Dan Heller's Photography Business Blog Industry analysis from www.danheller.com

The photography world -- the business, the culture, the art, the politics, the technology.

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Thursday, April 11, 2013

Waxing Ahilosophically about Art

Well... everyone comes to a turning point. For me, it's happening this June. After many, many years of engaging with photography as a craft, having written four books on the business of photography, blogging for fifteen years about the economic, social and legal issues in the industry, and consulting with many fine companies on prospective new ventures, investments and technologies, I finally decided to get a Master's Degree in Fine Art. In this case, it's the "Digital Art and New Media" program at UC Santa Cruz. (The same place where I got my undergraduate degree in computer science in 1985.) I get my degree this June.

This YouTube video is an interview I had at KZSC, where I talk about my MFA thesis project. We cover a lot more ground than I thought we would, so you will see/hear me wax philosophically about Art, theory, and entrepreneurship, especially how they are intertwined. (This, in addition to the work itself.)

I had no idea it was going to be video-taped (only audio), so I didn't prepare accordingly. Naturally, you'll be curious about what my t-shirt says, since only the top part is visible. The full phrase is, "There are only 10 kinds of people in the world: those who understand binary numbers, and those who don't."  The irony is that both types of people shrug their shoulders at the joke--one side doesn't get it, and the other side has seen it too much.

Sunday, July 01, 2012

Royalty Free no longer exists


I have always gotten a continuous stream of questions about Royalty Free vs. Rights-Managed images, and I usually just send people to numerous posts I've written in the past.

But a recent email to me concerning Photoshelter's use of the terminology compelled me to post a short blog entry on the subject to try to make it even simpler to understand.

Royalties are payments made to authors (photographers in this case) in exchange for the right to sell works (images). The moment any photographer is ever paid anything by an agency, s/he has received a royalty. Even if it's a one-time payment.

Rights Managed ("RM") means that someone has the right to say how a photo may be published. There's always someone that has the right to manage a work's usage terms. Yes, "unlimited, unrestricted use" is still "managed" if that's what the rights manager wants. Even public domain and creative commons are terms stipulated by someone -- usually the author.

By definition, ALL images are Rights Managed, even if the manager chooses not to assert those rights, or is very liberal about how others may use the photo.

Royalty Free ("RF") refers to a special kind of license agreement that can only take place between two stock photo agencies. Here, the primary stock agency grants another agency the right to resell images, and that second agency is under no obligation to pay royalties back to the photographer.

Why would such a thing happen?

Before the internet (and up till mid-1990s), distribution of images to buyers was difficult. Smaller stock agencies that couldn't sell some supply of images started selling them to OTHER stock agencies with better distribution channels (usually, the early internet adopters). Because these images were usually lower quality, the concern was that these images might not sell. In order for the deal to make financial sense for all parties, the photographer was paid a one-time royalty for the transaction, the primary agency got a single, lump-sum payment from the secondary agency, and that second agency was now on the hook to make some money. Sometimes they did, but often they didn't. But they could only agree to take this risk so long as they were not obligated to pay royalties back to the photographerThese were royalty-free images

At the time, photographers were finally making money from images that would have otherwise sat unsold, and the smaller agencies were often seen as tributaries to the main stock agencies, who themselves were taking advantage of a very quickly expanding base of buyers because of the growth of the internet.

As the idea showed profitability, more agencies started selling and reselling the same images in the same way to many stock agencies, creating a huge market for RF images. Each time, the photographers would get royalties from each such sale. And, in each case, the "royalty free license" meant that each (secondary) agency down the distribution channel was not obligated to report sales or pay royalties to the photographer.

The tipping point came when the ease and cost of access to the internet allowed those smaller agencies to sell directly to the buyer. And, for the buyer to find those images through better search engines. The need to feed the primary agency networked collapsed, which coincided with the time when Getty's stock price was plummeting from the mid-$80s to the low $30's, when they were finally taken private. Note: Getty's price didn't plummet because of the rise of RF images. The entire economy of images was falling precipitously because no agency could control (choke) the supply channel any longer. All agencies were hurting and RF was no safer than traditionally-licensed images.

