466
TEXTBOOK REVENUE
March 15, 2002
More Rights For Same Money = Less To Bottom Line
Pricing textbook uses is getting more and more complex as publisher seek broader and broader
rights for the images they purchase. The request are no longer a simple 1/4 page North American
rights, for under 40,000 copies of a particular title.
With the variety of ways a new publishing product can be sold it is also easy to understand why
publishers want to acquire such broad rights. For the most part we have no problem with
publishers asking for broad rights, and in licensing such uses. But the fee charged needs to be
commensurate to the rights granted. What is tending to happen is that publishers are often
getting rights to make many uses for a fee that is only slightly higher than a single use fee.
Image sellers must take the time to carefully break down broad rights requests before quoting a
price. Failing to do this may not result in an immediate drop in revenue in the current year. The
long term effects are often overlooked, but they can lead to a significant loss of income for
both stock agencies and image creators in years to come, if the trend isn't immediately
corrected.
Consider a recent request that many photographers and agencies received from a publisher for a
new book project. I will not identity the publisher because this is an example of the current
practices of many publishers.
Request
XX is developing a new middle school World Cultures and Geography program to be published by XX.
XX anticipates publishing this program in three versions, a full survey (all units), an Eastern
Hemisphere volume (Unit 1 & Units 4-8), and a Western Hemisphere volume (Units 1-4), for first
publication in the year 2003. Regardless of which volume your image(s) appear in, the total print
run for all three volumes combined will not exceed 250,000 for the life of the program. We would
like to use the images listed on the next page in the pupil books with a facsimile of that pupil
book page also to appear in an annotated teacher's edition. XX requests the following
non-exclusive rights, for use in this program:
While the primary sale of the pupil edition will be in hardcover form, we also request the right
to bind the material in which the image(s) appear(s) as a separate soft cover module. XX
estimates that less than 10% of its customers prefer this format.
XX may need to make minimal changes in the program to meet state-specific adoption requirements.
Therefore, we request that you allow XX to publish minor revisions of this program (less than
10%) within the term of this agreement.
We request the right to sublicense the images on a non-profit basis, for publication in whole or
in part, in forms and special formats for individuals with disabilities who are unable to read
print in a conventional manner.
We also request the right to show facsimiles of some complete pupil's edition and/or teacher's
edition pages in XX's promotional materials related to the program.
That's it. The publisher wants a single price that will cover all these uses. In discussions
various sellers had with the Photo and Art Manager it seemed that if all of these rights weren't
granted the publisher would choose another image.
So lets break it down.
The only limiting factor is the total press run of 250,000 copies. There are two different
strategies that might be used to calculate the base price since the images may be used in three
different books. One is to price the use as three books. The other is to price it as a single
project.
Historically, the way to approach this would be as three separate books with a different price
for each unique ISBN number. However, with the advent of custom publishing and the fact that they
intend to make "minimal changes in the program to meet state-specific adoption requirement," it
is entirely possible that there will be in excess of a hundred different ISBN numbers before this
program is completed. It would seem unreasonable to price each one of these uses (some with tiny
circulations) as separate books.
In responding to this request, some agents used the three book strategy. Clearly that will result
in a much higher number than a single project with 250,000 circulation. Some sellers concentrated
on the total number of copies to be distributed. One thing that becomes very clear is that anyone
who is still pricing textbook uses on an "under 40,000" and "over 40,000" strategy needs to
quickly develop a sliding scale for higher press runs.
I will offer separate breakdowns here for pricing the use as a single 250,000 circulation
projects, and as three separate 80,000 circulation books. I will use the 1/4 page numbers in
Negotiating Stock Photo Prices on pages 274-275 as a basis for these calculations. The highest
base figure offered in NSPP is for 200,000 circulation. We have interpolated that up to $410 for
the 250,000 circulation.
The prices in NSPP are for English Language, North American rights. Some sellers set their
base price for U.S. English Language use and add an additional 25% for the rest of North America.
For the separate annotated teachers edition stock agencies we normally add between 15% and
25%. We'll use 15% here.
For web use most agencies normally add 50% of the base North American rights figure.
The state revisions factor is a real problem. Many stock agencies have historically charged
an additional 10% for each revision that has a separate ISBN number. However, this fee was
normally charged when there were only a few revisions. If there are ten or more with only slight
modifications, this add-on seems inappropriate. What is happening now with the ease of
manipulating pages digitally is that there are lots of "custom" editions and none of the
publishers are giving us very straight answers about how many that might be. (Often, in up front
negotiations they probably don't know because that will not become clear until they start selling
the book.)
If the concept of additional payment for future revisions is eliminated, then it may be necessary
to make some increases in the price for higher circulations in order to compensate for the loss
in "revision payments" that were made in the past. This may be the only practical way to make the
total compensation for the use of the photos equitable.
An additional percentage of the base North American rate of 25% to 50% is normally charged
for a separate soft cover edition. Since in this case it will be basically the same book and no
more than 10% of the total press run will be soft cover books, we believe it is reasonable to
allow the publisher to produce these books at no additional charge so long as the total number of
copies of all versions of the book is less than 250,000. On the other hand, based on past
practices, and past pricing structures there is justification for charging an additional
percentage for this use.
The publisher is asking permission to sublicense the image for special formats. This is a
dangerous door to open. In this case the "special formats" is narrowly defined. However, it is
not clear that each of the "special format" uses is counted as part of the 250,000. They should
be. Giving a user the right to sublicense should be avoided whenever possible.
