Stock Industry Statistics

410

June 15, 2001

Earlier this year PACA and CEPIC (the picture agency trade associations of the U.S. and Europe
respectively) surveyed their members on a number of important issues. The results of these surveys


have provided the industry with detail about the market that could only be guessed at until now.

Almost 2/3rds of the PACA's 90 members mailed in surveys, although in some cases they did not
answer all the questions. CEPIC has 943 member agencies and 25% of them answered the survey. There
are many more agencies in Europe than in the U.S. because individuals who represent their own
work, and maybe the work of a few others, often call themselves agencies or libraries, and can
join local associations. Many of these libraries have narrowly focused collections, as opposed to
a tendency among PACA agencies toward broader, general collections. In CEPIC 88% of the libraries
have fewer than 10 employees.

In fact, this number may overemphasize the size of many of the libraries. BAPLA, the picture
library association in the UK represents over 1/3 of CEPIC's members. In a survey BAPLA conducted
in 1999 56% of the respondents had a staff or 3 or less. CEPIC did not break their membership down
into groups smaller than 9 employees, but there is every reason to believe that a huge percentage
of their libraries are also very small.

Both PACA and CEPIC bemoaned the fact that they did not get a higher response rate from their
membership. However, it is my belief that the response from their larger members was excellent. We
can draw some important conclusions from the available data. I will offer a few conclusions and
walk readers through my process of analysis so they can understand how I reached the conclusions.

Gross Revenue in North America

My conclusion is that total worldwide revenue generated in 2000 from the sale of still stock photo
images was between $1.25 billion and $1.35 billion U.S. dollars.

Gross revenue for the PACA members answering the survey was $597,485,809. Getty Images revenue was
$484.5 million leaving about $112,639,809 for the rest of the respondents. Of course the Getty
revenue was for worldwide sales. I will break out the U.S. part of that later.

It has been confirmed that Corbis responded to the survey and that Corbis/Stock Market responded
as a separate division, but it is unclear whether either of these companies answered the "gross
sales" question. Steve Davis has been quoted as saying that the entire gross revenue for Corbis
was "about $150 million" in 2000.
I estimate that Corbis/Stock Market represented about $35 to $40 million of Corbis' gross revenue.
[Not having access to any of the Corbis figures, Jonathan Klein has estimated Corbis at about $120
million, and I would have thought that figure was more likely than $150 million.]

In any event it would appear that while all of Corbis could not be a part of the $112 million,
Corbis/Stock Market might have answered the gross revenue question and the rest of Corbis did not.
For the purpose of this analysis, I will assume that neither answered the revenue question.

In trying to determine gross sales of still pictures (photos and illustration) in North America we
know that 59% of Getty's year 2000 sales were in NA. This would be $286 million in revenue. This
number includes Getty's film division that I estimate had about $45 million in sales, at least $35
million of which was in NA. I estimate Corbis at $100 million for NA and $50 million for the rest
of the world. This may be generous on both sides.

We also need to account for the other PACA members that did not respond to the survey, as well as
North American agencies that are not members of PACA. Based on responses to other questions in the
survey, I believed all the PACA members of significant size participated. Thus, those that did not
respond are all small and would represent a small fraction of the $112 million reported by the
larger agencies.

There are two major agencies in North America that are not members of PACA -- Masterfile and
SuperStock. Masterfile had gross sales of $16 million worldwide in 2000. Ten million of that came
from direct sales into North America and $6 million from sales by overseas sub-agents. I estimate
SuperStock sales at about the same size, but it is my belief (I do not have accurate figures) that
a greater portion of their revenue comes from International sales than is the case with
Masterfile.

Other than these two there are very few organizations in the U.S. that would call themselves stock
agencies, or libraries. There are individual photographers, who license their own work, usually
under their own name. Based on photographer survey's I have conducted over the past few years I
estimate that 25% of stock usages licensed in the U.S. are sold directly to customers by the
photographer. This percentage is growing. Thus, I would estimate that photographer direct sales to
U.S. customers would have generated about $150 million in 2000.

