Stock Photography, the Consumer, and the Future
Preface
I apologize in advance for the extreme length of this article. I hardly expect anyone to read it in one sitting, or to even finish it. Those who do read it may be eligible to win a free pizza. Or better yet, to improve their understanding of the photo industry.
This article was pieced together from the results of several consulting contracts I've done for particular clients looking at various investment options in the photo licensing space, most of it written in the last six months. I've removed the specific citations of particular companies that I was asked to research, but in the end, I've manage to maintain cohesion in the overall message.
In this article, I will be addressing:
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This coming October, I'll be presenting a talk at the Photo Expo Plus conference in New York City, called, "Stock Photography and the Consumer". You can find a link to the list of sessions here. Search for my name to get the specifics on the talk.
The abstract of the session presents the premise for this article:
Licensing stock has yielded lower financial returns in recent years, mostly because the target audience are the companies familiar to photo industry veterans. While this audience tends to buy in larger volumes, they represent a small fraction of overall purchasing for photos online. The largest growth curve for photo buyers is the consumer.
This article is a sort of primer for the session I'll be presenting at the conference, but it gets into depth on auxiliary information that may not be covered due to the two-hour time constraint. This article wasn't written just for those attending my session, but rather, for anyone interested in understanding the broader economic impact that consumers have on the stock photo industry.
Current Business Strategies
With a few exceptions, most pro photographers would agree that their incomes from licensing stock photography has dropped over past ten years. Finding a way to reverse this trend has been a top goal for photo trade associations and de facto industry leaders. They have come up with a variety of proposed strategies, but the one that continually remains at the top of everyone's list is characterized by the following populist quote from a discussion forum frequented by stock photographers:
Stock photo industry is on the decline. And the reason is because microstock agencies are driving prices downwards, and pros and semi-pros are not being consistent or cohesive in their pricing structures. The solution is to create a standardized pricing system that everyone adopts.
NOTE: A prior edit of this article mentioned that the Stock Artist's Alliance (SAA) and the PLUS coalition supported a pricing standard. This was erroneous -- they advocate standardizing certain terminology to be used in licensing agreements, an aspect of this article that I had originally included, but later removed.
The rationale for believing this approach will reverse price declines stems almost entirely on the premise that pro photographers see themselves as the primary (if not sole) suppliers of images to buyers. In other words, industry groups believe that, while the consumer's role in stock sales has been destructive in pricing, they actually contribute very little in the overall supply of licensed images. Therefore, if at least the pros cooperate on a price structure, buyers have no choice but to pay them, because pros really are the market-makers of their own products.
Believing that this strategy will work is rooted from a historical and cultural bias that dates back to the pre-internet era, when it was true that the supply of images was controlled by stock agencies and a smaller, limited set of pro photographers. Indeed, pricing stability was not only achieved, but optimized. Cohesiveness among agencies and photographers was not difficult because very few controlled the entire photo channel, allowing them to regulate how much supply entered the market. The thinking today is that such a model can be brought back.
| The "Nash Equilibrium" states that no matter how much competitors agree to maintain price stability, the ones who benefit the least will betray the others in order to win business. And this act will force others to follow suit just to stay competitive, thereby bringing equilibrium to the group. In other words, "market rates" will ultimately prevail. While there were few enough players in the industry in the pre-internet days to control the channel, there are just too many people involved right now to sustain compliance, as dictated by the Nash Equilibrium. For more information and discussion on this topic, see my article, The Photographer's Dilemma: to cooperate or not?. |
But today, with the internet and digital photography, a huge amount of inventory has entered the supply chain from a variety of sources, mostly consumers. Therefore, adopting "price structures" will fail simply due to supply and demand. Worse, it could actually cause more harm to pros who vow to adhere to these prices charts because they would price themselves out of the market, as dictated by the Nash Equilibrium (above).
So, if photographers don't accept that consumers photos are not disrupting the natural balance of "supply and demand", nor do they accept the principles of the Nash Equilibrium that voluntary price adherence won't work, what do they need to see that will help them change their fundamental business strategies to be more in line with current economic realities?
Perhaps we should start looking at a global picture of what's going on in the stock photo industry.
Is the Stock Photo Industry Growing or Shrinking?
It's a simple question, one that you wouldn't expect to be asked seriously. Rather, you more often see it as a rhetorical question used to underscore a different point, as illustrated by the quote at the top of this article: The stock photo industry is on the decline. And the reason is because microstock agencies are driving prices downwards..."
