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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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Blogger Stuart Dee said...

Hi Dan,

You always come up with interesting posts, and your title definitely is a good hook to get the attention of many RM photographers! :-)

You can check on this, but I'm pretty certain this is how it started. As far as I know, Royalty Free was a term coined by agencies to market them to clients as having no need to pay additional licensing fees for every usage, you pay once, and use it as you wish (keeping things simple, there are wrinkles).
Photographer's still get 'royalties' from RF images, depending on each licensing, but each payment allows for "unlimited" use without further 'royalties.'

To be accurate, "Royalty Free" was always a misnomer. It was just created to market to clients and make it sound cheaper and easier.

And they were never "royalties" either, even for RM. If a photographer licenses an image for $1000, that belongs to him. If he has an agent license if for him, the agent gets a commission on the sale. Technically, the entire licensing fee is a fee to use the image and belongs to the photographer. The agency gets a commission, a percentage of the licensing fee. Because of the power (and most would say greed) of agencies, they basically changed it so that the entire fee belongs to THEM, and the photographer gets a "royalty." Legally, the fees should be held in escrow for the photographer (the copyright owners and always pay them first and they can only use their commissions for operating expenses. But they act as if that is totally their income, and they are giving a royalty to photographers. Instead of getting 50 to 60%, the photographer now makes 15 to 30% mostly. The whole thing was turned around, and now they think of the royalty to the photographer as an "expense." And they worked hard to minimize this "expense," much like they would say janitorial services or something....

it's a sad state for photographers, but if you or others can somehow bring some of the power and income back to the creators, that would be great...

Stuart Dee

Stuart Dee Photography
Travel/People/Location Photography Worldwide


12:32 AM  
Blogger argv said...

Your description here is what the term RF ended up meaning. It didn't start that way. My blog post walks though the historical timeline that lead to this, and your description mirrors what I spoke about. The original RF images happened to have those particular license terms, but that's not what characterized RF--it was the lack of obligation for the (secondary, sublicensor) agency to pay royalties back to the photographer.

4:49 AM  
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