Those of you who know me know that I’ve been contributing to iStockPhoto for around a year and a half. My goal has been to become exclusive with the company, which means that amongst other perks, I have the opportunity to raise my royalty rate (from 20% to a maximum of 40%).
Those of you involved with the microstock photography business at all will know about iStockPhoto’s newly announced royalty structure that will take effect in 2011. I’ve been thinking about this all week, and I’m going to share some of my thoughts here.
To summarize the current payment structure, contributors have the ability to move up the ranks and receive a higher percentage from the sale of their files based on the total number of times their files have been downloaded. “Base” contributors (those with less than 250 total downloads) earn 20%, and “black diamond” contributors (those with more than 200,000 total downloads) earn 40%. Note that this only applies to exclusive contributors. Independent (non-exclusive) contributors make 20% across the board.
The new payment structure will reward contributors based on the previous year’s performance, and it will be based on the number of credits customers paid for your files. This means that if customers spend a total of 12,500 credits on my files in 2010, my royalty rate will be 30% in 2011. If I only sell 12,000 credits worth of images in 2011, my royalty rate will drop down to 25% in 2012. (This is assuming the “target” credit levels stay the same.) This is split into two tiers, with exclusives having the opportunity to earn 25-45%, and independents only being able to earn 15-20%.
Positive thoughts about the new royalty structure:
- It makes sense to reward contributors by how much money was spent on their files. If Contributor A sells 100 XS files at 1 credit each, and Contributor B sells 100 XXXL files at 25 credits each, it makes sense that Contributor B should receive some kind of bonus for bringing in 25x more money for the company.
- This makes no difference to me in the short term. If I move forward with exclusivity as planned, I’ll still make 25% in 2011. I don’t have a huge stake in this company yet.
- These are moving targets. What this means is that they probably have a set percentage of what they’re willing to pay to contributors every year – say 25%. The more successful every contributor becomes, the further away iStock will have to move the targets to maintain that 25%. It’s a carrot on a stick.
- This really hurts independents. 15% is an insanely low royalty rate – a 40% pay cut. When people ask me about iStockPhoto and I tell them that I make 20% from the sale of my files, they look at me like I just grew an extra head. It’s an industry low, and 15% is basically an insult. Every single independent contributor will receive a pay cut unless they can earn 1,400,000 credits for the company. From what I understand, there is only 1 person in the whole industry who sells that much volume.
- This really hurts loyal contributors who helped make the company what it is today. People who have slowly worked their way up the ranks to earn their royalty rates. These people will be getting a pay cut.
There are a lot of theories about why this is happening (re: Getty Images), but I don’t want to speculate. I would, however, like to address the way iStockPhoto’s COO, Kelly Thompson, has dealt with the contributors. For me, this is the most disappointing part.
- Unsustainability. In the recent CNET article, Kelly was quoted as saying that “eventually everyone drifts up to the higher canister levels, which isn’t sustainable in the long run.” This is misleading. Less than 20% of contributors are exclusive, which means 80% of iStock’s contributor base will always remain at a 20% royalty. This has been addressed all over the internet, but even if everyone got 40%, iStock would still get 60% of the earnings on a product it doesn’t have to manufacture. By Kelly’s estimate ($1.7 million paid out to contributors each week), that means iStockPhoto is making $221,000,000 per year. But it isn’t sustainable?
- Lies. I honestly believe the announcement would have gone over more smoothly had he been outright honest about their motivations. Instead, he started by stating that the change “would not change most contributors’ total compensation (except for the better)“. Most contributors are independents, so that statement is already untrue. Then, he came back and said “76% of Exclusive contributors will either retain their current royalty rate or move up“. So, basically, this is non-detrimental for only 76% of 18% of iStock’s contributors – 13.6% of total contributors. 13.6% contributors will either move up, or retain their royalty rate. Over 86% will get a pay cut. That’s a far cry from the first statement.
- It’s insulting. From the comments about how “businesses should get more profitable as they grow” (except for yours) to the constant announcements about how wildly successful iStock has become (and to thank you, we’re going to take more of your money).
I haven’t even addressed the multitude of other issues (“Vetta” files getting an even bigger royalty cut, the introduction of outside files to flood our search results, the confusing multi-level pricing schemes that turn off buyers, the treatment of vector artists). One thing is clear: a lot of people are really, really unhappy.
Yesterday’s 3rd and final announcement (the “this hurts me more than it hurts you” announcement) asked us to “hang in there” and wait and see. I will. I’m not ready to take all my toys and go home yet. But a lot of contributors have already deactivated their files. Buyers are leaving. Competitors are trying to get people to switch. It will be very interesting to see what will happen in the next 6 months or so.