Yet, I seriously ask, Is the stock photo industry on the decline?
Here are the pivotal questions that can help address that problem:
- Do most published images come from pro photographers?
- Are most photo buyers consumers or traditional media companies?
As I'll illustrate in the following sections, the data I've been collecting over the years (in particular, the last six months) shows that even though per-image pricing has dropped, it has been more than offset by volume, resulting in a net increase in dollars spent industry-wide on photography. The bulk of that extra money is being spread thinly and broadly to millions upon millions of suppliers that are not traditional players in stock. Who are those non-traditional players?
Do Most Images Come From Pros?
To find out, I examine two data points: the rate of growth of the publishing industry, and that of the stock licensing industry. For publishing, we examine the rate of growth for print and online mediums that use photos, where growth is estimated to be between 20-50% per year since 2000, depending on various metrics used to determine the size of the internet. (Google ad rates along with other agencies that sell online advertising that use photos are example reference points.) Even using a conservative growth estimate of 10% per year, the past 8 years would yield a compounded increase of more than double the size it was in the year 2000.
This kind of information is consistent with other data I've found in prior analysis I've done on the size of the photo licensing industry. I've estimated the size to be between $15-20B, which I've published (along with my analysis) here, here and here.
When more photographers try to stuff into a VW Bug and things get tight, it doesn't mean the car has shrunk.
By contrast, reports generated by stock photo industry trade associations and financial analysts who follow publicly traded companies, such as Getty and Jupitermedia, do not show any growth at all since 2000. It was a $2-3B industry then and remains so today. Also consider that there are also 10-20x more "traditional pros" as there were 10 years ago, as measured by the increased number of photo organizations and their aggregate membership numbers. Distributing the same $2-3B revenue to 20 times more photographers than before means that pro photographers are not just earning less per sale from falling image prices, but they have to share their piece of the pie with more people.
If traditional pros and agencies are only getting $2-3B of a $15-20B market, are consumers somehow earning and spending the remainder? To a degree, yes. But not entirely. There is a great deal of money that is also lost due to "economic evaporation", due to pricing and distribution inefficiencies discussed later. First, I'm going to address the portion of the sales pie represented by consumers.
The Long Tail
In a phenomenon coined in 2002 called, "The Long Tail," a reporter for Wired magazine noted that the huge revenues generated by amazon.com came from the sales of millions of little-known books to millions of consumers, who, prior to the internet, were never even aware of such books, nor had they the means or incentives to find them. In quantities of one's and two's, these unknown books were sold to random people on the web in a manner that added up to billions more dollars of unexpected market potential than industry analysts and economists had anticipated. Though all eyes tend to look at the mega-blockbuster hits, the real money is in the really small sales of one's and two's to inconsequential buyers. The top 100 books that sold in the millions only represented a tiny proportion of amazon's revenues in comparison to the millions of these tiny sales of little known books.
Is it the same story with photography? Is the vast proportion of sales between consumers, not directly with stock agencies and established pros? If the estimate of the market size is $15-20B, and pros only account for $2-3B, then the gap must be accounted for. Unfortunately, showing where those sales are coming from using precise numbers (as can be done with amazon.com sales) is not as simple; amazon is a monitored sales channel because it is a public company, so we can examine their financial results. Ad-hoc sales by consumers is not.
Deriving information about the broader market from a monitored sales channel like amazon.com is possible using symmetric analysis because sales figures correlate with the information we seek. That is, we can look at amazon's reported earnings and derive that most products sold are not the "big hits" of best-selling books, but rather, millions of smaller sales in one's and two's. If you were to graph this, these small sales would represent a very long tail of bumps along the bottom of the X axis.
Photos by consumers, on the other hand, are not sold through monitored sales channels, making such "peer-to-peer" sales difficult to track. We don't have direct numbers we can analyze from public companies or trade groups (because consumers don't join trade groups).
Therefore, to find the information we seek, we need to examine asymmetric information, or rather, data that doesn't directly correlate to the information we want. Because of the indirect nature of this data, we need to find more data sources than just one, and then extrapolate information from the aggregate. This is similar to how GPS systems locate you: they get data from a number of satellites, and derive your position from that aggregate. The more satellites there are, the more accurate the estimate. So, the more data we collect from "indirect" data sources that hint at consumer sales potential, the more accurate our estimates will be.
