Alamy's Fuzzy Math: When a 10% Royalty Reduction isn't 10%

Alamy recently announced they would be adjusting the percentage of royalties they would be paying by 10% - in their favor. The reality, is, though, that it's actually going to impact your revenue by much more than that. It is important to note that Alamy pays one rate to the photographer when they have a "Direct" sale via their website, and one rate to the photographer after an Alamy "Distributor" (a.k.a. sub-agent) licenses an image, so both are provided. Here's how their numbers break down:

Alamy's 10 point Royalty Rate Reduction	Direct Sales	Distrib Sales
Previous Royalty Rate to Phototographers	60%	40%
New Royalty Rate to Photographers (10 percentage point reduction)	50%	30%
Commission Paid by Alamy to Distributors on their Sales (unchanged)	NA	40%
Example: $1000 gross sale	Direct Sales	Distrib Sales
Gross Revenue Received by Agency	$1,000	$1,000
Distributor Commission	$0	$400
Net Sale After Distributor Commission	$1,000	$600
Effect on Alamy's Share of Sales Revenue	Direct Sales	Distrib Sales
Alamy Old Share of the Revenue	$400	$200
Alamy's New Share of the Revenue	$500	$300
By Dropping Photographer's Royalty by 10 points, Alamy Increased Revenue	25%	50%
Effect on Photographers' share of Sales Revenue	Direct Sales	Distrib Sales
Photographer's Old Share of the Revenue	$600	$400
Photographer's New Share of the Revenue	$500	$300
Alamy's 10 point drop in Photographers Royalties Reduced Photographers' Revenue	17%	25%
Can this royalty reduction ultimately increase revenues to photographers?
Alamy has implied that this reduction in photographers' royalties will be invested into improvements that will result in increased gross sales revenues, and by extension, increased revenues for photographers. To increase gross sales revenues, Alamy must either increase its prices to customers (doubtful) or grow its sales, or both. Let's do the numbers.
How much would Alamy need to increase sales in order to provide photographers with the same revenue received under the old royalty rate?	Direct Sales	Distrib Sales
After reducing royalties by 10 points, Alamy must increase sales by these percentages in order to provide the same revenue to photographers. Note: This is the minimum, providing 0% benefit to photographers. To provide any benefit to photographers, Alamy would need to beat these percentages:	20%	33%
Do you believe that given current market conditions and trends, Alamy will successfully increase worldwide direct sales by a minimum of 20% and worldwide distributor sales by a minimum of 33% ? If they don't hit these minimum targets, photographers will experience drastic reduction in royalty revenues from Alamy. If they hit these minimum targets, photographers will be revenue neutral.
If Alamy successfully grows its sales so as to meet the growth percentages indicated in the above section, what is the benefit to Alamy?	Direct Sales	Distrib Sales
If Alamy achieves sufficient sales growth to provide photographers with the same revenue received by photographers under the old percentage (0% benefit to photographers), the net revenue to Alamy after paying photographers/distributors will have grown by:	50%	100%
Although Alamy is unlikely to increase its prices to customers, it is helpful to consider an example. Using the $1000 example sale referenced above, let's see how much Alamy would need to increase its prices in order to provide photographers with the same royalty revenue received before the 10 point royalty reduction.
	Direct Sales	Distrib Sales
Example: gross revenue on a sale	$1,000	$1,000
The royalty revenue to the Photographer at the old royalty rate was	$600	$400
To provide that same revenue to the photographer under the new royalty rate, Alamy would need to increase that $1000 sales price to	$1,200	$1,333.33
This increase in pricing to customers would be	20%	33%
Alamy's Share of the $1000 sale before dropping photographer's royalties and before increasing sales was	$400	$200
The amount received by Alamy under the new scheme, after increasing sales sufficiently to provide photographers with the same revenue as photographers received previously	$600	$400
Amount of the increased revenue to Alamy	$200	$200
By decreasing photographers' royalty rate and by then increasing sales sufficiently to provide photographers with the same royalty revenue as received under the old royalty rate (a 0% benefit to photographers), revenues retained by Alamy increase by	50%	100%

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Is this fair? Well, it's a business decision. However, let's take a step back. The 50/50 percentage hasn't been fair for at least a decade. Why?

Back in the analog days, it cost money for a New York-based stock photography agency to receive, catalog and store your images. Once that effort was made, when a call came in, for, say, a Time Magazine stock request, an image license for 1/4 page was about $250. There was physical labor involved in locating the image, filling out the tracking sheet and delivery memo, packaging the image for shipping, and then, when the image was returned, confirm the image wasn't damaged, and then re-file it, all for a 50/50 split of $250, or $125 to the stock house. I'll even include a few years where the stock house was converting their libraries from analog to digital, and so they incurred those costs.

