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Did RF images cause RM prices to drop?

Thursday, June 02, 2005

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  1. _NOTE: Since I wrote this article in 2005, much of the "concern" over royalty-free images have been replaced by exactly the same concerns over "microstock" agencies, who sell images at prices that are roughly equivalent to the "royalty free" image-packs on a per-image basis. One can read this article both as a historical record and as a basic lesson in economics on the law of supply and demand. Ultimately, whether you're talking about royalty-free images, microstock, or anything else, the market is doing nothing more than setting prices in direct response to the imbalance of supply vs. demand._

That photographers feel that royalty-free licensing (RF) has eroded rights-managed (RM) pricing is understandable, but suffers from the common problem of misperception of cause-and-effect. Just because event B happens after event A, it doesn't mean that A caused B. Both could be the byproduct of another, entirely different set of circumstances. The fact underlying the stock photo industry at large is that the supply has increased. Naturally, prices would come down. Is the low per-image rate that comes with RF pricing the _cause_ for the increased supply, or the byproduct of it?

It's important to address this because efforts to remedy RM price erosion need to be directed elsewhere, and perception of RF needs to be reconsidered. This would have a great impact on how individual photographers choose to run their businesses, from how they do their marketing, pricing, distribution, and (perhaps most importantly) where they spend their "productive time" in developing future strategies.

The discussion of this analysis starts where I usually start all of my articles when talking about the changes in the photo industry: the abrupt shift in the supply-demand-distribution model since the emergence of the Internet and critical-mass adoption of digital photography. It was at this time that we saw the quick emergence of the RF licensing as well as the erosion of RM prices. The question still remains: did those changes occur consecutively, or were they concurrent (within a very short timeframe)?

We look for answers by looking at three data sets:

  1. The growth curves of the number internet users in the 1990s
  2. Sales data for affordable, professional-quality digital cameras
  3. Licensing (sales) survey data from photo-industry groups

There is an apparent synchronicity between all of these events, showing that there is a direct correlation between them all. In other words, pricing for images was dropping across the board at the same time the number of internet users was growing, as well as the increase in the sales of professional-level digital cameras.

Because of this synchronicity of these events, we can surmise that the emergence of RF did not "cause" the fall in prices for RM. Instead, both are the result of the changes caused by the two factors, supply and distribution. But, how solidly can we trust this summation? "Simultaneous" must be within an allotted timeframe, since it's hard to really pinpoint cause-effects on a day-to-day basis.

In economic theory, for one to claim that a particular event is the cause of another, there needs to be a latency period where the effects can permeate through the supply chain, and for the societal impact to have taken place. Here, people would have to have "fully adopted" one particular event (ie., technology, fad, fashion or method) before the culture (or the industry) phased to the next event (which would be said to have been "caused" by the previous event). In a book called "Crossing the Chasm", by Geoffrey A. Moore, he describes this time period as the chasm because it's a period after an event occurred, where "nothing happens," other than people adapting to that new paradigm. It is during this time that the next generation of people take it to the next step (caused by the first step). This applies to technology, toys, food, music, and yes, marketing and pricing models. Data analysis from all sorts of industries over the years has produced reliable predictions on how long this chasm tends to last. Usually about ten years. (with some allotment for some variances)

So, for us to study whether the emergence of RF licensing models has affected RM prices directly, we would like to have data that shows that RM prices remained stable for a considerable period of time before the marketplace finally caught on and said, "Hey! We're paying too much!" Even with the most generous and liberal interpretation of sales data in the photo industry, there is no way we can establish that RF has had a deteriorating effect on RM prices. In fact, all the data shows that RM prices eroded simultaneously with the emergence of RF.

The statement that RM prices have eroded for no other reason than the supply has exceeded demand by a larger margin is a lot for photographers to accept, especially when faced with tough negotiators on the other side of the table. If you are told, "I can get an RF disk for $X, so you should charge less," that may be true, but it's not because of that RF disk that you're getting that tough line. You can get a line from the endless supply of classic negotiating tactics, including these hits: "our budget only allows for $X," "we can get it from Joe for $X," "we promise to pay you more when we are bigger," "if you give it to us for $X, we promise to buy more in the future," etc...

For those who are still clinging to the premise that "if RF didn't exist, we wouldn't have this problem," or "if pros just wouldn't participate in RF programs, the problem wouldn't be as bad," they're ignoring certain organic realities about the nature of economics.

In fact, that royalty-free images emerged is an interesting development whose explanation is not too different from how physicists explain why the laws of nature are the way they are: if they weren't that way, the math wouldn't add up and the universe wouldn't exist. Einstein's quip about this was, "God may not have had a choice in how he designed the Universe." In a sense, royalty-free licensing, as one of the many forms of life in the "licensing and distribution" part of the photography world, is an inevitable by-product of having a free and ubiquitous distribution channel (the Internet) and the ease, low-cost and simplicity of producing production-quality images by anyone.

The inevitability of RF comes in the form of plain and simple free-market economics: When you have a ton of assets that used to have value, but are now threatened by a flood of new supply, you want to get rid of that inventory for whatever you can get. What's more, if that new supply is continuous, it will find a distribution channel to flow through. And even if the photographers who shoot these images didn't actively solicit their images, there will be entrepreneurial types who will see some value in this vast of fresh supply churning out of the well, and solicit those photographers for them. (Raise your hands if you've been asked.. I certainly have.)

With the established disassociation between the effects of RF on RM pricing, photographers can now do several things to improve their pricing strategies. First and foremost, accept that price erosion is not a blip in the system that was caused events that can be corrected, reversed, or avoided. You cannot do anything about prices by changing external events, short of blowing away the Internet completely. Prices will not improve by trying to "dissuade photographers from participating in RF programs." Instead, spend more time focusing on productive ways to market and solicit your images. You'll make better decisions on what opportunities are worthwhile, and which aren't. Whether one chooses to participate in RF has more to do with the specifics of that photographer's business model. E.g., one who shoots thousands of images a month, and spends very little time with image management and has no desire to engage in other revenue-generating activities may find RF a great way to rake in the pennies by the handful.

Another thing people can do improve their pricing is by improving their negotiating skills and longer-term business strategies, but that's beyond the scope of this article. See: [http://www.danheller.com/biz-sense].

Believe it or not, we're now just about ten years out from the abrupt change in the photo industry since the internet changed it in the mid-1990s. The old paradigms no longer apply, and those who follow them are going to start falling by the wayside soon enough. Those who are able to adapt to these new paradigms will be successful, and cross the chasm to the next era of the photography world. My sense is that those who feel intimidated by RF will not be part of that group.

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