One such satellite in our search for data is the historical sales trends of pro-level cameras. Up till the year 2000, there was a direct correlation between pro-level camera sales and those of stock photo sales, as compiled by industry trade associations for both cameras and stock photo trade groups. After 2000, the trends went out of parity: pro-level camera sales spiked, but official (industry-provided) stock photo sales figures remained flat.
What caused this breakdown of symmetry? Either one of the data sets is wrong, or there is another element in the equation that hasn't been factored in. Since the "official industry figures" on the size of the stock photo industry does not include peer-to-peer sales, there's a strong chance that this is the missing data. The traditional industry analysis failed to recognize non-traditional contributors to stock licensing.
A strong contributor to this is the proliferation of pro-level digital cameras after 2000, which made pro-quality photos more easily available online, and for sale in general. In other words, if consumers were buying pro level cameras prior to 2000, they were mostly film-based cameras, and consumers never went to the bother of scanning their images. Digital images, on the other hand, are easily and instantly made available for distribution, which is the beginning of when consumer's role in photography licensing began.
Another satellite providing data is the rate of growth for photo-centric media, such as magazines, web sites, general advertising, to name a few. According to data mined from those industry trade associations and trade magazines (such as "Advertising Age"), growth to the year 2000 also remained symmetric with official industry data for stock photo sales, just like with data for pro-level camera sales. After 2000, the graphs go out of parity; media growth continued, but the stock industry numbers remain flat. Again, this asymmetry suggests that the industry data is erroneous. When you factor back in the peer-to-peer sales, again, the symmetry between the graphs returns.
The more data you collect from this asymmetric information, the more it supports the notion that the size of the stock photo industry is much larger than what most people had thought. Thus, the unaccounted for sales must be coming from non-pro photo photographers. The question is, who?
What is a "Pro Photographer?"
Is it the consumer? Perhaps, but we may have to step back a second to define our terms. What's a consumer? How do you define a "pro photographer?" What's the difference?
For example, Lifetouch Inc is a private company with over 22,000 employees, and they do one thing: portraits (in many forms). They have an annual revenue of over $1B. The company provides model releases for subjects to sign, permitting the company to license the photos to others. This is classic "stock photography licensing." Whatever revenue the company may generate from these sales is not calculated into the "size of the stock photo market" by industry trade organizations. And Lifetouch (and their competitors) represent a very small niche in the overall photography business segment.
Are the photographers that work for LifeTouch "pros"? For that matter, what about others who also shoot portraits? For example, in this article from The New York Times (April 2007) looks at stay-at-home moms generating extra income by shooting portraits of their neighbors' kids. Are they consumers? Or pro photographers? And they aren't the only "consumer/photographers" doing the same thing. How do we categorize these people? Some are part time; many happen to be hobbyists or enthusiasts who don't really earn that much money with photography. But, the pictures they shoot are ending up in the stock photo supply chain as potentially licensable pictures.
Imagine if we expanded this research to include photo-based business units from all possible sectors, not just portraits, like LifeTouch is. We'd see a great deal of additional photos (and money) going into the "stock photography pie" that has traditionally been dismissed as irrelevant numbers by the stock photo industry. To them, they were consumers. But now?
You can't have it both ways -- if you call them pros, you have to factor in their contribution to the stock photo industry. And since photo trade organizations don't, nor do people who calculate financial data (such as "the overall size of the stock photo industry"), then we have no choice but to call them "consumers."
No matter what you call them in the end, the size of the stock licensing market is enormous, and the suppliers of images clearly include millions more people than had been counted before. And those new members represent a much larger percentage of the economic activity than the traditionally-defined "pro photographers" and stock agencies. By failing to recognize this group, photo industry trade groups and companies that profit from stock photo sales are mis-managing their businesses and missing out on a great deal of opportunity.
Do Consumers Buy Stock Photography?
To answer this, we're faced with a similar question just posed above: How do you define a "consumer?" When someone licenses an image, how do we characterize the sale? By the use of the licensed image? That is, whether it is used for business purposes or personal use? Are the two so easily separated? The IRS reports that 80% of employed people work for a "small business." If you sell an image to a handyman making a small brochure where he advertises fixing people's plumbing and light fixtures, is this a consumer-sale? Or a traditional stock license that would be included by photo industry trade groups in their analysis?
