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You Are Here:  Home  >  FAQ  >  Blogs  >  The Economics of Controversy

The Economics of Controversy

Sunday, May 31, 2009
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  • There’s an old folk tale that tells of Neil Armstrong having sent a letter to the leader of the Flat Earth Society with an enclosed photo of the Earth taken from space. His one-line inscription simply read, “SEE?!” To which Armstrong got a reply saying, “We never said the Earth wasn’t circular!”

    With some people, there are arguments you just can’t win, no matter how persuasive the evidence. And most of the time, such arguments aren’t worth having anyway.

    Other arguments are worth having because you really believe in the cause.

    And then there are those arguments that turn into “controversies.” These are special arguments where the issues galvanize core groups of supporters on both sides, tempers flare, and before you know it, there’s real money (or power) to be gained.

    Yes, and though it may be odd to see it this way, here is where new economic ecosystems begin to form. As a controversy gains momentum, more and more people benefit in one form or another by keeping it alive. If it garners enough critical mass, real money can be made, social fabrics can be formed, and political affiliations created. All of these represent different goals and objectives for the individuals involved, which make the intertwining of motivations, methodologies and psychological dispositions fascinating for behavioral economists: those who study people’s behaviors as they pertain to market conditions and self-interest.

    In the photography world, there is no better place to study behavioral economics than in the controversy surrounding the Orphan Works Act. And from these observations, one can look for known patterns of behavior that themselves help forecast where there may be investment opportunities.

    A Case Study
    The Orphan Works Act (aka, OWA) happens to be the perfect controversy—and a very representative in populist movements—because its complexity is beyond most people’s understanding, even that of the leadership. This makes it ripe for oversimplification, misinformation, disinformation, and persuasion. (And when leadership unintentionally misleads its members, there's great protection in plausible deniability.)

    Because the OWA involves the intertwining of law and economics, many who preach aspects about it simply aren’t educated enough to understand what they’re saying. Furthermore, the “base” followers are not the type to critically question—just to “believe.” Leaders toss out straw-man arguments all over the place. The classic example is one that I mentioned earlier here: "someone can now steal your photo and claim it's an orphan work, and you have to spend $50,000 filing a lawsuit just to prove them wrong. No photographer can do that!" This is the galvanizing argument that's now settled into the mantra in photo discussion groups.

    But this is a senseless argument because someone could steal an image and claim anything, not just that it's an orphan work. But the reality is that it's the infringer, not the photographer, that has to spend $50,000; the onus is on the defense to show he's protected by the Orphan Works Act. And that's not quite so easy because the defense has to show evidence to support a "diligent search", which itself is a costly process—rather, costly enough that it'd be cheaper to have just licensed the image legitimately in the first place (usually a few hundred dollars at best). Lastly, there's the OWA provision that only make certain entities eligible for OWA protection in the first place.

    The pragmatic reality is that the infringer will pay the photographer a settlement, even if the OWA were on his side. In short, the OWA will almost be an entirely inert legislation for most artists. (It will give protection to libraries and documentarians who are looking to create archives or media of historic events, which was what the OWA was intended for anyway.)

    Yet, none of this very basic, standard legal information is disseminated in the artist community hierarchy. In fact, quite the opposite. But why?

    Once again, it's all about behavioral economics: there are benefits to keeping the issue a controversy, and in keeping the controversy alive.

    The Players
    Several unique sets of conditions converged at once that allowed the OWA to become the nuclear power station within the photographer community. The stock photo industry has been suffering from economic hardship for quite some time, which itself has threatened industry leaders and organizations, who naturally respond by finding galvanizing issues to maintain control and continuity.

    At the bottom of the ecosystem are the core (“base”) believers who are told they have a stake in the game: "If the OWA passes, you will lose your rights to protect your images." The base believers buy into this, and reap psychological dividends by being part of an impassioned movement against the OWA. It’s in this ecosystem where there is a rather dogmatic and cohesive community that typically responds well to populist rhetoric, while being derisive of non-conformist views. In fact, the use of populist rhetoric is prototypical among leaders of economically distressed groups.

    On the sidelines is a panoply of catalysts, eager to participate as well: reporters who objectively journal the events, investigative reporters who tell the story from behind the scenes, lawyers and media consultants who work on behalf of their clients to effect a certain outcome, analysts who churn the data to assess the likelihood of various outcomes, and the investors who seek opportunity. Everyone has a vested interest in the process. And therefore, such people become participants.

    I too am a player in this eco-system. I’m an analyst, and my economic benefit is the clientele who pay me to do objective research so they can make financial decisions (investments or divestments) based on the likely outcomes of certain events. The Orphan Works Act is one such event. Since it also happens to be a hotly controversial one, at least within the photography ecosystem, the question for these investors is not whether the OWA puts the future of image licensing at risk, but where’s the opportunity for investment? Smart money goes to companies and individuals that know how to capitalize on opportunity. In this case, opportunity lies within those organizations that have a solid, realistic understanding of the state of affairs. My job is to find those opportunities.