I am currently unaware of any actual Royalty Free Licenses being used in photography. I believe it no longer exists. (The practice is still used for clip art, icons and some other kinds of media (smaller music labels) where channel distribution is still difficult.)

So, why are the terms, "RF" and "RM" still used? 

Remember how those secondary agencies were on the hook to monetize these images or lose money? They did so by enticing buyers with very liberal license terms, such as "unrestricted (use), unlimited (time)."  Thus, photographers (and later, newbie agencies that didn't understand history) misunderstood RF as implying these unrestricted usage terms. For a long time, RF really did mean "unrestricted."

But I rarely see such license terms anymore. Even the license terms used by today's agencies for their so-called RF images are often not as liberal as the original RF terms once were.

Today, the terms "RF" and "RM" are interpreted mostly by PHOTOGRAPHERS to mean that they will make more money with RM images than RF, even though those economics are not as predictable. My personal opinion is that the terms remain simply to attract (and direct) photographers towards certain business terms with the agency. Most buyers have no idea what they mean... nor do they care. They only care about the terms of use, which has nothing to do with RF or RM.


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Thursday, March 15, 2012

Pinterest Copyright Infringement: Yeah, so what?

The latest hot startup in the photo-sharing space is one that is also creating a lot of controversy about copyright infringement. Pinterest lets users create "boards" of images they find from around the Web. Users “pin up” these images, and share them with friends and strangers.


Is this copyright infringement,” you ask?


Well, imagine exactly the same website that let's users upload music or movies. Do you think the music labels or movie studios would permit this? Pinterest would be shut down before they could get their first dollar of venture capital.


“But they’re photos, not music or movies!”


Yes, and photos have precisely the same copyright protection.


“Ok, wise guy, then why hasn’t Pinterest been shut down?”


Simply put, there’s no one there to stop them, at least not with the same effect and scale as music labels or movie studios. And the reason is reflected in your very statement: society simply regards photos as “different” from movies; they don’t see Pinterest’s use of imagery as copyright infringement.


And this is a natural feeling to the common person. Everyone shoots pictures all the time; it takes milliseconds; most people don’t invest any thought or intent. By contrast, music and movies require considerable time, effort and expense to produce. So, there’s a difference.


And herein lies the unresolved problem: the law is the law, and photos are copyrighted works, regardless of the time, skill, or anything else necessary to create them. Accordingly, photos are supposed to enjoy the same legal protections as music and movies.


“I see. But, most people want and expect to share their images with others.”


Yes! Their images. Pinterest isn’t letting people share their own photos; they’re sharing other people’s photos.”


“Ah, I see now.”


Very good, Grasshopper.


As a society, we permit this kind of infringement, which explains why there are no large, powerful, influential organizations representing the interests (and the copyrights) of photographers. People simply regard photos as different.


A case in point can be found in this article on chow.com, discussing people’s reactions when they found their recipes were being “pinned” to Pinterest, along with the photos of their foods. The complaint was that their intellectual property (cooking recipes) were being stolen; the recommendation: “Just allow the photo to be shared, not my recipe!”


You see? Never mind the pro photographers whose pictures were being infringed; they’re not part of the conversation.


“Ok, so what about those professional photographers? How are they hurt?”


I’ve been a photo industry analyst since the mid 1990s, and I’ve seen the industry suffer more from “piracy” than the film and music industries combined. Every single publicly traded stock photo agency has either gone out of business or withdrawn from public trade. Getty Images is the last profitable company of any significant size, and even then, its pay to photographers has been drifting lower for over ten years to maintain that status. A series of studies from Picscout – a photo-tracking service for stock agencies and photographers – finds that 90% of commercial websites use at least one photo in a manner considered to be “commercial use” without the copyright holder's authorization. No company whose business model is to sell or license photography has had venture capital investment since 2000.