For purposes of the data we seek in this article, I consider a buyer to be a consumer if he is not familiar with the stock photo industry, does not go through normal channels, and most importantly, makes purchasing decisions as a consumer would, not as a business typically does. Consumer purchasing decisions differ from businesses in stock photography because they don't understand traditional license rates, are unfamiliar with license terms, don't know what model releases are for (or how they apply), or even that photos need to be "licensed" in the first place. In fact, many who license photos from me usually start the process with an email that says, "I'd like to use a photo of yours, but I can't download the high-res version (because it's not there to download). How can I get it?"
I then have to explain what photo licensing is, and why they need to pay for it.
Example uses of recent photo licenses I've sold to consumers:
- Self-employed handyman's business card
- Wallpaper for a bedroom
- Wedding invitation
- Set of place mats for a large family reunion
- Cover image for a local musician's self-produced CD
Most of these uses are clearly for non-commercial, personal uses. Others could be considered in the middle. Either way, the people buying the images are not part of what most photo industry trade associations consider the traditional photo buyer. Thus, they do not consider this demographic a group with strong purchasing power. Hence, it's not a viable market.
I disagree with this. Given that I'm one person, and I license photos almost entirely to consumers on a regular basis, it's clear that there's a market out there. Furthermore, I do not consider my experiences to be merely anecdotal. They represent viable market conditions for these reasons: First, my traffic statistics are not insignificant, ranging from 12,000 to 28,000 visitors a day (summer and winter traffic on my site varies in parallel with industry averages). This in itself is considered to be a viable sampling of the general population at large. And since my web traffic runs in parity with my sales figures, it's fair to say that the general population acts consistently over time, given the same conditions. I've spoken to other independent photographers who sell on their own websites in the same manner, and they report similar patterns as well, though their ratios of traffic-to-sales differ from mine. (See here for my web traffic stats.)
Speaking of traffic-to-sales ratios, most people "stumble" onto my site, rather than go there specifically for the purpose of acquiring images. My ratios would be much higher if I were a more commonly known resource. (I do no advertising of any sort.)
Yet, even with my statistics, if the same traffic-to-sales ratios were to scale up to the broader market, sites like Flickr.com could be generating revenues in the $3-6B range annually. I would venture to say they'd earn even more because the site is a destination for people to look for photos. Flickr would also attract more of the traditional media buyers as well, a target audience I don't attract (because I'm not a known entity for traditional media buyers). People who license my photos never heard of me before they landed on my site--they got there by happenstance, the result of search engine results (for which I tend to rank highly). That wouldn't be the case for Flickr.
And therein lies the magic hen for laying the golden eggs: search engines. That's how most consumers find photos, whether it was their intention to license them or not. Traffic to google's image search far exceeds the traffic on every other photo-related website (by huge orders of magnitude), that even if only .1% of those searches results in a sale of any kind, this would generate revenues that far exceed the combined revenue of all stock agencies combined. And the use of search engines for photos is growing as the need for those them increases, while the photo industry continues to ignore the consumer by not promoting themselves in the mainstream as a consumer-oriented resource.
So, now we get to the most obvious of questions: If Flickr "could" get that revenue, but isn't (because they don't offer users the option to license photos), nor are there many other sources where consumers are aware of licensing, how does that affect the total dollars consumers spend on stock photography? That is, if they never heard of stock licensing, and if there aren't enough sites that service the consumer's need to license images, how do we know consumers are generating economic activity?
Inefficiency and Evaporating Money
This brings me to a critical component of the stock photo industry: unrealized revenue. That is, much of the money spent on acquiring images is actually not going to anyone at all due to inefficiencies in the system itself. Think of it as energy lost when you're driving with one foot on the brake. You waste a lot of gas because the brake is siphoning potential speed from the car. You've spent the money to buy the gas, but that investment isn't being used.
Similar inefficiencies in the stock photo industry creates a condition I call economic evaporation. The money is spent, but it doesn't go to anyone. I think of the stock photo industry as being more like a gas guzzling 1975 Buick than a Toyota Prius of today. It's outdated and wasteful.
Analogies aside, what are these inefficiencies in the stock licensing system? The greatest of them all is the one I cited in the prior section: people search for images using non-licensing search mechanisms (like google). As a result, they either don't find the images they want, or they have no way to (legitimately) acquire the images from the supplier (because the site they landed on doesn't license images). This often leads to either intentional or inadvertent copyright infringement. (I say "inadvertent" because most consumers are unaware that using photos in certain ways violates copyright. A condition which I'm finding more and more frequently of my own photos.)
