An interesting microstock development happened earlier this week, concerning an iStockphoto competitor.

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The News

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I don’t hang around on the microstock site Fotolia at all, so I don’t see their news, announcements, or anything, until it gets posted on Microstockgroup, an industry forum.  This week, the site administrator posted this email received from Fotolia:

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Over the last few months, we’ve seen new competitors offering pricing and commission rates that are lower than our white ranking levels. This is a threat to our business, for the market as whole, and for you, our contributors. This is an issue that must be addressed for us to remain competitive.

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We have been obliged to modify our pricing and payment policies to allow Fotolia to adjust prices/commissions on a case by case basis. When a contributor sells on sites with significantly lower pricing and commissions, we will reset their rank to white to allow for competition.

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Together, we’ll work towards building a stronger stock photography market, and continue to enhance Fotolia’s reputation and competitiveness as a leading microstock agency.

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This can also be found in a small blurb on their site, so we’re not sharing any private secrets here.

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If Fotolia becomes aware that a contributor is distributing any images, vectors or videos (the “Works”) through another stock agency or website (regardless of whether such Works are the same as the Works being distributed through Fotolia), and if the commission/royalty rates and/or pricing (the “Rates”) applied on such other stock agency or website for such contributor’s Works are comparatively lower than the Rates applied on Fotolia for “White” ranking contributors, then, subject to applicable law, Fotolia reserves the right, at its discretion, to lower such contributor’s Rates on Fotolia so as to match the Rates applied for “White” ranking contributors on Fotolia. Subject to applicable law, Fotolia reserves the right to inquire, from time to time, with any given contributor as to whether such contributor is distributing any Works through any other stock agency or website, and such contributor shall promptly provide this information to Fotolia. For clarity, Fotolia is under no obligation to make any such inquiries.

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The Ranking System

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Now, to quickly review the ranking system on Fotolia, the more downloads the contributor has (ie, the more licenses purchased for their work), the higher up the “ranks” they move, from “white” to “diamond”.  As they move up these levels (there are 8 of them), most importantly the royalty percentage the contributor receives moves up, from 20% to 46% (for non-exclusive contributors for per image downloads).  Also, the credit pricing of your work rises at certain levels, which you can see on this page.  So a “white”‘s pricing based on size ranges from 1 credit to 20 credits, while a “diamond”‘s ranges from 3-100.  Also, I believe at the emerald level, the contributor can choose to bump their pricing level to a higher one.  So, a high selling Emerald level has quite a few benefits for their past performance.

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What it Means

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What this week’s announcement basically says is “If we find your content being licensed on a competitor who either sells for less, or pays a lesser royalty amount, we will drop you to the starting level at Fotolia”.  A company spokesman steps into the MSG discussion with:

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It has come to our attention that some new agencies are selling the same contributor content at prices far less than most other microstock agencies. We feel that this is bad for both photographers and stock agencies. We do understand photographers are free to choose their own destiny in a free market economy, and our intention in these actions  is to encourage everyone to support fair pricing for customers and commissions for contributors. Only a handful of sites and contributors have been identified thus far, and we will communicate with them before taking any action.

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By sponsoring and uploading to sites that undercut prices, photographers put the whole industry in jeopardy – and we feel our duty is to take action. If the community agrees with our approach, the status quo remains. If the community wants to place down pressure on pricing, we’ll adjust accordingly, as a measure to be fair and respectful to our costumers and stay competitive. Keep in mind that when rankings drop, the ability to charge more for images goes away – and that hurts everyone’s bottom line, including ours.

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The Beatings Will Commence…

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So, they are attempting to justify this taking away of status as some attempt to exert a force on contributors to not support lower priced/royalty percentage sites.  In effect, they are actually punishing the independent contributor for … being independent.  And some independent contributors are stating that the low earnings they receive from Fotolia due to recent royalty percentage cuts is actually what has pushed them to submitting to many more microstock sites in an attempt to make more money:

I don’t get the logic behind the threat at all:

1. Big agency cuts commissions and thereby reduce contributors’ income.
2. Contributors start contributing to smaller agencies to make up for their losses.
3. Big agency threatens contributors with further commission cuts if they don’t pull out of smaller agencies.

Many contributors have actually gone to the step of removing their content from Fotolia, ensuring that Fotolia’s customer base may suffer and revenue may drop even further.

Irony

With a history of recent royalty cuts lately, many are calling this a disguised attempt to grab more money from the contributor, that it isn’t really about the industry survival, since, ironically, Fotolia brags that it has the cheapest subscription plan around for stock images.  In fact, contributors are noting quite a bit of irony around this issue:

I hope Fotolia understands the hypocrisy of all this. It was companies like Fotolia and istock that came along years ago and undercut the traditional stock agencies, selling images at prices far lower that the major royalty-free stock houses. So it was ok for them to do it back then, but now when someone does it to them, contributors are at fault.

The Confusion

Contributors are noting that, even if they wanted to play along with this plan, Fotolia is being purposefully evasive about just what agencies they are referring to with generic terms like “new competitors”.  Is it Getty’s recent beefing up of “Thinkstock”?  Could it be “Depositphotos”?  Or is it really a newcomer like “Photodune”?

Name names, Chad. You’re asking us to redefine how we do business in microstock and take a financial hit for your benefit. The very least you could do is list the agencies you disapprove of.