Yet, the shadow economy for photography is enormous. In a study I conducted in 2007 on contract for a potential investor in a photo-related technology, I found that most photo buying and licensing was done on a peer-to-peer basis, mostly in local markets and exchanges, at a scale that suggested the total economic activity tipped at $25B/year. Yet, none of it can migrate online because of the “perception” that photos don’t count when it comes to piracy, and because there was no possible infrastructure to enforce legal protections.


So, yes, the photo industry has been starved to near extinction, compared to what it could be if it similar legal representation that the music and movie industries do.


“My gosh, I’m getting sad. But I still want to share photos online.”


Don’t misunderstand me; I’m cognizant and sympathetic to the non-professional side of photography and the social value of sharing images, both culturally and economically – including to those photo-sharing sites like Pinterest. There’s no question that people should be able to share images online with others in an unfettered manner that Pinterest provides, as well as every social network.


But to do so in compliance with copyright law would require a series of rights access that cannot be scaled up to serve the public at large without a centralized (and streamlined) rights clearinghouse. Legally speaking, Pinterest should obtain rights from “everyone,” but it’s not possible because people are uploading other people’s photos. If there were a central clearing house open to everyone – say, like the music labels have – Pinterest could enter into a unified license agreement.


Without such a clearing house, the law is the law, and the courts will eventually be forced to reconcile the law with society’s desires. Well, provided cases are brought to court to press the issue.


This is not new. Copyright itself has been a controversial topic for society (and justice) for years, and continues to this day. On one hand, there are many who believe that copyright protection should be lifted, if not severely curtailed, largely in order to avoid this very problem of the social benefit from photo-sharing. Economists, on the other hand, understand that the creative economy only exists because people can earn a living from their efforts—that "human creativity is the ultimate economic resource." (Florida 2002) If they couldn’t economically benefit from their creations, society would suffer more, since the lack of incentives (and hence, resources) would starve an important and socially valuable industry.


The only legal basis for dealing with this dispute continues to reside in the Copyright Act in 1976, which states that “copyright protection extends to original works of authorship fixed in any tangible medium of expression,” including photography, of course. Tightly coupled with the Copyright Act is The Berne Convention, which states that “Copyright must be automatic; it is prohibited to require formal registration.” Yes, the USA provides added protection that permits authors to register their works with the Copyright Office, which then affords them “statutory damages” in legal claims, which guarantees the copyright holder a minimum of $750 per claim, and up to $150,000 if the infringing party “willfully infringed” (that is, with intent). But this registration is not required in order for the copyright to be held by the person holding the camera, and that ownership comes with rights.


So, Pinterest and other social networks are technically contributing to copyright violation by permitting other users to upload unauthorized copyrighted works. This is called “contributory infringement.” This Wikipedia excerpt explains, “indirect infringement arises when a party materially contributes to, facilitates, induces, or is otherwise responsible for directly infringing acts carried out by another party.”


These underlying legal principles of copyright law are subtle, and few are as educated on it as they like to believe—especially corporate law firms that write the legal mumbo jumbo in “terms of service” agreements (TOS). To wit, Pinterest’s own TOS stipulates that when you upload a photo to Pinterest, you are granting it a "perpetual, irrevocable, royalty-free license to use” your photos on its site and "application or services." While this is applicable if you own the photos you upload, you cannot grant this permission for photos that aren’t yours. That is, you are not the legal authority of someone else’s photos. So, Pinterest’s own TOS is unenforceable on photos that the user doesn’t own, which is pretty much all of them. So, strictly speaking, their TOS is toothless, pointless and moot.


But this is also besides the point: the user violated the copyright, not Pinterest.


So again, who’s to complain? To whom? Against Whom?


One could try to sue Pinterest, which is where their lawyers would quickly seek protection under the Digital Millennium Copyright Act (DMCA), which states that websites that host content uploaded by users cannot be held liable for copyright infringement, so long as the site complies with “take down notices” from those copyright holders. Here, the original owner of the copyright notifies the company with a “take down notice,” and the company is off the hook—no TOS necessary.