    Analyzing the Ecosystem
    I had a conversation with a lawyer who has been rather outspoken against the OWA on behalf of a trade association for a different industry. I asked, “If the OWA passes, and if a case came up that you had to prosecute an infringer who tried to hide behind it, what would your strategy be for dealing with this?” Essentially, I was given a more balanced legal analysis on why the OWA isn’t a threat to artists. The response I got was used as the basis for this blog entry, modified to address the photo space: Courts and Law (Thursday, August 28, 2008).

    So, I then asked, “Why don’t you say anything like this publicly?” The response: “Because my client doesn’t want me to. I’m paid to make these statements and support the objectives of my client.” To which I replied, “Why aren’t you telling your client to soften up on the OWA?” And then came the unsurprising answer, “Because it galvanizes their membership. Renewal rates are up, and they haven’t seen as many new members join in years.” One can only surmise the additional social and political dividends the leadership receives as a result. Short-term economic benefits clouds longer-term judgment. Text-book Behavioral Economics at its finest.

    Needless to say, the companies and individuals that hired this lawyer would not be considered “worthy investments” by my clients. (There’s nothing wrong with the lawyer, of course; but that’s not who the investors are interested in.)

    To illustrate a more tangible, but more complex example, recall the time when Getty was looking for a buyer to take it private. The company was public, but its share price was dropping quickly, revenue and profits were evaporating, and the nature of stock photography itself was going through a major transition.

    One particular suitor asked me to look into an element they believed to be a vulnerability of the company: the economic effect of being “responsive to photographer demands.” Because the investor believed that Getty made key strategic decisions based what its photographers wanted, the question was whether photographers' demands were economically sound. That is, if Getty appeased photographers, would they make more or less money as a result?

    A hint that gave them concern was Getty’s acquisition of iStockPhoto. It wasn’t the acquisition that bothered them, of course. It was a good investment. The concern was: why did it take them so long? If Getty was an innovator in the stock photo industry, they should have done this years earlier—not late in the game. The critical question was: what slowed them down? The answer is photographer objections. Because Getty defers to photographers too much, they have a record of failing to make wise, profitable and economically sound business decisions.

    What might the long-term risks be? Are photographers always so wrong? Or is this just an isolated case? What does this say about the future? Would Getty lead forward, or will photographers hold the company back, causing the company to miss or delay other key strategic moves as well?

    What I was asked to research had nothing to do with Getty, per se, but the effectiveness of pro photographers’ influence on their own industry. Specifically: at key turning points in the economics of the photography world, what were the “photographers’ positions” on those events, and were their forecasts right? Did they fare better or worse as a result of their collective recommendations to their community membership?

    Without getting into the details of my report, the data was rather bleak for photographers. In the 1970s, after the supreme court ruled that the ASMP violated “restraint of trade” rules by publishing price lists, the union was disbanded, and a power vacuum resulted. A variety of disparate trade groups started forming, each of which differing only slightly from the others. Yet, at no time did the socio-political strategy change; the culture of the photographer community remained strongly union-oriented. The message remained “all for one” with a strong discouragement of individuality in building a career. Conformity was and always has been the social rule, which itself runs counter to open-market economic conditions.

    Assessing the Pros and Cons of Economic Equilibrium
    In other words, does the cost and risk growth outweigh the more conservative path of maintaining equilibrium? Assessing this is not as straightforward as it may first appear. To wit, at no time did I find any key recommendations by the pro photographer community to result in positive economic gains for the industry. At one point, they discouraged photographers from shooting “stock imagery” because it would “ruin the careers of assignment photographers.” They also discouraged using the internet as a place to sell photos because “people will only steal them.” They also said it would “compete with traditional stock agencies” (who themselves resisted using the internet till royalty-free images moved from CD-ROMs to internet sites). Their poor analysis and responses to matters such as royalty-free, microstock, social-networks, consumers, semi-pros and other industry trends have all been entirely off base. I’ve written extensively about each of these phenomenon at great depth on my blog.

    Photography trade associations’ economic advice has also been similarly off target. Membership levels in most all groups have seen very little (if any) growth, despite the fact that hundreds of millions of more people own high-end digital camera gear and contribute larger and larger proportions of images to the stock photo base. The outright rejection of the consumer and weekend photo enthusiast has been one of the primary factors associated with their inability to grow financially, which has also weakened their political influence.

    An incident that summarizes it all is when the Stock Photographers Alliance, a trade association, sent a letter to Getty images strenuously objecting to their having lowered photographers’ royalty rates, seemingly unaware that the company’s sales and profits were plummeting. (This would be like auto worker unions asking General Motors for raises just before they go into bankruptcy.)