Some economists would call copyright infringement a form of unaccounted economic activity because it really does represent value, even though it's harder to value it, or know how to mark it on a spreadsheet. This "mark" has to have a value, and there is no "market rate" to assign it. This is called "mark-to-market", and is something like the mortgage crisis we're dealing with in the US today: there are mortgages tied to homes, but it's impossible to place a value on them because there's no market (or credit) to actually buy them. The lack of liquidity means that there is an enormous amount of dead capital that's keeping the economy from moving forward.
The difference is that with homes, the problem is lack of confidence in the market. With photos, however, the problem is more lack of knowledge. People just don't know that photos are licensable assets. Because there is no market-maker for photos in the general public, the general public doesn't participate in the economics of it. At least, not to their greater potential.
That's not to say that everyone is unaware of licensing, as evidenced by my business and website. People are made aware when they try to acquire an image from an informed source who knows that the asset has value. The fact that they are willing to buy is evidence enough that the market is viable. But the amount of "dead capital" in the form of illiquid photo assets is what's keeping the photo licensing industry from moving forward.
So, while the first problem to tackle is that of public awareness, we are still faced with the problem of sales inefficiency. Just because a buyer may now know that the photo is to be licensed and is a willing payor, it doesn't itself create efficiency. In fact, the buyer licensing directly from the seller (a "peer-to-peer" transaction) is the most inefficient of all. While one would assume that the lack of a middleman should create efficiency, the problem is that most people are not business savvy; neither the buyer nor seller do this very much, and hence, they either don't care, or price their products randomly or arbitrarily. Not to say that pricing is easy -- finding the right price points for licenses is hard for everyone. There is no pro out there today that can come up with a confident price quote for every photo usage he's presented with by a prospective client. I get email from pros all the time asking for advice on this subject. (I send them to this page.)
Imagine that if pricing is hard for pros, consumers must be entirely in the dark, as are the buyers! So, the economics of their exchange, whatever it is, will be very unlikely in realizing its potential value.
What's missing in the photography sector is an efficient sales channel like an auction-based model like EBay or the stock exchange. The photo industry needs market-makers.
To understand how this inefficient exchange can be turned around to an efficient one, consider trying to sell an old microwave oven you no longer need. Ten years ago, you'd have either thrown it away, given it away, or placed an ad in the local newspaper. Any of these choices would have resulted in an arbitrary valuation for the oven. Randomness would dictate whether you'd get more or less than its genuine worth; the mere inefficiency of the system meant that such things were grossly undervalued. People just didn't want to spend the time or money trying to optimize their oven's net worth.
Today, you'd just snap a few digital photos and put an ad up on EBay or craigslist. Regardless of the price you got, the market is efficient because such sites are well-known entry points for acquiring such things. Better still, the auction-style exchange means that the "best" price is obtained, even if it's not the one you were hoping for. The net result, however, is that the sheer efficiency of EBay and craigslist has infused more money into the economy by permitting the buying and selling of "stuff" that would otherwise not have a market at all (or, a poor one).
Similar economic observations have been made by economists who study the consumer's affect on other economic trends: trading stocks and bonds, auction websites, telephone calling rates, music, and publishing, to name a few. In each industry, the "traditional suppliers" for these commodities has been displaced by wider choices and less expensive options, largely because the consumer has gotten involved in one way or another, and their numbers are enormous. Everyone has seen per-unit prices drop in their respective industries, but companies that remained efficient have benefited from overall economic growth. Examples would be Ebay and securities trading websites. As the consumer started to trade stocks, commission rates for transaction dropped from $300 to $7. Many firms sprouted up, while the larger stalwarts suffered. Those who accepted and embraced the consumer ultimately did very well.
Industries that didn't adopt became inefficient and have since been harmed. Examples include the music industry (by resisting adopting of the internet in its early days, and trying to maintain sales of physical CDs through traditional retail stores), and the telephone companies (who tried to hold onto lucrative land-line fees rather than adopt VOIP telephony and other more efficient calling methods). In these industries, consumers choices moved in new directions. Successful industries (and companies within them) are those that moved with the consumer.
This model is precisely what is missing from the stock photo industry. Existing mechanisms for buying and selling photos are so inefficient, that prices are essentially random, therefore making the photos grossly undervalued. It's so bad that many people shoot their own photos, not necessarily because they want to, but because the "costs" (real or perceived) of acquiring images online (if such photos can even be found, let alone licensed) makes self-production a less-expensive option.