Now, it's all digital, with little to no human interaction required, yet not only did the 50/50 split persist, but it's eroding away even further, and unfair.

Now more than ever, photographers need to be their own distributors. You will see Getty Images making a similar shift in percentages in the near future. We'll tell you why, when they announce it.

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TIPS60 - The business-critical matter of prices being based upon your costs

Here is another of our videos offering tips and inisights into the business of photography. a transcript of the video is included after the jump.

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TRANSCRIPT:Here are a few thoughts on how you might set your prices as a photographer. It's complex, but it's simple. The simple side of the equation is what you set your prices at have got to be more than what it costs you to be in business. I know that sounds like a simple concept, but most people don't understand what it costs to be in business. If you do not know what your cost of doing business is, you need to sit down at the NPPA's calculator on their website. Check out the URL below. Go to the NPPA business calculator and calculate your cost of doing business. Once you've done that, you know what you need to charge at the very minimum in order to stay in business. After that pricing gets to be a little bit more complicated, but understand that prices have to be more than costs. It's really a simple concept that most people don't focus on when they're starting out they just think, ""Oh it's a few hundred dollars, that'll be fine."" Not when it costs you twice that to be in business.

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TIPS60 - Choosing Your Business Entity - S-Corp, LLC, or Sole Proprietor?

Here is another of our videos offering tips and inisights into the business of photography. a transcript of the video is included after the jump.

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TRANSCRIPT:There's a big difference between being an S-Corp, an LLC, and a Sole Proprietor. I would strongly encourage you, for a variety of reasons, to strongly consider being an S-Corp. An S-Corp gives you really substantial tax benefits. I am not an accountant nor am I a lawyer, so this should not be construed as legal advice or tax accounting advice. So talk to your lawyer, talk to your accountant about this. But a Sole Proprietorship is a great way to start your business. I started my business and ran it for over twenty years as a Sole Proprietorship. I then took a second look and really should have done it sooner and determined that an S-Corp really was the better way to run the business. By being an S-Corp it actually costs you less in taxes, it allows you to write things off differently, and here's a big deal from someone who has been audited by the IRS, the probability of you being audited by the IRS, when you're an S-Corp, is a fraction of what it is when you're a Sole Proprietor. Sole Proprietorship who write off in Schedule-C's often get audited and certainly at a much higher rate than an S-Corp. So look carefully at your options.

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TIPS60 - Keeping & gaining clients in a challenging market

Here is another of our videos offering tips and inisights into the business of photography. a transcript of the video is included after the jump.

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TRANSCRIPT:Here a few thoughts on gaining new clients in a bad market. I'm John Harrington. One of the ways in which you can work on growing your client base in a bad market, one where the cyclical nature of the economy are ups and downs and people may not be ringing your phone, calling you to ask for you to do this work is to reach to clients that are a little more insulated from the ups and downs of the economy. Move to that next tier up, but doing that you when you deal with clients that are not so concerned with whether the economy is down or not because they are all higher tier client. Maybe they're planning for six months or a year out and you can deal with those clients, work with those clients, step outside your comfort zone and talk to somebody who you may have thought was out of your league before, but now is someone that you have the time to reach out and speak to, talk to, and convey to them at you're confident and capable of doing the work that they're looking for. And also do something like reaching out to past clients who may have forgotten that you exist. Those clients may not be happy with who they are using or may all of the sudden realize that they need new head shots or new other types of photography.

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TIPS60 - Product Commentary - Apple Time Machine and Network Attached Storage backup solutions

Here is another of our videos offering tips and inisights into the business of photography. a transcript of the video is included after the jump.

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TRANSCRIPT:Here a few thoughts on network attached storage. I'm John Harrington Whether your using Apple's Time Machine for your computers as we are, or using network attached storage which is a third party brand that will still work with Apple computer's or if you're using a PC in using network attached storage having these systems in place as a part of your systems workflow is really important. One of the things that happens a lot as you sit there and watch the progress bar go by is you're processing images or otherwise doing things on the computer. The worst progress bar to watch is when your computer is backing up multiple gigs, hundreds of gigs of storage and you're sitting there trying to wait for your computer get backed up. If you have a system of workflow and schedule set up so that you can actually back up your systems at night, you can actually let your computer do all that backup overnight. So get your self a Time Machine and get set up. It's a no brainer if you're not a Mac user, get some network attached storage do the same thing.

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TIPS60 - Should you volunteer your services to get your name out?

Here is another of our videos offering tips and inisights into the business of photography. a transcript of the video is included after the jump.