    How can a trade association be so out of touch with such basic economic reality? At one time, I recommended that the trade associations and publications, such as Photo District News (the flagship publication for the pro photo trade) shift their focus from such a narrow (and shrinking) membership of photographers to the broader base of semi-pros, enthusiasts and even consumers. To do so, one needs to reduce membership and subscription fees from hundreds of dollars a year to $25/year, and to begin programs and marketing platforms that appeal to less traditional photographers. These ideas were rejected, but why?

    My conclusions of this study were that trade associations were run by and for a small group of individuals whose primary goals is to preserve archaic business models that were once their mainstay. By leveraging their social and professional celebrity status, especially as artists and cultural icons, they have a disproportionate influence on those who join (or wish to join) the club.

    If this is the case, why doesn’t the photographer community leadership recognize this and adjust their message to the base? Here’s where we come full circle to behavioral economics: there’s money, politics and reputations involved. Different people seek different objectives, and without centralized leadership, you hold onto what you’ve got. As one executive at a trade association told me regarding the OWA, “It’s the perfect controversy for us because we win whether it the OWA passes or fails. If it fails, we can say we won; and if it passes, then our members will think they benefit, and we can say it’s because of what we did. Taking a stand against it is the only position that makes sense for us. Besides, it brings everyone together.”

    While the citing of populist rhetoric plays well within the club, the only economic winners are those who capitalize on selling solutions to the wrong problem.

    The Future
    The question then becomes what the future portends for the photo industry. At some point, too many people will realize the Earth really isn’t flat, and it’s not worth having that argument anymore. New blood needs t be introduced into the gene pool. There’s too much homogeneity. There’s no tolerance for dissent. Perhaps the best quote that encapsulates this situation is one from the 9/11 Commission Report about the errors in judgment that lead up to invasion of Iraq: “When everyone around the table agrees, someone’s got it wrong.”

    In general, photographers have had no true economic leadership, and this has lead to a vacuum of economic opportunity. And the evidence is as overwhelming as the Earth is spherical: extremely few stock photo agencies are profitable, and of those that are, the margins are slim and getting slimmer; “publicly traded” stock agencies have had to take themselves off the market (well before the economy turned downward); most stock photographers have reported declining incomes steadily for years; and the per-image license fees have been dropping since records were kept.

    When I collect data and do analysis to generate these reports, I have no personal objective, vendetta, or an argument to settle; I don’t care. I just want to be accurate so my clients can make fiscally responsible decisions. And I’m not the only one to come to these conclusions. With the exception of a few very speculative investors, the “smart money” stays away from anything in the stock photo sector. As one of my clients put it, “so long as a company is reactive to the pro photographer community, it’s a losing investment proposition.”

    The problem is, there are too few companies that deal with stock photography that don’t worry about the political fallout from discontent raised by the photographer outcry.

    What Investors Look For
    Smart money, smart lawyers, and smart legislators all know that there are no risks to either artists or licensors with the OWA. So, the political theater from the blogosphere is uninteresting to investors, other than to know where not to invest. Money looks for signs of intelligence. Any company or investor making business decisions based on photographers’ outcries would be considered a poor investment.

    But don’t confuse this with an anti-photographer sentiment. Investors are not anti-anyone. They just don’t want those who don’t understand economics interfering with business. If a company were to exist that keeps photographers happy, while also pursing business goals that show profitability, then that’s great. But the catch-22 in this economic climate is the challenge: the internet and digital photography changed the game from how photographers once viewed themselves, and unless and until they change their cultural disposition, they’re not going to be part of the solution. The stock photo industry has already shifted to be a high-volume/low-margin model, which runs antithetical to how photographers want it. For so long as they don’t accept that, they will be at odds with any company that attempts it. At which point, the company has to choose which path to take: upset the pro photographer and succeed, or acquiesce and fail.

    It is for this reason that I’ve predicted for several years that, barring any new disruptive innovation we haven’t seen yet, or a shift in photography-industry culture, the future of stock photography is likely to be inherited by much larger media companies that already deal with massive media distribution and licensing. They have no qualms about playing “Borg” and assimilating the photographer community into the flying cube, all the while chanting, “Resistance is futile.” Once such media behemoths realize there’s money to be made in photography, they will likely start acquiring agencies and photo-sharing sites, and building out the high-volume licensing model that is the only option left for stock anyway.

    As for the controversy about the OWA, it’s just a theatrical venue for people to gain their individual advantage. Sure, there may be fine-tuning of language that industry leaders will take credit for to great fanfare, but that’s also part of the game. The Earth is not flat. But as long as there’s some benefit to people arguing about it, the controversy will continue.

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