Many companies – Pinterest, included – very effectively use the DMCA as the “get out of jail free” card, effectively keeping their business out of legal danger.


But once again, we come back to the subtleties of the Copyright Act. As stated earlier, Pinterest could be liable for secondary infringement, which would make them ineligible to seek protection from the DMCA. For matters relating to copyright, courts would have to decide on the merits of such claims solely on case law developments.


This brings us to landmark cases, such as Napster and most notably, Grokster, where courts have established a three-point test to determine if a website “induces infringement”: (1) whether the majority of the content uploaded by users is infringed works; (2) whether the site provides tools that can only be used to infringe; and (3) whether the use of the works are (a) for commercial purposes or (b) harms the commercial interests of the copyright holder.


In the case of “majority of content,” this part is pretty self-evident.


In the case of the site providing tools that are “only” used to infringe, Pinterest’s defense would have to be based on a finding by the Supreme Court in “Sony Corp. of America v. Universal City Studios, Inc,” where the court found that, contributory liability cannot be imposed unless the technology lacks substantial non-infringing uses. Flickr, for example, only provides an “upload” button that allows users to upload images from their own hard drive. This provides “substantial non-infringing uses.” Indeed, the content on Flickr has most of its images uploaded by the original photographers themselves. Pinterest, however, cannot demonstrate this: their tool does not permit uploading photos from one’s own computer; in fact, it encourages users to pin photos from other sites.


The third test –commercial profit– also has roots in the legal doctrine of “Vicarious Liability,” where “courts have extended liability to those who profit from infringing activity when an enterprise has the right and ability to prevent the infringement.”


If someone were to go to the effort of showing that Pinterest satisfies all three tests, the company loses its DMCA protections, and must now face the music. This then re-engages copyright law, where the company could be liable for statutory damages if any of the works are registered with the copyright office. (Many pro photographers whose works are generally passed around the most, actually register their works.) Statutory damages mandate a minimum of $750 per infringed work, although a judge can raise the limit of the claim up to $150,000 per infringement if the defendant was deemed to “intentionally infringe.”


One would assume that if a site lost its DMCA protection because it was “inducing infringement,” then a judge would likely also rule that the infringement was “willful.” Hence, the $150,000 per image claim would be a hefty speeding ticket.


“Sounds troubling for Pinterest! Are they in trouble?”


Probably not. And it’s not because they aren’t in violation of copyright law—they are. It’s back to the basic question of “who’s going to sue them?” Unlike music and movie companies that have hoards of lawyers representing their interests and who aggressively shut down websites and file legal claims perpetually, photographers have no one. As individuals, photographers are too unsophisticated to navigate the difficult and expensive litigation process, so it is highly improbable that many will sue. And even if they did, they won’t be able to do so in a critical mass necessary to materially affect the company the way may music labels can. And even if they could, they’d be up against the same free-speech advocates that defended Grokster. This would not be an easy or inexpensive task, and would probably garner a large push-back from society who already regards photos as “different.”


I don’t mean to “pick on” Pinterest, actually. They are but one of many such sites. Polyvore not only satisfies the three-point test of “inducing users to infringe,” but their volume knob goes to 11: They offer even more sophisticated tools to infringe, including software that specifically designed to copy photos from other sites, while also providing no tools to upload users’ own photos, which flies directly into the face of the definition of Contributory Infringement, and satisfies the Supreme Court’s own language on whether the technology has a substantial “non-infringing use.” Worst of all, they are actually selling products, not advertising, which satisfies “Vicarious Liability.”


And their legal problems go beyond just copyright. Users also upload photos of celebrities to adorn the products sold on the site, which could be in violation of publicity laws if there isn’t a model release. (Cameron Diaz’s picture is one of the most popular.)


Polyvore does provide its own photos, which are legitimately licensed -- namely, from the companies selling the products depicted in the pictures. The test is whether the majority of the content uploaded by users are unauthorized. Other factors that appear to implicate their “knowledge of willful infringement” is a statement warning people not to infringe, and the promise they will take down photos if contacted by copyright owners. While one could argue that they are trying to give notice, this is akin to warning labels on cigarette boxes. No one’s fooling anyone here.