Despite our concerns relating to this use, we would have suggested in this case that nothing
additional be charged for the "special format" use as long as the publisher is paying a
reasonable price for the basic use.
Here's how the numbers break down.
|
Circulation
|
Circulation
|
|
250,000
|
80,000 - 3 Titles
|
|
|
|
Base Price
|
$ 410.00
|
$ 291.00 per title
|
Teachers Edition 15%
|
62.50
|
43.65 per title
|
State Revisions 10%
|
41.00
|
29.10 per title
|
State Revisions 10%
|
205.00
|
145.50 per title
|
|
|
|
Totals
|
$ 718.50
|
$ 509.25 per title
|
Total 3 Titles
|
|
$ 1527.75
|
Now for the bad news. According to Photo and Art Manager on this particular project many major
agencies were charging between $300 and $400 for this use. We checked with some of the agencies
named and determined this was what they had charged. A fee of $400 doesn't look all that bad for
a textbook use until you realized what rights are being given away for this price.
In reporting to their photographers most agencies supply minimal details about a use such as "1/4
page textbook, 250,000 circulation." In a case like this that is not a full explanation.
The frequency of these expanded uses are rising dramatically, but the average fees for photo
usage have not been keeping pace. Publishers have been raising prices to the consumer, but they
argue that they can not afford to pay more to the content providers.
Given the additional uses they are requesting it is worth working backwards and considering what
a base price would be for a standard 40,000 print run project with no additional uses, if we
assume that a reasonable fee for a project with this scope is in the range of $350 to $400.
If the base price for 250,000 circulation were $220 and we added 15% for a teachers edition, 10%
for state revisions and 50% for web use the total fee would be $385.
|
Circulation
|
|
250,000
|
|
|
Base Price
|
$ 220.00
|
Teachers Edition 15%
|
33.00
|
State Revisions 10%
|
22.00
|
State Revisions 10%
|
110.00
|
|
|
Total
|
$ 385.00
|
Since the rates in NSPP for a 40,000 print run are about half of the rate for a 250,000 print
run, if the base price is $220 for a circulation of 250,000, a picture printed in a corresponding
book of only 40,000 would only be worth about $110. If you are ready to sell this picture for
$110 to the next publisher who comes along and wants to do a single book with a 40,000 print run
then $385.00 may be a reasonable fee for all these uses. There are very few image sellers who
would agree that $110 is unreasonable fee for a book with a 40,000 copy press run.
If the publisher was buying 20 or 30 pictures from you that might be a justification for a
somewhat reduced price, but some of the companies who were giving these low prices weren't
licensing very many images to the publisher for this particular project.
Why Are Higher Fees Justified?
The prices students are charged for books has been rising dramatically. A textbook may sell for
$40 to $60. The royalty for each photo in that book, based on the 40,000 circulation rate in NSPP
is about 1/2 of one cent per image. If the publisher sells 200,000 copies the price the buyer
pays per copy does not drop, but the publisher realizes certain additional savings in marketing
as a result of selling a larger quantity. Nevertheless, the royalty the photographer receives
drops dramatically to only about 2/10ths of one cent per book. There seems to be no good reason
why the creators income should be reduced so substantially relative to the publishers income. 200
images in a book might cost the publisher between $.40 to $1.00 of that $60 retail price.
Reuse Revenue
Significant income has been generated from re-use and secondary uses. Keep in mind that with the
above project you have effectively eliminated reuses from this publisher for the next ten years.
If the reuse fees are eliminated it may have severe impact on the future profitability of a
photographic operation. In the long run photographers will stop shooting many of the images
publishers need because they can no longer make a profit for their efforts.
Photographers and stock agencies have tended not to keep good records of that portion of their
income that comes from reuse as compared to the original use. Some agents have estimated that 20%
of their revenue comes from reuse. I believe in some cases that figure is probably much higher,
but to lose even 20% of total revenue can be a severe hit on a business.
Assume total revenue from licensing to books is $100,000 and $20,000 of that was for reuses.
Assume the average per image price for those $80,000 of first uses was $200 which means there
were 400 uses. If reuses are eliminated, just to break even in licensing the same 400 images the
average price per use must now be $250. If, in fact, the reuses make up 30% of that $100,000 in
revenue then there are only 350 first uses for that $70,000. In order to continue to earn same
$100,000 you were making when there was reuse income each image formerly priced at $200 must now
be priced at $285.71. These higher prices don't provide any increase in overall income, they are
break even prices.
Transition
Part of the industry's problem is that we are in transition between an old system and a new one.
In the old system it was a big deal to come out with a new version of a book. When a publisher
produced a new title it was assured that lots of copies would be printed and few changes would be
made. Thus, pricing by version made sense. Now it doesn't.
As changes occur in what publishers can do with content, sellers need to adjust their methods of
pricing uses to make sure they receive adequate compensation for all uses. Many sellers are
afraid to quote big numbers because they vary so much from the kinds of numbers they were quoting
previously. These sellers need to focus on how much additional use is being asked for, compared
to what the publishers were asking previously.
The photo industry also needs to have a better understanding of the portion of total revenue that
currently comes from selling secondary rights beyond the initial publication right. And they need
to look at what these figures were two or three years ago. These figures would help establish how
much the prices for certain circulations need to be raised in order to balance the revenue lost
by not charging for each new version.
If publisher want long term rights, but can't afford to pay high fees up front then they need to
develop some system for providing additional compensation to the creative suppliers in future
years as the product continues to generate income. It is easy to understand why the publishers
can not afford to pay high fees up front, but that is no excuse for denying creators an equitable
share of future revenue.