Here, the problem isn't dead capital (photos that can't sell due to consumer unawareness) so much as it is "dormant economic activity." That is, a willing buyer doesn't buy because he has neither the means nor the mechanisms to buy. He needs a mechanism to find the desired images faster and easier, and to license them as easily as purchasing a song from iTunes. Until then, this economic opportunity remains dormant, and the consumer self-produces the photos he needs.
Mining that dormant revenue requires understanding the psychology of the consumer. If that person starts doing general photo searches on the net, and within ten minutes starts thinking, "Aw, forget it; I'll just shoot it myself," the photo industry is inefficient. It's a "brake" working against the gas pedal.
Odd as it sounds, this inefficiency is costing the consumer money, too. The wasted time in fruitless internet searches, plus the having to self-produce a photo, both cost the consumer more than if he were able to easily find and acquire the desired image for a market-rate price.
The Future of the Stock Photography Universe
Can the photo industry evolve from the inefficient media and large-company focused niche market it is now, to a more streamlined consumer-oriented industry? As I'll address later, it's not a matter of technological barriers--that part's easy (and already underway). The challenge is effecting political change among industry leadership. Historical and cultural biases have prevented them from recognizing that economic truisms of an open-market system apply to the photo industry today, and they should shed the "protectionist" posturing of yesteryear.
Such change may or may not come about, leaving the future open to three potential outcomes:
- Expansion model: They get it!
The number of licensing agencies and other photo sources shed their inefficiencies and optimize pricing models that grease the wheels of financial growth, benefiting everyone in the supply chain. - Contraction model: They don' get it.
Photographers and agencies don't change their business models, allowing the existing inefficiencies to force prices even lower still, eroding profitability, and ultimately collapsing the prospects for an economically viable licensing industry. Photos become penny commodities, further perpetuating informal peer-to-peer ad-hoc licensing. Most sales are done by consumers and hobbyists who don't depend on (or care about) minimal financial compensation. Specialized photography for news and advertising remains in the hands of a few select groups of photographers and agencies that have shielded themselves from the broader effects by the nature of their specialty niches. - Flat model: Some get it, but not enough.
Higher demand is offset by market-correcting lower prices, allowing most companies to sustain only minimal life-supporting profitability. But, not enough players participate in the new model, causing a revolving door effect, where new companies enter and exit the industry, yielding no fundamental economic growth or contraction.
As will be addressed in the next section, it's impossible to predict with enough clarity which of these three outcomes will likely result. As more stock agencies find it difficult to compete, and the inefficiencies in the system prevent prices from rising, the sheer need to survive may eventually push analysts to look more closely at the consumer, thereby forcing the hand of industry leaders to change their outlook.
Another distinct possibility is that the industry is merely absorbed by other more successful industries that license creative content as a sub-component of much larger business objectives. In this case, it could be that enough business savvy consumers start their own organizations that react to economic realities more adeptly, which attract far more photographers than current organizations are able to do.
Market-Marker, Market-Maker, Make Me a Price!
If there is ever going to be evolution in the stock licensing industry, the first order of business is to shed the inefficiencies discussed here. And that can only happen when the system allows for uniform access to all buyers and sellers, and when the system is agnostic to who is buying or selling. This may seem obvious, but such a system is antithetical to the stock photo industry as we know it. There are currently stock agencies vying to be the central access point for licensing, and that model prevents industry-wide growth. If the market remained as small as it used to be prior to the internet, that would be fine. But, such a model can't possibly scale up to meet the needs of the global consumer population. Unless and until the industry recognizes the consumer's role, the systems they try to build will not work. And we're seeing it today in the form of poor price performance.
The easiest way to understand how an efficient system works is to think about the New York Stock Exchange: the exchange itself doesn't buy or sell securities; rather, it provides an open mechanism by which others trade. As such, everyone has incentive to be a part of it, because it's where the best opportunities are: buyers go because there's efficiency in pricing and safety in the process, and sellers go because that's where the buyers are. As more people join, the pricing mechanisms for the assets themselves become more efficient -- valuable products are priced higher, and less valuable ones are priced lower.
To those who think this is impossible for the photo industry, think about the history of online advertising. Prior to Google, online advertising was as chaotic and inefficient as the photo industry is today. Finding highly trafficked and particularly targeted sites was not only difficult, but they would change rapidly. It didn't make sense to invest dollars in an ad campaign for a website that may not remain well-indexed for the same keywords over time. In fact, most industry followers thought the internet would never be able to support a viable online advertising infrastructure -- neither buyers or publishers of ads were happy with results, and many predicted online ads would eventually just go away.
