All Images Available to All Customers

There seems to be a misunderstanding as to why a two-tier pricing system is in the best interest of all photographers regardless of whether they currently license their work as rights-managed, traditional royalty-free or microstock. The two-tier pricing system is not just another pricing model. Its whole purpose is for all images to be made available to all customers at appropriate prices, depending on how the customer intends to use the image.

Some photographers using the rights-managed and royalty-free licensing models want to continue to place limits on who can use their images. They do not want to allow access to their images to customers whose uses are small and personal, unless these customers are willing to pay fees that are typically well beyond a personal user’s price range.

These photographers do not need a new price model. The one they use now is fine. However, they will continue to see their unit sales decline, because fewer and fewer customers will be interested in using their pictures at the high prices they want to charge. Sales will decline as more and more customers find images that fulfill their needs on the microstock sites at much lower prices. 

Microstock sellers are willing to license their images to everyone. But they have three problems.

First, they set their price points at levels anyone can afford. As a result, the few commercial customers who receive great value from such uses are allowed to pay much less than market rate for the images they license. This leaves a huge amount of money on the table—money that could benefit both photographers and image-licensing companies.

The second problem is a little subtler. When it comes time to increase revenue, microstock sellers raise prices across the board, instead of attempting to consider the value each user receives from an image. This works for a while. Customers can usually be pushed to pay a little more than their budgets allow, but eventually the low-end customers have to go somewhere else to find what they need, or do without.

This is exactly what happened to Getty Images’ traditional royalty-free licensing. Around 2000, the price of a royalty-free image was not all that different from what customers pay for the large microstock file sizes now, but to increase revenue, Getty and all other royalty-free producers started raising prices. By the middle of 2002, the average price of a single royalty-free image was $99. Two years later, the average price had jumped over 100%. By the first quarter of 2006, it was $254. Traditional royalty-free sellers continue to raise prices today as they try to get more out of the few customers who will stay with them, while many others flee.

It is worth noting that iStockphoto got started in 2000–2001, when some royalty-free image buyers decided that traditional stock was too expensive, considering the uses they were making of the images they purchased. They needed a cheaper alternative supply.

The third strategy microstock sites use in an effort not to lose customers is to segment their collections and argue that some images are worth more than others. All this does is limit the number of images available to those whose uses are small and narrowly focused. So despite the fact that the microstock sites are willing to sell to anyone, they chase some of their customers away, because site operators are unwilling to license rights to the images those customer want for a price they can afford.

Some would say that everyone should be able to afford $3 or $6 or $10 for an image. But what if that customer is a student who wants to use an image on his blog, or on his cell phone? Should he be forced to do without or steal? Which do you think he is going to do? Is our goal to train students to steal?

In response, some sellers will say: “That student will never pay even $1 for a picture. He is going to steal no matter what, and there is nothing we can co to stop him.” I do not think the microstock companies know this to be a fact, because they have no good way of knowing how their images are being used. They could get that information if they would begin to price based on use.

Whoever they were, a lot of people used to pay $1 for images. Now they are paying $3, but their numbers seem to be declining. Will they pay $5? Gross revenue at the higher price makes up for the loss in unit sales, but what happens to those who drop out?

Why should traditional sellers care about microstock?

Both macro and micro sellers need a new strategy, if they are going to make their images available to all customers and maximize revenue. The strategy needs to work equally well for all image sellers. In my opinion, a strategy that takes usage into consideration when setting a price is the only one with a chance of long-term success. The price a stock photo will sell for depends entirely on what the customer is willing to pay, and that depends on the use the customer intends to make of the image.

Those who insist on only licensing their images for high prices are doing themselves a disservice. Their egos are getting in the way of making sound business decisions. Rather than selling direct to consumers, these photographers will license rights to companies that manufacture retail posters, calendars and greeting cards and let them make 10,000 or more copies of their images for a few hundred dollars. In these cases, the manufacturer and the distributor of the product make all the profit, while the image creator receives a pittance on a per-unit basis.

Many products are priced based on what it costs to manufacture and market the product. The manufacturing costs are also affected by the volume of units the manufacturer believes he can sell. The finished product serves a particular function, which has particular value to the customer. Most photographs can be used in many widely varying ways, each with a different value, depending on how the customer intends to use it.

The idea that the photographer can make an arbitrary decision as to the value of any given image prior to ever licensing the image for any use, or identifying a customer who is interested in purchasing it, is what has got the stock photo business in the mess it is in today. Consider how rights-managed licensing got started. An agency would say, “I have photos. If you find something you want to use, we’ll negotiate a price.” Someone comes in and wants to use image A in a magazine; the two sides settle on a price of $200. Another buyer picks a different image to use in a different magazine. The agent says, “I got $200 for magazine use before, therefore that is a reasonable price to charge for this use.” The buyer responds, “My magazine is much smaller than the other guys,” and the two negotiate a lower price. If the magazine has a larger circulation, the seller holds out for more.

Today, customers want a more instantaneous solution without tiresome negotiations. To accomplish that, we must give them more fixed prices, but that does not have to mean that we can no longer base the price on use. We may have to narrow the number of variables and as a result take an average position in certain general categories. But we don’t have to eliminate variables entirely. The more a photographer insists on negotiating every deal, the fewer opportunities he will have to license rights to his images, because an ever growing segment of the customer base doesn’t want to take the time to negotiate.

Keep in mind that microstock pricing isn’t all that simple and regularly gets more complex. But the principal weakness of the microstock pricing strategy is that it is based on file size, not use, and it tells us very little—if anything—about how the image will be used.