produce the large
volume of marketable RF images and market them to their best advantage. Ron, for
example, is the owner of Thinkstock and while he does much or all of the photography,
the key to his RF success is his position as agent/distributor, and his Thinkstock
brand is distributed widely through other agents and distribution outlets. As a smart
business owner, Ron understands that the benefits of the RF business model go
primarily to the distributor.

How many stock photographers have FULL control over distribution? How many receive
the FULL share of the revenues?

Let's talk about the real world of RF for the rest of the individual stock
photographers out there who do not have incredibly "deep pockets" and their own
distribution channels. They are being told that RF is a great opportunity to expand
their stock business. They are being offered a minimal share of royalties after the
agent and middlemen and distributors have taken their much larger shares. This is the
reality for most stock photographers and so these are the examples that need to be
stressed to provide a balanced and realistic assessment of whether or not RF can be
profitable for them.

Lastly, we'd like to address the "bigger picture" part of the equation: the impact of
the RF Business Model itself, and how it today and in the future, will impact the
business of stock photographers. In a nutshell, the RF business model gives more to
clients (more rights for less money) and more to distributors (much higher share of
each sale) at the expense of the photographer (who gets a lower share of revenues but
still has the same overhead). Regardless of the intent of the RF business model, the
effect is clear: RF, as a business model, is clearly a step backward for the
profession of stock photography and all professional photographers.

So, why are RF royalties to photographers so low? As far as we can ascertain, there
is no explanation that makes sense in today's stock business where RF is marketed and
sold the same as RM and is becoming more and more the same sales model. RF and RM
images are sold side-by-side on agency websites. We've heard that the marketing costs
are much higher than RM but there is nothing to substantiate it as RF and RM images
are marketed together or in comparable printed promotions. They are both distributed
by the same electronic systems, requiring the same effort and investment to process
and upload. RF is more cost-effective for agents/ distributors as it has a fixed
price scale and images can be downloaded 24/7 without any sales assistance. So, why
are RF royalties to photographers so low? RF royalties are so low because that is the
deal that has been offered and accepted. In our opinion it is unacceptable.

Today nearly all agents who represent RM images are now engaged in selling RF as well
(Workbookstock and Photonica being two notable exceptions). It has been estimated by
several industry "insiders" that if RF has not been introduced, the worldwide market
for stock photography would be $6+ billion rather than the flat $2 billion it has
been for the last 5 years or so. And yet, despite the astounding loss of potential
revenue for us all, most agents continue to embrace RF as a profit center, minimizing
overhead and maximizing revenues for themselves at the expense of photographers. And
it continues to evolve as the pricing of single RF images is rising and clients are
accepting them, the RF business is encroaching more and more on RM licensing.

So what are our agents doing to evolve the RM Business Model? And what are
photographers doing to create and participate in new business models that are fair to
photographers? Why should photographers accept the RF business model when it is so
blatantly unfair to photographers? These are some of the questions photographers
should be asking.

Like ANY business model in a fast changing industry, the Rights Managed model needs
to be evolved to meet the changing expectations and demands of the market. From a
client's POV, RM is more difficult to cost out and license. It requires more time and
effort for both client and agent. It can be too costly for some uses which drives
potential RM clients to RF. Clearly there are opportunities to improve the business
model; yet RM has remained in the "ivory tower" of stock, unchanged and un-evolved to
meet the challenge of the RF encroachment.

SAA contends that there is simply less incentive for agents & distributors to evolve
the RM side of the business to be more competitive once they themselves are
entrenched in the RF business model. In fact, the RF business model is so one sided
that any agency or distributor who does not push their photographers under contract
to submit material for RF would be missing out on a business opportunity. Given that
fact, photographers must create their own business models and seek out those who want
to create marketing/distribution methods that are fair and equitable to all sides of
the equation.

RM urgently needs a makeover to compete in the reality of the current marketplace.
The problem is that most of the agents are heavily engaged in building their RF
businesses -- and urging photographers to shoot RF to the photographer's long-term
detriment. The agency/photographer partnership is well and truly dead. What is good
for the agent (and distributor) is no longer also good for the photographer.

We most definitely cannot look back; and we most certainly must go forward. On the
road ahead, since the map offered by the agencies and distributors is a dead end,
photographers have to actively engage in finding another way. Photographers, and
those who care about the professional well being of photographers, can create new
choices. When they do, the companies who distribute and market photographers'
imagery will have little choice but to try and keep up because without photographers,
they do not have a product.

©StockArtistsAlliance 2003

Editors Note: There is one set of figures in this article that I cannot
let pass without comment. The SAA says that industry "insiders" estimate that the
worldwide market for stock photos has been about $2 billion a year and that has been
flat for the last 5 years. Based on my research, I believe the market in 2002 was
closer to $1.1 billion, down about 10% from the market's high water mark in 2000, and
that in 2003 it is beginning to climb back up. In my opinion the $6+ billion
estimate for the stock photography market "if RF had not been introduced" is a number
that never had any basis whatsoever in reality, and is the kind of figure put out by
investment analysts when they are trying to pump the stock of a public company to the
uninitiated and uninformed.

Feedback:

From: Alan Bailey, Rubberball (a Royalty Free producer)

From: SAA Leadership