Re-Evaluation of Royalty Free

580

September 22, 2003

Sometimes it is wise and prudent to re-assess long held strategies and philosophies
and make dramatic adjustments rather than doggedly sticking to a long held idea or
approach.

Recently, Steve Spurrier, in his second year as coach of the Washington Redskins
said, "I'm learning how to coach like an NFL coach. You can't just throw it every
time in this league. Can't do it. Won't do it. I'm learning." After last year (7
wins, 9 losses) Spurrier made a frank self-assessment and changed his philosophy of
pass, pass, pass that he'd spent a lifetime perfecting as a college football coach
at the University of Florida. A balanced attack of 34 running plays for 160 yards
and 23 passes for 185 yards produced a win in a tough season opener. Not a winning
season, but a positive start. But what's significant is that Spurrier was willing to
face the issue, recognize that his previous key to success was no longer working and
admit that it was time to develop a different strategy.

Now let's get down to stock photography.

A decade ago when Royalty Free photography was first introduced there were those who
said, "It will destroy stock photography as we know it." I was one of those making
such statements at the time.

And yes, it has destroyed stock photography as we knew it in the early 90's. That's
now a given. But crying about it or taking the position that "my way is best and
I'm going to stick to it no matter what" will not make RF go away. Doggedly
holding to a philosophy will not return us to the way things were when Tony Stone
Images, TIB and FPG were all independent agencies competing against each other. The
world has changed and the question is how long photographers should try to hold onto
a strategy for producing and marketing images that worked well once, but whose time
has passed? It is time to adjust to today's realities?

Today's Realities

In a GraphicDesign USA stock survey 89% of the art directors use Royalty Free and
only 69% use Rights Managed images. So if you are only offering RM you have no
chance of reaching 20% of the graphic arts buyers.

At Getty 2/3rds of the images licensed are RF images and only 1/3 are RM even though
they have 353,121 RM images on their site compared to only 194,589 RF images.
Industry wide, I estimate that RF represents 25% to 30% of the revenue but well over
half of the total images used.

The prices charged for single image RF use has been growing much more rapidly than
the prices charged for RM use. In fact, in some countries RF prices are higher than
RM prices.

It has become extremely difficult to get your images where customers can see them if
you are focusing on only selling RM. The major portals have become very selective in
what they will accept. Smaller portals may accept more RM images, but they are
having great difficulty in generating the traffic that will produce significant
sales. The companies producing RF may not be working with as many photographers, but
the photographers they do work with have a much better chance of getting a volume of
images widely seen in the market place.

Most of the companies in the industry that have shown significant growth in the last
few years are RF companies. Most companies concentrating on selling RM exclusively
have experienced stagnant or declining sales recently.

Photographers who produce both RM and RF images tend to have businesses that are
more successful than those who have held religiously to having nothing to do with
RF.

Does RF Devalue Photographers Or Their Work?

Some photographers have the idea that licensing usages for RF prices somehow
devalues their work, or even worse, themselves as human beings.

Of course, this is a
ridiculous position for a stock photographer to take. If you're trying to license
images as stock photography you should be doing it not to validate yourself as an
"artist", but to make money. If your goal is validation as an "artist" then go to
the museums and galleries and forget about the money aspect.

The only legitimate question for a stock photographer is: "How can I earn the most
for the time, energy and resources I have invested?"

RF is not immoral as some would like others to believe. The decision as to whether
to do RF or not should be a business decision. Is it possible to reliably earn more
money from producing RF for the time and energy invested than is currently possible
from producing RM? In asking this question be sure you consider what it is
"currently possible" to earn. Don't compare it with what you used to earn because
"used to" is gone forever and has little bearing on today's market.

Are RF Producers Second Class Citizens?

Some photographers still try to argue that the quality of RF isn't very good. They
say the photographers shooting RF are not among the most talented in the industry
and that their work really isn't very good. They try to argue that the "best"
photographers only license their images on RM terms and that only unsuccessful stock
photographers produce RF.

Tom Grill, possibly the most successful RM photographer a decade ago, and co-founder
of Comstock, is now producing both RM and RF. He says he is making as much from his
RF production as from the RM production. (After all isn't making money what it is
all about.) Ron Chappell, once the leading RM producers for FPG has developed
Thinkstock , his own
very successful RF company. If you have any doubt about the quality of
the RF work that is being offered take a hard look at Digital Vision and many of the
other RF companies, and then try to say that some of the best and most creative
photographers aren't producing RF. Also consider that in those countries were RF is
more expensive than RM distributors are still selling a lot of RF. It is probably
not because the customers like to pay money for pictures when they can get what they
need for less. It is probably because the RF picture does a better job of fulfilling
the customer's immediate needs than anything that is available as RM.

Calculating The Odds?

