Is 20% Royalty For RF Reasonable Today?

The concept of royalty-free stock photography was invented in the early 1990s because many picture buyers felt that it was unfair for image prices to be based on how the image would be used rather than their cost to produce. The pay-based-on-use system (rights-managed wasn’t even a term used at that time) was a particular problem for picture buyers because they needed to track future use of any image they purchased to make sure the use wasn’t exceeding the license. Customers wanted a way to avoid this extra administrative hassle.

Many of the first generation CD-Rom disks producers approached photographers with niche collections and purchased images outright. They would select 50 to 100 images on a particular subject and purchased full ownership for an average price of about $50 per image. Usually the images were outtakes that had been sitting around in the photographer’s files for some time, and $2,500 to $5,000 was a good deal for a batch of images that had never been used.

By early 1992 there was demand for a higher quality product and Photodisc went looking for images of quality equal to those that art directors could find at professional stock agencies. The first Photodisc titles were priced at $299.95 and contained about 400 6.5MB image files. Many of the images on the initial disks were supplied by the Seattle based stock agency Weststock. These images were produced by professional stock photographers and more tightly edited for quality than was the case with many of the competitive disk offerings. Among the images used were some from Weststock’s print catalog (which upset many of its photographers). Photodisc quickly became the industry leader in sales of Royalty Free CD-Rom disks.

Rick Groman, one of the owners of Weststock, negotiated the deal for photographer compensation with Photodisc. Given that this was a new and unproven business model using a new technology Photodisc argued that a new method of compensation was needed.

Photodisc pointed out that they had huge expenses for high quality scanning of the film images, color correcting the digital files and creating the CDs. They also had huge expenses in printing and mailing the print catalogs necessary to show potential customers the product they had to offer. Finally, in order to sell this new product it had to be priced low enough to be attractive to customers with limited budgets.

Therefore, Photodisc could not afford to pay a traditional stock usage rate of 50% of the gross fee collected. It was agreed that the maximum Photodisc could pay to use of the images was 20% of fees they collected. Weststock took its normal agency share of this 20% so in effect image creators shared 10% of gross revenue. Thus, when a disk was sold for $300 a photographer who owned one the 400 images on it earned about 7.5 cents. This is how a 20% royalty became an industry standard for the licensing of Royalty Free images. There was a general understanding, without any formal guarantees, that if the photographers helped get this business off the ground they would eventually share in the wealth.

Is The Photographer Share Still Reasonable?

small shareThe 80% of revenue Photodisc retained enabled the company to grow rapidly. In 1997 it was sold to Getty Images for in excess of $150 million, none of which was shared with the image creators who had provided Photodisc management with a product they could sell.

But, as the business moved ahead it is interesting to consider how costs declined. As the delivery system moved from CD-Rom to the Internet there was no longer a need for all those disks. Print catalogs were no longer necessary for marketing and the cost of postage for shipping those catalogs was eliminated. With the Internet it did become necessary to keyword the images so they could be found, but it is hard to imagine that the keywording cost wasn’t more than offset by reduced marketing costs.

In addition, improved digital camera technology eliminated the need for scanning and digitizing film images. For a while agents and distributors did have some costs in color correcting digital files photographers provided, but now photographers are required to deliver ready to use digital files or the images simply will not be accepted.

There are costs for online storage and bandwidth, but it is hard to imagine that these costs are greater than those that Photodisc had back in 1992. For the most part the sellers of the product have never felt a necessity to share the wealth with the image creators. If the creators are willing to produce the product for less then that is all the sellers think they deserve. There are some exceptions. Alamy pays RF contributors 60% of the monies they collect – the same as they pay RM contributors – and interestingly they have a profitable business. Some microstock companies pay higher royalties to at least some of their suppliers, but iStockphoto has determined that even 20% is more than its non-exclusive contributors should be paid.

[Discuss on MicrostockGroup] or post your comments below

About The Author:

Jim Pickerell has been involved in the stock photography business for almost fifty years as a photographer, Macro agency owner, and newsletter editor for the last 20 years. He has lived through the industry changes and is often able to supply useful perspective to those new to the business. Jim publishes www.selling-stock.com, a subscription service and www.photolicensingoptions.com where readers pay to read individual stories. To receive a FREE email every Saturday that includes summaries of the new stories posted the previous week click here, and then click Subscribe to confirm.
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Posted on February 28th, 2011 in Editorial | tags: , , ,
  • Costs have declined over the years, but agencies declare that they must reduce royalties paid to the artists in order to to sustain profitable businesses. I don’t believe them. How can today’s small agencies pay for example 50% royalties and stay in business for years, despite having relatively few buyers, but massive agencies with tons of buyers such as iStock pay as little as 15% to their contributors, whilst pleading their innocence. Buyers and contributors please support the agencies which pay good royalties!

  • The only answer to this question is, “The market decides what a fair commission is.” Much the same as the market decides what the price of a stock is. It doesn’t mean that the market is right or wrong at any given moment, just that the market has the ultimate say.

    iStock gets away with its commission structure because there are so many people willing to support it, no matter how ridiculous it may look to many of us. Just as at one point the stock market valued Ariba Software at over $200 per share. But attitudes can, and do, change overnight. And when this happens, markets can completely collapse. Ariba is now worth $0, bankrupt and long forgotten. Should an outside catalyst cause contributors to sour toward iStock (such as a loss in market share, or any unforeseen circumstance), the value one places on its commission structure could plummet. Would anyone accept a 15% commission from Bigstockphoto? Of course not. But they do from iStock, for now, because enough market participants believe the overall earnings outweigh the terrible commission.

  • P. McDonald

    Unfortunately we live in a growth based business world. In other words if your company makes 1 million dollars in profit this year and 1 million dollars in profit next year, certain people believe your company is not successful because there was no growth. To anyone not in business it’s an odd way to look at it (it seems odd to me certainly) but our entire economy is built around this idea. For a stock company to start paying out higher commissions, they would either have to show a smaller profit (which would make them appear unsuccessful or in a state of negative growth) or they would have to pass the cost onto the end user meaning sales would likely drop and the same result would occur.

    This kind of situation was the original cause for unions to start. Unfair working conditions, pay and treatment caused workers to band together (unite) and demand higher pay etc. Since stock agency would have nothing to sell if all photographers banded together and pulled their portfolios until they got better commissions it would probably happen, but of course you will never get that kind of unity over the internet in 2011.

    If a reasonable stock company started up with a business plan that involved paying a proper rate to contributors i would jump on it, but that doesn’t seem likely either.

  • ann

    No. That’s why I’m not with any agency that pays such an insulting percentage.

  • Alfie

    Photographers have been exploited by agencies for years. And this article excellently explains why.
    @ P. McDonald
    Alamy pays a good % but because they don’t edit and alot of junk cloggs up the website photographers struggle there too.