One fact that is important to recognize is that the revenue that comes from overseas sub-agents
will be double counted. The overseas selling agent counts the total revenue received from
customers, but in many cases 60% of that is then sent to the agent that provided the images. That
agent claims the 60% as income on its books, i.e. the $6 million received by Masterfile from
overseas agents.

Our goal is to try to determine the total revenue "paid" by end users for the still photo rights
purchased. I will account for this double counting after we arrive at preliminary totals.

North America Sales of still images in 2000 (in millions of dollars)

Gross Revenue in Europe

The first thing to keep in mind about the CEPIC survey is that respondents were asked to base
their answers on 1999 returns, not the year 2000. Thus, the results are not directly comparable
with PACA. The gross turnover for the 193 people who responded to this question was 173,888,238
Euros (approximately $161,716,061 U.S.).

(The Euro has dropped significantly this year relative to the U.S. dollar. In January for a brief
period 1 Euro was worth over $.95. Today it is worth a little less than $.85. For the purpose of
our
calculations here we will value the Euro at $.93 since that was
probably the value at about the time most agencies were reporting their figures.)

As we mentioned earlier 88% of the CEPIC membership are from agencies with fewer than 10 staff. We
suspect that a high percentage of these have fewer than 4 staff. Of the remaining 12% of agencies
8% had between 10 and 24 staff and 4% had more than 24 staff. However, of those who responded to
the turnover question 11% were from large agencies and 21% were from medium sized agencies. This
means that over 50% of all the large and medium sized agencies in CEPIC answered the question.
Only 67% of the respondents to the turnover question were from small agencies (1 to 9 staff), but
that group makes up 88% of the membership. This would indicate that the turnover figure might be
unrepresentative on the high side due to higher percentage of larger agencies answering the
question.

Given the big disparity between large and small agencies, CEPIC provided a median. This is
extremely important to accurate analysis. Median figures were not provided as part of the PACA
report. CEPIC's median was 158,000 Euros (approximately $146,940). Half the agencies earned this
much or more, but half the agencies earned less.

When you consider that the average gross revenue of the 193 agencies responding was 900,975 Euros
(approximately $837,907 U.S.) it is easy to see how a few large agencies skew the averages. If the
median is $146,940 then there are probably many libraries in Europe earning less than $100,000 per
year.

Given that 50% of the larger CEPIC member have reported, and that many of the smaller agencies
that didn't answer the questionnaire are probably very small, I believe the best way to
interpolate the figures would be to multiply the median figure by the remaining agencies.

It should be recognized that there is no information from Italy in these figures. The Italian
agencies do not have a national association and CEPIC is an organization that works through
national associations, not directly with individual agencies. The countries that are represented
in the survey are: Great Britain, Germany, France, Netherlands, Switzerland, Spain, Belgium,
Sweden, Norway, Finland and Greece.

CEPIC estimates that there are 736 additional libraries or agencies in all of Europe that are not
CEPIC members. We also know that
Zefa, the largest agency in Germany did not respond to the survey. Zefa's income in 1999 was about
20,000,000 Euros according to recent published reports. Earlier we said we were applying $50
million of Corbis' 2000 sales to Europe which would be approximately 53,800,000 Euros. Thirty-six
percent of Getty's 2000 sales were in Europe which would be $174.4 million or approximately
187,548,387 Euros.

Given the structure of the business in Europe many photographers that deal directly with customers
are counted among the 1679 agencies and libraries. Thus, it is not necessary to make as big an
allowance as we did in the U.S. for photographers selling directly that might not have been
counted otherwise. I put the gross combined revenue of this group of photographers at no more than
50 million Euros. Of course, all photographer who take pictures on assignment are totally excluded
from all these calculations.