Some say, OK the quality is good, but you can't make any money shooting RF because
the prices are so low and you have to give up such a big percentage of each usage
fee.
It makes sense that when you license pictures for higher fees and you get a higher
percentage of those fees you're going to make more money.

However, that's only true if the Number Of Units Sold of each type of imagery
are relatively the same -- and that's the fallacy in this argument.

Let me do some analysis of the Getty Images numbers. Getty has 353,121 RM images
and only 194,598 RF images currently on the Creative section of gettyimages.com. But
in the last quarter they licensed rights to 117,108 RM single images and 227,842 RF
single images (this does not include CD sales which represents about 20% of RF
revenues).

Obviously some images are licensed more frequently than others, but it is clear from
these numbers that statistically those with images on the site have at least a three
times better chance of one of their images being used if that image is RF than if it
is RM. This may be because the RF image is cheaper, but it may also be because a
particular RF image just happens to fit the customers' needs better than any of the
available RM images.

Then we look at the average usage fee for an RF image and the average usage fee for
one that is RM. In the last quarter the RF average at Getty was $139 and RM was
$567. But if we license three RF's for each RM that makes the comparative numbers
(3 X $139) $417 compared with $567. Now the relative average values of what it
might be possible to earn from these two marketing methods is getting closer to
being the same. Of course the photographer would get a lower royalty percentage of
the gross fee with RF and that needs to also be taken into consideration.

But if the photographer is trying to grow a business he should also take into
account the number of new images that are likely to be accepted. Assume that a given
photographer can get 15 new RM images accepted a year? The averages would indicate
that these images would generate $567 X 4 (for four quarters) X 15 images or a
$34,020 gross license fee.

Correspondingly, what if the photographer got 30 RF images accepted. The numbers
would be $417 X 4 (for the full year) X 30 for a $50,040 gross license fee. When we
consider the difference in royalty percentages RM is still probably better, but not
by much. Obviously, we need to not only consider the price per usage, but also the
volume of images in play and the volume of usages likely to be licensed.

It's great to get an average license fee of $1,000 per image, but if you only sell
two images a year it would be much better economically to be where you make 10 sales
a year at an average license fee of $300 per image, or 35 sales a year at an average
license fee of $100 per image.

There are a couple other factors to throw into the analysis. First, photographers
who shoot both RF and RM say that they tend to get a lot more than 2 times the
number of images accepted as RF than are accepted as RM. For any individual
photographer the actual number of images in play could make a big difference.

RF shooters tell me that they can often produce all the images for an 80 image disc
in two or three days of shooting. How many days of work are involved in producing
even 10 images that will be accepted today by one of the major agencies? If you're
used to producing lots of variations on your shoots, but aren't getting a very good
keep rate it may be time to explore RF.

In addition photographers who shoot RF usually arrange their shoots so they can
produce a lot more variations on the theme, and they may not spend as much time
perfecting a particular shot as some RM shooters tend to do. Part of the issue here
is whether the photographer believes there is absolutely only one way that a shot of
a particular subject will be acceptable to any customer. In this case the
photographer must produce the perfect single frame. The alternative is that the
photographer may believe there are several different versions or variations of the
subject matter that might be used by different customers in different ways, and he
wants to offer a broad selection to give customers a choice. There is nothing
necessarily wrong with either approach, but if you are of the second mindset you may
do well producing RF. If you are of the first mindset RF probably isn't for you.

Other Advantages of RF

The marketing of images is now much more broad based and wide spread than it was a
few years ago. Getty says they have over one million customers in their database.
We used to talk about 30,000 to 40,000 stock photo customers in the U.S. and maybe
100,000 to 200,000 worldwide.

One of the big advantages of RF is that it is much easier to get broad distribution
to reach all the customers because there are no rights issues to manage.
It is not uncommon for RF products to
be offered through 100 or more distributors, each with a different approach to a
different segment of the market. There is much less territorial exclusivity for RF
than there is for RM so you may have lots of outlets offering the same images for
sale in a particular territory. Since some customers like to work with one
distributor and other customers prefer to use several sources, the more people
marketing the same image the better chance someone will find it.

This is not to say that there isn't a place for an exclusive distributor, but there
is also a place for the mass market. And the key issue is that it is getting very
difficult for most photographers to make a reasonable income with an exclusive
distributor.

Consider some of the major brand names in other industries. Calvin Klein offers
some exclusive designs at very high fees, but he also produces a line of clothing
that sells in volume through retail outlets.

It may not be necessary to change the whole direction of your business, but it may be
time to give RF a chance. See if you can develop a relationship with a company that
produces RF. Do a
few RF projects while you are still doing RM and see whether it works for you. Then
you are in a position to make a valid determination as to whether you want to
continue producing RF.