How To Grow Revenue With Pricing Strategy Modification

 

The seminars about ‘Pricing the Image’ were two of the most keenly-anticipated of the conference although, as always, attendance was limited by the continuing need to be out on the floor creating new business opportunities and reaffirming existing relationships. Both seminars also exemplified the current confusion about how best to reinvent current business models in order to profit from the huge technological and cultural changes taking place.

The first seminar was moderated by seasoned industry commentator and analyst, Jim Pickerell , who had gathered together a group of industry experts representing the full spectrum of opinions on pricing. His introduction outlined the radical changes that are taking place in the industry and made clear the current anxieties in the industry about the direction that pricing ought to take. On the one hand, first royalty-free and now microstock offerings are acting to drive prices down in most areas of general photographic imagery. On the other hand, agencies still need to rely on the extremely high quality of their rights-managed imagery and/or its unique qualities to earn high reproduction fees – and they have invested an enormous amount in making these images accessible to their users.

To kick off the debate, Jim introduced a new approach to pricing that he has developed over the last couple of years – and circulated his booklet ‘Adjusting to New Realities in the Stock Photo Industry’. The basic premise that Jim outlined was the need for traditional agencies to make some radical adjustments in their current pricing models and to address the huge new customer base that has been revealed by the microstock agencies. One telling statistic was that in 2007 “iStockphoto licensed rights to 35 times more images than Getty’s total RM licenses and 18 times more than its RF licenses.”

Jim’s central proposition was the adoption of a ‘Modified Rights Ready’ pricing model that is based in part on the Rights Ready model introduced by Getty Images in 2006. This model is designed to simplify the process of image buying and enable the traditional rights managed stock photographers and agencies to appeal to a much wider market without losing the price advantage of rights managed images in their traditional markets. In his presentation Jim pointed out that income from rights-managed imagery only comprises about 2.75% of the current total income earned from images. As a result, those who stick only to RM are being deprived of valuable information about the whole market.

MRR focuses on taking the attractive buyer proposition of price simplicity for non-exclusivre uses – but assumes that professional buyers still appreciate that the price differential reflects value. This value is contained not just in the image’s quality but in the quality of the web site and of the information that accompanies it. The commercial uses are split into 12 broad categories each of which are available for either unlimited usage, or one of four or five sub-categories of usage. In addition there are a number of so-called ‘small uses’ priced at microstock prices ranging from $1-$15. This price model also assumes that the use licensed is for one single project rather than multiple projects which must be negotiated.

As a strategy for enabling small to medium-sized image businesses to approach a rapidly-evolving new market, this has a variety of advantages. For a start, it recognises that many buyers now want to assess prices online – and don’t have time to negotiate individually. At the same time, it implies that buyers will still be able to negotiate if their project warrants it. The strategy also acknowledges that a number of clients use both microstock and traditional rights-managed sites. When Getty purchased the microstock agency, iStock, they discovered that they only shared 8% of their existing customers.

Once Jim had made his presentation he turned to four senior industry figures to comment on their current pricing strategies – and his suggestions. First up was Hans- Jörg Zwez of the long-established agency, Mauritius Images, who believes strongly that RM agencies should not compromise their current sophisticated pricing practice. Referring back to the report made by Professor Gluckler earlier in the conference, he emphasized the still dominant place of RM images in the market and insisted that our business is ‘to sell rights not pictures’. Support for this argument comes from the number of his long-standing clients who like agency researchers to fulfill picture lists because of their deep knowledge of their collections.

Zwez feels that any variation from this present model will be self-defeating and pointed out that royalty free providers cannibalise each other’s market. In addition, only RM providers can provide clients with the security they need such as the reassurance that a rival publisher is not about to use the same image on a book cover or calendar. In his view the market sector most likely to suffer from the incursions of the microstock agencies is the royalty-free agency. The sector least likely to be affected were the specialist agencies who were also marketing specialist knowledge and skills. In these sectors, clients could see the value of internal expertise and buyers often had long and enduring relationships with agencies which they were still willing to pay for in higher fees..

Representing the top three mega-agencies was James Alexandre, the new Senior VP of Jupiter Images. Alexander apologized in advance that he could not give a full picture of the agency’s pricing strategy as he had only recently joined the agency from Adobe Stockphotos. Nevertheless his summary of their current practice makes it clear that, like Getty and Corbis, their strategy is to have a broad spectrum of business models – from microstock to rights-managed. In 2007 their microstock income was

Testing various pricing and marketing strategies was clearly a major part of the strategy in a rapidly changing market and the agencies intention was to offer different prices to different markets without cutting into their income. Jupiter now had over 15 different websites (from RM to clip art) and the implication was that this flexibility was core to their strategy. From James Alexandre’s perspective, the market for imagery was constantly growing but to reach these new customers, agencies had to continually make the research experience as enjoyable and straightforward as possible. Alexandre also saw the specialty market as a growth area and once more it was essential to tailor your product to your customer.


Rick Becker-Lechrone, now CEO of Blend Images, always has an interesting take on proceedings having had a varied career as a photographer, photo editor and creative director at Digital Stock and Corbis and now at his won agency. Rick was keen to emphasise how completely the stock market was going to change over the next ten years as more and more of the media goes online and becomes more interactive.

Again the emphasis was on maintaining flexibility and maintaining income by selling not only qualitative value but perceived value. Agencies had to be open to negotiation. Rick traced the progress of the market from the early days when some image uses could command astounding prices and agencies were shouldering the burden of expensive scanning programmes. When royalty-free agencies came to the market they had to have a particular type of content with multiple sales potential. The lower overheads of this business ensured high returns and early adopters of this model did extremely well as many users were business-to-business buyers. However, with the rising availability of a wide variety of content, this scenario has changed.

Rights managed image sales are in decline; royalty-free sales are dropping; and the turnover of new microstock agencies is rocketing. As a result, a lot of rights-managed content is now being shifted to royalty-free and photographers need to shoot for the full spectrum of content providers. The kind of abstract imagery that in the past might command high fees in the advertising and creative marketplace can now be produced by gifted amateurs who are not dependent on sales income. In the end, only amateurs will be able to commit the amount of time necessary to produce this kind of content.

This was a sobering lesson for those few professional photographers in the audience – and the lesson was hammered home by Oleg Tscheltzoff, the mercurial President of microstock agency, Fotolia who has seen the turnover of his agency rocket since he co-founded it in November 2004. In less than a year, the agency had 10000 transactions per day and to date in 2008 has licensed 35million images.
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The business model is straightforward: they only sell what they have some control over i.e. image file size and their aim is to make these transactions as simple as possible for the customer. In addition, Tscheltzoff made it clear that he was marketing to a very different type of customer from the traditional researcher. These customers want to use images in a wide variety of ways and will often licence a group of images for possible future use. 35 million images licensed are not necessarily 35 million images used.

In this market, even Jim Pickerell’s simplified model was far too complex and any higher-priced images would have to have a very clear unique selling point. It was a model that might work for the editorial market but would not get to first base in the new microstock market. These users might download 10 images a day, but only use 2 images a week. The interactions wre also unpredictable and the microstock subscription model was still only a very small part of the total business. Tscheltzoff was also keen to promote the fact that some of his photographers did extremely well out of their sales income – a fact that the audience clearly did not think would apply to the vast majority of his contributors.

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