European sales in 1999 based on CEPIC survey (in euros)

Double Counting

The last factor that we must take into account is the double counting that has taken place. Much
of the income that is initially recorded in Europe also appears on balance sheets of U.S. agencies
because the images were supplied by U.S. photographers. The same is true in the U.S. when pictures
from European catalogs are sold. Some photographers dealing through U.S. agents earn as much from
overseas sales as they get from sales in their home market.

If a photographer receives $50 from a U.S. sale and $50 from one in Europe, the license fees would
have been $100 in the U.S. and $166 in Europe.

One of the things missing from the surveys was a figure as to how much income the agencies earned
from sales by sub-agents. Hopefully, the next survey will include such a question and structure it
so we can estimate the actual dollar volume of sales generated in this manner. I estimate that at
least $150 million of the above figure has been double counted which would put the gross sales at
about $1.277 Billion.

How Images Are Used

One biggest differences between the markets Europe and the U.S. is the proportion of sales that
are Editorial or Commercial. Many agencies try to sell to both customer groups, but the customer's
needs in these two segments of the market are very different.
Editorial images are occasionally used in advertising and advertising images used for editorial,
but most agencies end up with a strong focus toward one market segment or the other. The types of
images needed, the kinds of additional services needed, and the marketing approaches that must be
used differ radically for these two market segments. Thus, it is important to have a clear
understanding of the size and importance of each market in various parts of the world.

The PACA figures for these market segments break down as follows:

Unfortunately there are questions about how these figures were collected and reported, and their
overall validity, since they total 114.9%, not 100%.

In research I have done on the U.S. market, I have concluded that the Commercial area in which I
include: print advertising; brochures; catalogs; non-publication advertising such as packaging,
billboards, posters, etc; and all types of corporate uses makes up 67% of the market. Editorial
comprises 28% of the market in terms of gross revenue. I break down these percentages as follows:

Thus, for the U.S. the most we can say, given the available data, is that the Commercial Market
makes up something between 52.6% and 67% of the sales and that Editorial makes up between 28% and
41% of sales. These are broad ranges. Clearly, we need better data, but at least it is clear that
the commercial market is larger than the editorial.

In Europe the reverse is true. According to the CEPIC figures 27% of the revenue comes from
Commercial sales, 61% from Publishing (editorial) and 12% from New Media, Broadcast, Consumer and
Other uses. The CEPIC data breaks down as follows:

This fits very will with the data generated from The British Association of Picture Libraries
(BAPLA) survey in 1999. The percentage of sales were as follows:

If we transfer these percentages into dollar volume we come up with the following in millions of
dollars:

It is hard to explain why there should be such big differences in markets that are basically the
same size. Clearly, on the Editorial side, there are many more outlets for use in Europe than in
the U.S. There tends to be a lot of small publications, rather than a fewer large ones as is the
case in the U.S. Part of this is due to the need to print information in many languages. Often,
circulation figures are much lower in Europe than in the U.S. and as a consequence individual
sales may be lower, on average. But, the same image might be used many more times in Europe than
will ever be the case in the U.S. This could be one explanation for higher gross sales for
editorial images in Europe.

Newspapers make more use of stock images in Europe than is the case in the U.S. In the U.S. stock
use in newspapers is almost non-existent.

Americans tend to think of European prices as being low. In fact, given the smaller circulations
the prices may be fair. The bigger problem may be with U.S. pricing. Given the much higher
circulations that are normal in the U.S. market, U.S. photographers and stock agencies may be
under pricing editorial uses when compared with their European counterparts. At the same time U.S.
prices for uses are not necessarily applicable, nor should they be, in Europe.

In reporting sales, very few agencies report the circulation and other factors on which the price
was based. Without this vital data image producers may be drawing erroneous conclusions about the
prices charged.

