Photographers regularly ask why the royalty paid on RF sales is only 20% of the net received by their agent, when the agent pays 40% to 65% on RM sales that are made in the same manner.
Royalty percentages have little to do with reality, and nothing to do with the cost of production. It started when RF, then often referred to as clip-art, was introduced in the early 1990s. The first company to really go after professional images was PhotoDisc (then known as 21st Century Media). They made a deal with the Seattle-based stock agency, West Stock, to supply images for their first discs. The first three discs, which held 400 images per disc, started selling in early 1992 for $299.95 each. Image file sizes varied from 6.5MB to 10MB.
The discs were originally designed for photo users who couldn't afford traditional stock photography and professional photographers were assured that the discs wouldn't be sold to their traditional customers. Many West Stock photographers agreed to let their images be used for this purpose to "test this new market." They expected the clip-photo discs sales to produce additional revenue, without risking sales to traditional outlets.
However, it wasn't long before PhotoDisc discovered that there weren't enough small users to build a viable business. At that point, it created more titles and cut the number of images on each disc, while keeping disc prices about the same. Most companies eventually settled on the idea that 50 images was the ideal size for a title. They also discovered a client base. As a result, PhotoDisc made efforts to get better quality images, provide the larger file sizes professional users needed and aim its marketing toward traditional image buyers.
Pricing
The price charged for discs had absolutely nothing to do with cost of production, but was based on what PhotoDisc believed customers would pay..
PhotoDisc had lots of startup and overhead costs to develop this new business. It had to scan the film, cleanup and color correct the digital files. Then produce the CDROMS. The company planned to sell a significant portion of discs through distributors, who received a 50% commission. In order to enable distributors to deliver discs overnight, PhotoDisc and other producers had to insure distributors had sufficient quantity on hand to fulfill orders.
The principle disc-selling tool was direct mail. Thus, it was necessary to print paper catalogs with samples of a few images from each disc title. Millions of catalogs, which were expensive to produce and sent monthly, were distributed. Catalogs tended to be 64-page products with a few sample images from each of about 200 different titles. Each title was built around a theme, such as Business Symbols, Money and Finance, Industry, etc.
Given these costs, and PhotoDisc's need for a profit, the company calculated that they could not afford to pay more than 20% of their net revenues for the photographs. To make it attractive for the photographers, West Stock tried to use several images from a photographer on a given disc.
Breaking It Down
A 50-image disc might be sold by a distributor for $300. The distributor kept $150 and sent the rest to PhotoDisc. PhotoDisc kept $120 and sent $30 to West Stock. West Stock kept $24, and the remainder was split among all the photographers with images on the disc. A photographer with one image got $0.12 for every $300 sale.
Industry Develops
Some might argue that this was reasonable when the industry was in its infancy, but the situation has changed. Print catalogs are no longer needed and all related costs have been eliminated. Images are now shown, ordered and delivered through the Internet with costs exactly the same as RM images.Disc sales are almost nonexistent and represent a very small percent of total RF revenue. Agencies no longer have scanning and color correcting costs. Now, nearly all images are shot digitally and image suppliers absorb all other costs.
The reason the royalty is still 20% is that those who have structured their businesses around getting a larger percentage of the gross sale don't want to give it up.