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TRANSCRIPT:Here a few thoughts on volunteering your services as a photographer. I'm John Harrington. Volunteering your services as a photographer really shows your clients what your work is worth, nothing. Don't volunteer your services as a photographer to get your name out there. If you're going to volunteer for any reason, make certain the client knows what the value is that you bring to the services you are providing. Talk to them ahead of time about providing them with an invoice and exchanging checks, letting them know that maybe you're doing in kind volunteering and get your name in the program as a thousand dollar supporter or five hundred dollar supporter some variation of recognition of the value of the services you bring. But understand that is highly unlikely that this client, after you volunteered your services, is going to turn around and then pay you what your worth for those services down the line and they more than likely will recommend you to other people in need of volunteer photographers and they'll share that you volunteered your services for ""X"" organization you'd likely would volunteer services for the other one.So volunteering your services is risky business.

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Orphan Works Returns

While much has changed in the legal and business landscape since the last effort to produce a workable Orphan Works Bill, much remains the same. As a result, Monday, October 22, 2012, The US Copyright Office is submitting a request via the Federal Register for comments on the current state of play for orphan works. Specifically, they are seeking to hear from all parties regarding what has changed in the legal and business environment since their 2006 report. Comments are due by January 4th.

(PDF here). Starting Monday, it will be available to read here.

Also starting on Monday, October 22nd, 2012 your comments can be submitted at this link: Orphan Works comments submission page.

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It is critical that photographers understand that the future of photography as a viable revenue stream depends upon you making your voice heard on this matter. While the various trade organizations will serve to collect voices, and you should participate, you should individually make your voice heard.

You, as the photographer, are the rights holder. However, this doesn't just extend to individuals- if a rights holder is a corporation that employs photographers, this will affect them too.

There are several things you need to know and consider as you submit comments to the Library of Congress.

1 - One of the many issues from the last round of orphan works is that there was no mechanism for a rights holder to stop a user once an infringing use was found. Further, rights holders would be compelled to enter into a license with the user. Not withstanding the fact that this could cause a rights holder to breach a separate exclusivity contract they may have previously entered into, with the current offerings of millions of images via microstock at $1 or less, there needs to be some mechanism for defining "reasonable" fees that a rights holder must accept.

2- There needs to be a neutral not for profit registry that will be the best solution to implement whatever results in a law....by neutral I mean one that is owned and controlled by its users and not subject to a takeover or buyout by a Google or a stock agency. The best (and only current) example of this is the PLUS Registry, which actually was started at the behest of the last Register of Copyrights, Marybeth Peters. You can create a free user account now by clicking here.

3 - There needs to be protections written into the law so that someone doesn't create a stock photo agency of images for which a "diligent search" has been done and documented, and then these images are sold/licensed, or a "service of convenience" fee for access to these images, is created. If this is not expressly forbidden - it will become a business model where the rights holder not only can't stop it, and must accept a small fee to permit it, but also, could find themselves competing to license their own work against that of an organization set up to aggregate orphan works.

You can't fight this to make it go away this time. It's probability of passage is far greater this time around, and if your voice isn't heard it will affect your current and future revenue - guaranteed. Currently, the United Kingdom has a law - better written with better requirements than the past US versions, so know that this ship has sailed.

If the new law is similar to the past ones proposed - here's what you can expect:

• Any business or person will be able to make use of your photographs for any purpose, forever, without your knowledge or permission, simply by failing to find you. 
•  The infringer may, for example, use your photographs on billboards, brochures, magazine advertising, web sites and in any other media, commercial or editorial. 
•  The infringer may use your photograph to promote political or social causes or extremist views that you find morally objectionable and repugnant. 
•  The infringer may use your photographs in competition with your own attempts to market your photographs. 

 The infringer may modify your photographs and use them to create new derivative works, then claim copyright ownership in those new works.  Of course, with thousands of people and companies making unlicensed, uncontrolled and unknown uses of your photographs, you will be unable grant any of your clients an exclusive license, nor could you reliably assure any client that one of their competitors is not also using your images under an orphan works exemption. You simply will have no idea when or where your images are being used, and as a result, you will forfeit your exclusive rights on the day that the amendment is passed.

If at some point in the future you happen to discover these usage, you will have no legal means by which to stop the infringer from continuing to make use of your photographs, even if you have registered your works with the US Copyright Office. As long as the infringer pays you a fee that the INFRINGER believes and agrees is reasonable, the infringer may continue to use your photographs for any purpose indefinitely. You would not be entitled to penalize the infringer by requiring a price that is out of line with the marketplace. Remember that in today’s image licensing marketplace, the vast majority of image licenses are priced at $1 to $5 for nearly unlimited usage.

While there are a growing number of companies offering services purporting to "protect your rights," and while we are likely to see many for-profit "registries" pop up in the marketplace, virtually all of these companies are using rights protection as a front to attract your attention, in order to sell you other products or services. Remember also that the moment that any of these companies achieves success, it will be acquired by one of the large stock agencies or media conglomerates, who will then control access to all of your rights information. Of course, any of these companies could fail, wiping out all of our data. We've certainly seen that happen before.