Google's novel approach was to use the same sort of auction-based system to redefine the advertising market. The "search" technology was the vehicle necessary to quantify the value of any given internet-based property; the business model underneath is to sell advertising based on the value of that real estate. Google also made a smart decision by not setting advertising rates, as was the custom back then; they merely provide a mechanism by which participants set market rates through auction. Different websites are valued differently based on their rankings for certain keywords, which can change a moment's notice. Rather than have advertisers pay to be on a particular page, they instead paid to be on whatever page was the most popular for a given keyword. As long as google's ranking is considered useful by both visitors and advertisers, market rates set by auction are deemed uniformly acceptable. And as long as the distribution of those advertising fees are considered equitable and competitive by the publishers who host the ads on their websites, the market is "efficient" and business is done.
By contrast, Yahoo's attempt at the same thing was inefficient, thereby less profitable. The lesson here is not just to create and participate in an efficient system, but to implement its various components properly.
How does this translate to stock photography? Can the same sort of model be replicated for photo licensing? It's not unrealistic, but it will require certain technological developments that, to date, no photo-centric company is willing to tackle. This is largely because the parameters that matter for photo licensing don't correlate directly to advertising, or to trading financial instruments like stocks. New parameters need to be established, and photo assets then need to be categorized automatically into those parameters. For example, "lifestyle", "sports", "travel", "artistic", "porn", "wildlife" and thousands of other top-level categories need to be devised.
I envision a sort of genome sequence tuned to photography attributes that can be applied to any photograph. Characteristics such as "black and white" and "empty space" and "vertical/horizontal" would be another set of parameters. And then there's a matter of a universal keyword architecture, which is another technology that doesn't have enough attention. (I've addressed that in the past, and will continue to do so in future articles.)
And then once these parameters are defined, an automated auction system can take them into account, and combine existing site ranking mechanisms to produce an infrastructure capable of supporting a market-maker system.
Will the photography world get around to these? Not unless anyone realizes the financial opportunity for it. But it is possible. After all, the fact that Google, being a heavily driven technology company, would build a business around advertising, a traditionally non-technical business (in fact, a culturally anti-tech industry), suggests that anything is possible.
The good news is that the need for an auction-based licensing system can be applied to other creative assets as well. There are already developments currently underway in some of the more basic levels. The first is a set of public registries that users can sign up for to store information about themselves, for example. The "iNames" project allows people to look up information about individuals, products or services, where you can make certain information about yourself public or private, depending on who's asking, and what's the use. Facebook and MySpace both employ similar-but-proprietary servers that allow developers to build applications build new businesses and websites that draw upon these information using data feeds.
In fact, the Orphan Works Act calls for the Copyright Office to create an openly accessible registry of registered works. Once the database is live, it's easy and quick to glue together a few simple protocols that exist today to create a mini stock-photo licensing system:
- tineye.com, picscout.com, or xcavator.com can be fed a photo, either by upload or by reference from a URL.
- The photo is then matched against images in the copyright database registry to determine who the owner is.
- The owner's information is accessed through an iNames registry, where the user's preferences point to a license server for photo licensing.
- The photo is then licensed through whatever agent is authorized to sell it to the buyer.
- Payment is made and the user's commissions are wired to his account.
This all would take place as quickly as it currently takes to download a song from iTunes. If such a system were available, anyone and everyone would want to participate because it doesn't require any additional work. The only thing missing from this becoming a reality is the copyright database coming online. But that doesn't mean that other photo databases couldn't do the same sort of thing -- Flickr, for example.
Web 3.0: crowd-sourcing intelligence, not just content
In the above example, I assumed the person who wanted to license the photo already knew which one he wanted -- it was just a matter of licensing it properly. But a more challenging problem is finding the photo in the first place. This is where the Web 3.0 will be useful. To explain how that fits into this, I need to step back and review Web 2.0.
People associated the "Web 2.0" buzzword with "crowd-sourcing." That is, sites like Flickr, Facebook and MySpace are all social networks where people generate their own content and put them online. Revenue was generated because of the existence of this content; it attracts traffic, and traffic increases online advertising revenue.