There’s no doubt that Polyvore knows its users are infringing, and it’s certainly possible that they are aware that they are also “inducing” infringement, but they are counting on the same two factors that Pinterest is: society accepts copyright infringement of photography, and more importantly, there are no special interest groups that will sue them for “contributory infringement” on behalf of a class of photographers.


“So, as long as society has accepted photography as a non-threatening step-child in the copyright debate, these sites are safe.”


The force is strong in you, young Jedi.


Still, the risk profile could suddenly spike if there were an unintended rise of those who would intend to assert those copyright protections, which could happen if incentives were to suddenly materialize. For example, a SOPA-like legislation.


“Huh? SOPA? Come again?”


Although the Stop Online Piracy Act is dead for now, the music and movie industries are not about to let it go. Something will eventually re-emerge with new and different terms. We’re already seeing a great deal of anti-piracy legislation coming out of Europe, and Congress and others are under a great deal of pressure to do something (probably after the election season).


What needs to be considered is the unintended consequences that might result if they don’t reconcile the incompatibilities between the social aspect of photography and the fact that it’s a copyrighted work. For, whatever law that has the intention of protecting movies and music just might create a financial incentive for new actors to enter the stage and try to represent the interests of the entire class of photographers, professional and otherwise. And the social networks that use photos are far bigger and vulnerable than the usual targets that music and movie studios attack, escalating the size of litigations that could arise.


A poorly drafted SOPA-like law could affect the internet in highly unexpected ways, akin to the sudden and immediate changes we saw in our political system after the Supreme Court’s decision on Citizen’s United.


“So, do you have a better solution?”


Funny you should ask.


I don’t believe one can ever legislate around this problem. There are two economies at play all the time: a legitimate one and an underground pirate economy. The best you can do is create so much incentive for people to participate in the legitimate economy, that the efforts to pirate become less interesting and less profitable, yielding a progressively smaller proportion of that industry’s total economy. Steve Jobs pleaded with the music industry to remove music locking in song files using the argument that people don’t want to infringe, so long as they can get access to what they want at a fair price. When the music industry finally agreed to remove those locks, online music sales spiked. But the music (and film) industries haven’t kept up with cultural and technological trends in how they handle the business side of their industries. They are still trying to solve 21st century problems with 20th century attitudes.


It’s not that I disapprove of litigation – it’s the music and movie industries greatest advantage. The legitimate marketplace exists because music and movie companies have the infrastructure to enforce copyrights; this is the stick that gets people to seek the carrot, benefiting the entire marketplace financially and fairly.


When it comes to photography, there is no infrastructure for enforcing copyrights, so there’s no viable marketplace. I mentioned that there needs to be a central clearing house for photo rights management: My solution to that is here.


________________________________

On Fri, Mar 16, 2012 at 4:15 AM, wrote:

When a person makes a board and posts other people's photos, isn't it just like sharing a link on a blog? When you click on the photo it goes back to the original website that it was found, doesn't it? I don't understand how that constitutes infringement, to me it's like a beefed-up hyperlink. Are you saying that they are literally taking photos and uploading them somewhere?

Literally copying content is one form of copyright infringement, but that's not what we're talking about here. The fact that the content is merely "displayed on a website not authorized by the copyright holder" is technically an infringement.

To illustrate, let's take your text, and change the word "photo" to "movie":
When a person makes a board and posts other
people's
movies, isn't it just like sharing a link on a blog?

In this case, let's say that those "other people" are movie studios. Here, the the public that views this movie is able to see it on a site that has not been authorized to show the movie. The movie studio doesn't care that the movie also happens to link back to their site, or iTunes, or amazon, or anywhere else. The content itself is displayed on another website without authorization. That is an infringement.