In addition to this issue, the paragraph on the site contains the mysterious “Fotolia reserves the right, at its discretion.  So contributors are left wondering, “Is this about me?”  “Are they targeting small contributors?” “How are they monitoring this?”.  Not to mention some contributor anger that deals will be cut with some of the largest contributors who tend to upload dumptrucks of content onto any new site without a discretionary look at pricing or royalties.  So, if this was just about building a “stronger” industry, and not a money grab, that that would be the first thing addressed:

Those would seem to be the biggest targets/offenders in this, and it will be interesting to see what happens and how it is applied. Oh well, I could argue about this topic forever with Chad, but it’s probably time to bow out because it really doesn’t affect me. He’s been a good sport in humoring us. And… there is really no sense in continuing a silly argument.

There Went the Boat

I’m not saying that sites that license content at either terribly low prices or pay ridiculously low rates are good things.  I’m also not sure that what almost appears to be collusion to drive down pricing and/or royalties is particularly legal.

So, how did Fotolia miss the boat in this controversy?

Positive reinforcement, of course, not punishment, in my opinion.  Contributors are already upset about royalty cuts, forum bannings and mysterious credit pricing, among other things.  So, how about spreading some goodwill and good cheer by trying to reverse what many are upset about right now – dropping royalty rates.

If it is the “industry” that Fotolia is upset with, in effect that they are losing business to newcomers who see price as their selling point (the cheaper the better), and they believe that Fotolia’s pricing level provides a “sustainable” base for royalties while being the right price point for buyers, they should encourage contributors by increasing the contributor royalty rates.

They could do this the hard way, with some sort of pledge that a contributor won’t sell on X,Y and Z site and that would be fine, or they could just try to make a statement they do appreciate the hard work contributors do, and they should be rewarded with higher royalties.  It could be accompanied by a mission statement or just an announcement that they are trying to better the industry and raise things to a sustainable level.

A gesture like this would boost the contributors’ impression of the value of their work.  After that, a contributor may not be so willing to accept the lower prices/royalty rates that Fotolia claims they are trying to stop.  By paying contributors more, they may actually succeed in shutting down the content stream to the agencies they portend they are fighting against.  Thus, increasing their revenue.

Back in the film days I was working with guys like Tony-Stone, Stan Kanney, even Mark-Getty of the original Getty images. When the market went sour, too much competition, price fights, etc,  know what they did?  they slightly INCREASED, percentages for their members, ” keep your life blood happy”  that was the policy, and the life-blood of any picture agency is ofcourse their photographers. So ? well obviously the photographers will stay, remain.

The “crowd” isn’t dumb.  Discussion abounds across the active contributor base, and consensus is often arrived at that, generally speaking, doing X is a bad idea (against their interests), while Y is a good idea (good for the bottom line).  So, getting contributors to accept that Fotolia is actually trying to act in their best interests, would likely result in the reversal of the above statement that Fotolia’s past actions are what got them where they are now.  In fact, with this action, Fotolia may well have sped up the race to the bottom:

If FT did get away with this, the sites with higher prices and higher commissions than FT could try the same trick.  They really need to forget about this and concentrate on the real reason why FT is failing.  The sites that are thriving haven’t cut commissions as severely and they have kept their buyers.  FT need to make a massive change in direction, making the site more popular with contributors will bring in more buyers than forcing them into yet another commission cut.

Conclusion

I don’t pretend to be an expert on Fotolia in the stock marketplace.  However, it seems to me that common sense would say that making your contributors happy is a great way to build a business.  Making punishing and greedy (and arbitrary) policies would be a bad thing.  And why would you want to drive away contributors for doing the exact thing they were encouraged to do?  After all, these agencies are nothing but a big database setup and a bunch of servers without the content from the contributors.

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6 Responses to How Fotolia Missed An Opportunity

  1. Thanks, Sean. You’ve written a good summary of the situation. The only point I’d add is that this is about agency’s margins, not what is best for their suppliers or their customers. Fotolia wants to charge more than other agencies, but they want to pay their suppliers less. Other agencies run leaner and meaner; they feel they can afford to offer our content at lower prices and still pay us comparable or better royalties. Those lower prices may lead to more sales, so everybody wins. I suspect the problem is that Fotolia has grown to enjoy its high margins, and is facing diminishing sales (as I certainly am with them). They need to maintain revenues, can’t raise prices (and indeed feel pressure from competitors to lower them) so they reduce costs (our royalties) and threaten to reduce them even further. I don’t believe their strategy will work, nor should it be allowed to. But I understand why they feel the need to try.

  2. Joe says:

    To the point. Excellent summary, Sean. Thank you!

    Joe

  3. Its and interesting move by them, that’s for sure. I don’t see it being workable though – iStock could pull it off, but I think people will just simply bail on Fotolia if that happened to them. Also, it seems pretty difficult to enforce – simply reducing your public profile on a site, submitting different content or submitting in the name of a spouse would all help dodge this. And in the even you’re “caught” what are they going to do about it – kick you out of Fotolia? Big deal, because they were looking to cut your rate anyway, right? So who’d want to stick around?

  4. Henrik says:

    Well written post!

  5. suemack says:

    Excellent summary of the situation Sean!

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