What people aren't aware of, however, is that there is information being annotated to that content. Valuable information. People are doing things like rating songs, voting their tastes for things, and providing information on wiki websites. Currently, no one is leveraging that information for financial gain; they're just relying on its existence to attract visitors, which bolsters online ad pricing.
Web 3.0 is where that information's untapped value is released. Crowd-sourced content then becomes crowd-sourced intelligence. That is, information about information can be used to quantify value for that information to be monetized. For example, photos can be keyworded, classified, annotated, modified and otherwise "prepped" for a new form of monetization. As long as these user-driven behaviors are done within open-system protocols and development platforms -- and they will be, or people won't bother to use them -- then automated web robots can crawl these websites and begin to build hierarchies of this information that can be utilized by others in countless ways.
As for the photos in this system, they too can be found, filtered, and analyzed, which makes it perfect for a system that helps people find what they need and sell it to them. This then paves the way for market-makers to create an independent platform by which buyers and sellers of photo assets (or any other kind) can trade. By combining existing technological developments with search/query protocols, one can envision a search-ranking mechanism akin to google, but specifically engineered for licensed content (such as photos and video).
This may seem far-fetched, but there are billions of images online that have already been viewed, ranked, keyworded, and otherwise "prepped" for sale, yet are lying dormant because no one is laying the last mile of wire to connect it all up to a trading system.
Why and How Does the Pro Photographer Benefit?
Most pro photographers see the consumer as a threat, partly because they are large in numbers, but more because they are "cheap" in what they are willing to accept in pay. So, how and why would the pro benefit if there was an open system that embraced the consumer, rather than kept him out?
Simply put, the more level the playing field to everyone, the more likely it is that the better players will win. This is because like search engines that find the "best" matches for peoples' search queries, a future image-search-and-license environment will also feed photos that are considered "highest ranking" by data derived from millions of sources. In that environment, pros will invariably win over consumers.
By contrast, in today's environment, stock photo agencies either pick what a few individuals think are "the best results", or provide arbitrary search results. This is inefficient, wasting visitor's time, and benefiting no one -- especially the pro. Moreover, pricing is similarly arbitrary, which is also inefficient. In short, today's online stock industry does not provide a level playing field, meaning pros have an uphill battle to fight against the consumer, whose photos are "found" more often than pro's photos are. There are billions upon billions of them and no one is automating a ranking system, so the pro's photos lose due to overpopulation, chaos and randomness.
If an intelligent market-making ranking system were in place, pros are more likely to benefit not just because they are more likely to produce better content, but because they will go to extra efforts to include more useful/appropriate metadata and keyword info, and to position their images at properly targeted websites (whose ranking affects photo placement). Sure, consumers may do this, too, and some of those who do it well will be the "pros" of the next generation. Either way, buyers will invariably find and buy images produced by those who do better in this system, and pros are currently better equipped to get that running start.
Lastly, a market-maker model for selling images would expand the buyer base to include millions of more people than it does now, allowing pros to leverage the above benefits to an even greater degree. They would sell volumes more images not only to existing markets, but to new markets that never licensed photos before.
What should pro photographers do today?
The best thing for pros to do to prepare for the emerging landscape is to establish themselves using the same "search engine optimization" (SEO) techniques everyone else uses today. Create a domain name and populate the site with photos, and follow the well-accepted guidelines I discuss in an article I originally wrote back in 1999, here.
It is also important that photographers employ efficient workflow methods for how they manage their images and their metadata. I discuss this in the article, here.
Pro photographers' futures in stock photography will be highly dependent on how well they promote themselves today, not tomorrow. This is true, even if they join other stock agencies. Agencies don't promote photographers, photographers do. So photographers need to treat their photo businesses as if they weren't in a stock agency at all. (If the agency produces any revenue, think of it as a lucky bonus, not as a primary source of income.)
Summary
As photo suppliers, pro photographers are outnumbered by consumers by many orders of magnitude. As photo buyers, traditional media companies and others who buy stock photography are outnumbered by consumers, even though these sales are harder to see because they occur in such small per-unit sales. Either way you look at it, consumers are affecting everything about the photo business, especially at the pocketbook.
The best way for pros to strategize their future is to stop fighting the trends and to start adopting business practices that reflect modern economic principles. The first step in that direction is to always have the awareness that the consumer is there, both as a buyer and as a competitor.
Labels: analysis, asymmetric information, dan heller, economics, financial analysis, flickr, licensing, photo agencies, photo business, stock agencies, stock photography
posted by argv | 7:41 PM