Your question of "link" should not be conflated with "text links," which do not display original content. For example, the text link "click here for this photo" is not an infringement because content is not being displayed.

You may say that "photos are different" because photos aren't like movies, or that movie studios charge money, or anything else. Copyright law does not distinguish between media formats or financial intent or even who the owner is. Copyright law is there to allow copyright holders to choose how their content is used.

Many people think that content can be used unless the copyright holder objects, but that is not the case. Technically, the copyright holder must grant consent first.

I realize this would suddenly make everyone aware that every social network in the world is suddenly in gross violation of copyright, and that's why the legal system and the copyright "process" needs to be updated to reconcile this.

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Friday, March 02, 2012

Market Efficiencies and Stock Photo Pricing

In my last blog post, Selling Stock: It's About Search Rank, Not Price, I argued that the price variability in the stock photo industry can be exploited by those who garner high search rankings. The rationale is that the direct and indirect cost (overhead) of finding an image so far exceeds typical license fees, that photo buyers are more indifferent to those license fees than sellers believe. Thus well-ranked photo sites would be able to command higher license fees, simply because they have first access to the buyer.

In fact, well-ranked photo websites are undermining their own profitability by lowering prices unnecessarily, mostly because they are following their perceived competitors, not because the customer is demanding lower prices. Their rationale would follow traditional economic theory under most market conditions, but therein lies the exception. The photo industry does not represent "normal economic conditions." Indeed, the photo industry represents a classic case of an "inefficient market."

Let me explain by starting with the definition of an "efficient market." It can be summarized as a market of buyers and sellers engaging under conditions where all information is available to parties on both sides of a transaction. (See this wikipedia link for extended definitions, examples, and citations.)

Examples of efficient markets are exchange-traded commodities like oil, orange juice and automobiles, among others. Here, producers of commodities make their wares generally available, and market-makers trade on this information. It is exceedingly difficult (if not impossible) to have inventory that the market is unaware of, or to purchase commodities without the broader market's awareness. These are the conditions that lead to the definition of an "efficient market."

While there will always be price volatility, it is almost entirely governed by predictions of how supply and demand might be affected by external events. The weather affects the price of Orange Juice; war and instability affects the price of oil; and a litany of factors affect the auto industry.

When it comes to image-licensing, most buyers and sellers do not have that much information about the "global" market of buyers or sellers, let alone access to conditions that can affect future supply and demand. This results in "market inefficiency," which results in price inconsistencies, precisely as predicted by economists. Therefore, prices vary from high to low across the spectrum, depending on the perception of the buyers in any given time/place. This is because they have limited and incomplete information about the global supply chain.

This also explains why people objected to my proposition from my prior article. They do not have access to "all information," and worse, they are unaware that their worldview is limited. That is, most pro photographers are under the illusion that the entire market of stock photos is monopolized by a small number of stock agencies.

Ironically, the other markets (non-agency buyers/sellers) don't see the other side either. These discrete and separate markets will, by definition, find different prices than buyers in other markets. Stock agencies will view one another as competitors and lower their prices, whereas websites that are unaware of stock agencies (or don't attempt to compete with them) will command higher prices.

To optimize prices and create an efficient market, the following would have to take place:

  • Stock agencies would have to expand to cover a larger proportion of the image-buying market. As my prior article advised, the way to do this is to partner (or merge) with photo-centric websites, whose proportion of global internet traffic is very high. This will allow "more information to be more universally available to a greater proportion of the buyers and sellers." This now leads to market efficiency.
  • Once the market became efficient, it could then be automated through predictive pricing algorithms, precisely the way Google automated online ad prices using an auction-based mechanism. No doubt this is not a simple algorithm, and it took years to evolve, requiring considerable data mining to determine optimal market pricing. But it was achieved to a point where it is now a highly viable (and mutually beneficial) economic model for buyers and sellers. The market of photo buying is similarly large, and there's enough economic activity that appropriate data-mining efforts could lead to similar algorithms for auction-based image license pricing.

The question is whether anyone is willing to invest enough into this untapped market.

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