Whatever happens, we must prevent any commercial company (Getty, Google,Microsoft, etc) from gaining control over our rights information. Looking to the future, this information, and the control over it is the key to the future of our profession, as it will allow automated systems to identify rights holders and distribute fees and royalties when images are used. We must not hand the keys over to any corporation.

For this very reason, long before the first Orphan Works bill, Marybeth Peters proposed that the rightsholder groups join forces with groups representing image users, and create a non-profit, cooperative system for identifying rights holders, images and rights information. The trade organizations then did just that, forming the PLUS Coalition, creating standards for identifying rights and rights holders, and then developing a non-profit registry system to which any company (for-profit or non-profit) may connect. It is, if you will, a global "hub" for image rights information, owned and controlled by its users -- the photographers, illustrators, stock agencies, publishers, design firms, ad agencies, museums, universities and libraries. When completed, a search of the PLUS Registry will search all other registries connected to the PLUS hub, whether those registries are for-profit or non-profit. Importantly, we maintain control over the hub and the information stored within it. While you're at it, consider becoming a supporting member of PLUS, by making a small contribution to support the continued development of the Registry.

Again - you must get involved and make your voice heard. The US Copyright Office cannot give the full picture of needs to the Congress - if your voice is absent. They are asking for it, and you would do yourself a grave disservice if your voice was silent. Speak up for yourself, and others.

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Related Links:

• 6/9/09 - Orphan Works "In the Coming Weeks"
• 5/23/08 - Orphan Works and Licensing Exclusivity
• 5/16/08 - What Are the Odds? The Orphan Works Likelihood of Passage
• 5/15/08 - Apathy Gets You NoWhere
• 5/9/08 - Orphan Works - Senate Markup
• 5/6/08 - Orphan Works - History in the Making
• 4/30/08 - Orphan Works 2008 - A Wolf in Sheep's Clothing
• 4/28/08 - Orphan Works Act = A Thieves Charter?

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TIPS60 - Protecting the valuable asset of software serial #'s

Here is another of our videos offering tips and inisights into the business of photography. a transcript of the video is included after the jump.

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TRANSCRIPT:Here a few thoughts on one of the really valuable assets in your business, serial numbers. I'm John Harrington. Serial numbers are a really important part and component of your business. It cannot be stressed enough, if you lose a serial number and you have to do a reinstall at two o'clock in the morning you're in trouble and if you're on deadline your in even more trouble. I strongly encourage you to protect and keep your serial numbers in a secure place. We put three copies of each one of our serial numbers into a file folder in our filing system. Whether that's three copies of the back of the CD-rom case that we got or it's three copies of the email with a highlighter run across the serial number so it reminds us what it is. Keeping a serial number safe and secure is really important when you have to do reinstalls and for upgrades. In addition, you want to place your serial numbers in your address book, on your smart phone, or in your computer so that it's in just one more place where it's easily accessible for you.

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TIPS60 - Professional organization memberships, are they worth it?

Here is another of our videos offering tips and inisights into the business of photography. a transcript of the video is included after the jump.

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TRANSCRIPT:Here are a few thoughts on professional trade organization memberships. I'm John Harrington. For many years I've been members of a variety of different professional trade organizations and I strongly encourage you to consider each of them and in many cases all of them. Each different organization is doing something slightly different and is well worth having your membership in the organization. Whether it's the National Press Photographers Association the White House News Photographer Association the ASMP the American Society of Media Photographers or the APA American Photographic Artists or even the PPofA Professional Photographers of America. They all bring something to you and make your life better. Whether it's discounts on equipment, discounts on or access to health insurance, professional listings on the internet so that you can be found and get assignments. All of them are worthwhile and in fact at under a thousand dollars combined for all of those trade organizations it should be an expense you're making every year. It's well worth it.

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TIPS60 - Why bother sending estimates to "low budget" clients?

Here is another of our videos offering tips and inisights into the business of photography. a transcript of the video is included after the jump.

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TRANSCRIPT:Here a few thoughts estimating for clients with a low-budget. I'm John Harrington. So if you get a phone call from a prospective client who wants you to estimate their job and when you talk about budget they tell you ""Oh, we only have three hundred dollars and for you, your walking out the door rate is six or seven hundred dollars. The question becomes well, do I even bother should I even waste my time? The answer is yes. Because the client may just be fishing for a lower price and if you don't even estimate then they're not even going to consider you. But the other thing that could happen is, if you would have normally sent an estimate in for seven hundred fifty dollars for that project and the other two photographers they called also are sending in estimates for seven hundred and fifty, then the other two photographers would be considered for the job and you, because you didn't bother to send the estimate, don't even get considered. It's important that you send that estimate in because it helps the client understand what you're really worth, what the project's really worth, and in the end you might actually get the job when they only had a few hundred dollars to begin with.

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