Commercial Uses

The thing that is harder to explain, and to which no one has been able to give me a satisfactory
answer, is why revenue from Commercial uses is so much lower in Europe than in the U.S. There
would appear to be the same overall volumes of advertising, and the same types of corporate uses
and yet this doesn't play out in terms gross revenue for stock image use.

It is possible that commercial prices are lower in Europe than in the U.S. This is certainly true
in the UK, and the UK makes up over 40% of the respondents to the European survey, but I am not
convinced that commercial prices are lower in the rest of Europe. We are all used to the Editorial
buyers pleading poverty, but I'm not sure why we should allow the commercial buyers to get by with
paying less.

This whole issue of revenue from certain types of sales needs to be examined more closely in
future surveys. Is revenue lower because there are fewer sales, or is the average price per sale
much lower? It will also be important to look at these numbers on a country by country basis -- at
least for the UK, Germany and France.

One thing that seems to be happening in the U.S. is that the frequency of large Rights Protected
sales (over $5,000 per sale) is increasing. When this happens a relatively small number of sales
can quickly raise the gross revenue numbers. This is happening not so much because the users are
paying more to restrict competitive usage, but because the buyers are making more extensive and
varied use of every project they design. Most ads are inserted many times in various publications,
and the same image may be used for brochures, posters, direct mail campaigns and the web as they
look for multiple ways to reach the buyer. This results in higher usage fees.

To the degree that these large uses are becoming a significant portion of gross revenues, it may
point to the need for radical adjustments, not only in the way we price usages, but in the ways we
produce and market images.

For future planning purposes the industry needs to get a better understanding of the percentage of
revenue that comes from fees greater then $5,000 for use of a single image. The next survey needs
to determine the number of images licensed -- and ideally separate those into Editorial and
Commercial uses -- in an effort to get a better understanding of what is happening in the
Commercial market for stock images.

One theory for the low Commercial sales in Europe is that art directors prefer to get their images
by doing assignments, rather than shooting stock. This also happens to some extent in the U.S.,
but when a variety of good images are available, at lower prices, many U.S. art directors choose
stock. I can't see why the same thing wouldn't happen in Europe.

Another theory has to do with the effect Royalty Free is having on Rights Protected pricing. Many
sellers may be trying to keep their prices competitive with Royalty Free. That could be one reason
why RF has made so little penetration into the European market when compared to the U.S. market.
In the U.S. probably 50% to 60% of the images used commercially are RF. Of course, given the lower
average price, these usages probably represent no more than 30% of commercial revenue.

In Europe, RF probably represents no more than 4% of total revenue and 16% of Commercial revenue.
It is important to relate RF sales to Commercial revenue. Given the types of images normally
available in RF it is unlikely that there will ever be much use of these products in the Editorial
market.

Rights Protected sellers in the U.S. have given up trying to compete with RF on price. For the
most part they have discovered that lowering prices doesn't lead to increased volume, it just
reduces revenue. In the U.S. price is an incentive to use RF. There may be so little difference
between RF and RP prices in Europe that price is not much of an incentive. In the U.S. when the
customer is planning a project with a large circulation, or many varied uses, the difference
between the RF and RP prices can be substantial.

More Surveys

Overall, these PACA and CEPIC surveys have provided some very useful data for everyone in the
industry. To the degree that there were flaws in the method, and in participation, they can be
corrected in future surveys. It is hoped that all parties will recognize the importance of
conducting more surveys, hopefully on an annual basis.

As the industry changes everyone needs better information. Getty and Corbis have good information
due to their worldwide dominance in the market. The only way smaller players can get information
of similar quality is to participate in these PACA and CEPIC surveys.

The full details of the PACA survey is only available to member agencies. A complete and detailed
73-page report on the data collected by CEPIC entitled "European Industry Survey 2001" is
available to anyone for a fee. I highly recommend this to anyone interested in getting a better
understanding of the European picture market. For more information about how to get this report
e-mail: s.fodor@cepic.org.