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.

Site Feed

Subscribe to
Posts [Atom]

My Photo
Location: Santa Cruz, California, United States
My Books on the
Photography Business

Friday, August 12, 2005

The "potential size" of the photo market galaxy

The premise of a market-driven business model is one that assumes that to succeed, one must compete with others in the same marketplace. This, as opposed to the "cooperative" model, where the number of suppliers (or buyers) is small enough, that the sellers can act together to sustain prices (and/or other working conditions). There are clearly cases for both models, but the great question in the photo industry, is whether the number of suppliers (photographers and/or their agents) is such that it is possible (and feasible) to act cooperatively.

The question is a hot one today because, as would be argued by few, that the photo industry was, historically, a tight market, where content and distribution of product was controlled by a few, mostly due to reasonable barriers of entry into the marketplace. Indeed, price stability (and professional livelihood) was enjoyed by those lucky enough to enter into the profession. However, with the advent of the internet and digital photography, the question is now whether the barriers to entry for the market have come down to the point where there are too many non-cooperative players. Has the number of non-professional photographers impacted the economic balance and caused prices to fall. If so, by how much? Can we measure this? What are the ramifications for pros?

Collecting data isn't hard--it's knowing what data to collect, and then analyzing it properly. The first question is, "what data is relevant to our question?" Historically, such data was only from surveys of photo agencies, photographers, studios, schools, and any other source that had some established business connection to traditional photo buyers. At one time, these were the only ones taking part in the supply chain and the distribution channel, so no other data was relevant. But, do those surveys reflect current economic activity? If not, one might suspect the validity of the data. So, one must examine two factors: who's doing the survey data? And, does that data meet with statistically viable sampling sizes and methods that reflect today's conditions?

If stock photo agencies are doing this research, they are not likely going to survey people who are buying and selling from non-agency sources. Why should they, if the results might suggest that their own business models may not be sustainable? Sure, they may have accurate data within some segments of the industry, but it may not be complete data that represents the entire industry. Surveys are deemed reliable if the people being surveyed are representative of what the data claims they represent. For example, if you ask what percentage of women voted for a particular candidate, you can't just ask "white women," you have to get your sampling from a reliable source that represents the entire population of women. If the photo market has grown to include enough people that the survey methods currently don't recognize as viable members of the study group, then statisticians would say the data tells us nothing.

For our purposes, the only data we have is from photo industry surveys, and because they have a vested interested in a certain outcome (here, serving the interests of its constituents), one must look upon their data with caution. (E.g., one doesn't look to cigarette companies for reliable data on the number of people who get lung cancer.) So, what we're really looking for is determining what that "representative population size" is of photo buyers and sellers. My specific hypothesis is that the majority of buyers and sellers are no longer associated with the industry as it has been traditionally defined, leaving the traditional photo agencies, and even pro photographers themselves, minor players in the overall economic activity of photo sales. (That doesn't mean they don't have business opportunity; it just means the methods of achieving it are different than they used to be.)

We can test whether this hypothesis has legs by looking at other industry data. For example, a report on the sales of digital cameras from Digital Photography Review, (http://www.dpreview.com/news/0407/04073002camerasales.asp) indicates that 22.8 million digital cameras will be sold in between 2005 and 2006, a 42 percent jump from 2003. If one of those non-professional amateurs (who isn't currently part of "industry survey data") sells an image to someone, he may not be counted in the survey. But if a million of these people do it only once a year, that could account of hundreds of millions of dollars of economic activity that traditional surveys don't take into account. Taken a step even further, a report on CNBC states that over the course of five years, over 100 million digital cameras of at least eight megapixels or higher will be sold. If only one percent of those buyers sells $1000 worth of photography per year, that's $1 BILLION of sales that isn't accounted for in current survey data. This, because "the industry" doesn't recognize amateurs in their surveying methodologies.

So, the market may be considerably larger than what survey data currently claims, but we don't know by how much. It's sort of like how physicists know that there is more matter in the universe than what we can see by traditional means: measuring light. They can look at how much light galaxies produce and estimate the number of stars they have. This gives one measurement for the size of the galaxy, but there's a problem. If you look at the rate in which a galaxy spins, it should be flying apart. But it doesn't. Why? The only possible explanation is that there must be some additional source of gravity that accounts for the gravitational pull that isn't being accounted for. In other words, dust gas and planets, to name a few, account for a lot more gravity because there is more of them than people thought. Even though these objects do not produce light (i.e., "dark matter") they have a far more profound effect on the universe than once thought. What percent of the universe is full of this material? Estimates are that over seventy percent of the universe is full of this stuff.

Could this be what's going on in the photo industry that current data doesn't account for? We see economic activity that the current photo market surveys can't explain. To wit, the revenues agencies report is rising at a much slower rate than the number of magazines, and even less by the rate of ad revenues from those magazines. Consider this report (http://www.bpaww.com/about_bpa/industry_news/WorldOverview3.05.htm) by BPA, which audits media companies. Here, the topic is an overview of the changing world markets for media and advertising as a result of the Internet. Given those numbers, let's ask the question: if the magazines and their advertisers were obtaining images from photo agencies at (at least) the same proportion they always have been, these agencies would be seeing such astronomical growth, that it would dwarf the entire US Technology sector. Why? Because, unlike media companies, ad agencies, and magazine pages, that are distributed over thousands of various companies, there are a precious few photo agencies. And if those agencies were getting the same proportion of business from those companies that they used to, all that revenue would ad up to a huge sum of money.

So, where's the money? Photo agencies report incremental revenue growth, but only in the hundreds of thousands of dollars, to the low millions. They should be getting billions, if not hundreds of billions of dollars--three to six orders of magnitude more than what they're actually getting. This real number, while still yet unclear, is considerably large; we just don't know how large it is. Just like the total mass of a galaxy. And, like the galaxy, what we do know is that its mass is much greater than just the data (stars or industry survey numbers) that we see. For the photo industry, this size is, ultimately, the "potential market" for photographers. If the size of the market is what it is, and the photo agencies had the percentage of it they claim they do, the proverbial photo agency galaxy would be spinning apart. But, it's not. So, where's all that other revenue--or potential revenue--going to? What's out there that we can't see? All that advertising and editorial photography must be coming from someone. Whom? It can't be just independent pro photographers, because there aren't enough of them either--at least, the number isn't growing if you look at the membership numbers released by industry associations. So, again I pound my fist, who's selling (or providing in some fashion) these pictures?! :-)

Could it be that "non-pro photographers" are somehow involved? The one-off sale (or give-away) here and there by each of millions of people, derived randomly through chance from a pot of hundreds of millions of people (you know, the ones who are buying all those high-res digital cameras being reported by camera companies), could possibly fill this gap between what photo industry sales report, and what we can extrapolate the total potential market size actually is. There is no hard data to prove this, since no one surveys the general population with questions like, "have you ever sold a photograph?" But the empirical data clearly suggests something is going on, and only if the industry acknowledges this possibility and revises its survey methods to find out will we ever have a better, more accurate picture. Sadly, no one but the trade associations has any financial incentive to do these studies, so indirect data like this is all we have. But then, Copernicus had the same argument when he tried to convince the Church that the Earth wasn't in the center of the universe, and that it revolved around the Sun, not the other way around. Did we really need to fly up in a spaceship and see it for our own eyes to believe the other compelling data to support this theory?


Post a Comment

Note: Only a member of this blog may post a comment.

<< Home