2007 will be remembered as the year of the panic marketing. Misunderstanding the reasons for the success of microstock and fighting against an onslaught of new offerings, some photo agencies react by slashing prices, undercutting, resolving to a dump initiative. Reminiscent of the great depression of 1929, when the supply exceeded the demand, mostly because companies would not pay their employee enough to allow them to purchase anything, the photo industry has started a downward spiral into who will license the images the cheapest in the hopes of compensating their lost by increased volume.
Reading about how a21 is considering replacing licensing fees with advertising revenue ( how very 1999 dot com of them) or Corbis devaluating their Outline brand by offering cheaper celebrity portrait, I see a trend emerging that is typical of an industry poorly reacting to a sudden change.
Let’s review. The reason for the success of microstock is based on its community aspect: buyers and sellers are the same. Therefore the more sellers, the more buyers . Furthermore, they can offer very low prices because they have leveraged technology to its maximum, lowering production cost to a minimum. Besides the cost of editing, keywording and marketing they have brought the cost of an image sold to as close to zero as possible. What traditional royalty free companies who decide to follow suit in their pricing seem not to realize, is that their margins are so low, one would have to completely revisit their production cycle to be able to compete properly. Cutting the prices in order to compete is not going to work. Actually, it will just accelerate the losses.
In editorial photography, and I am sorry to see that, the same poorly thought initiative are being applied. Outline, owned by Corbis, believes that by slashing prices on its portrait photography, it will regain market share it lost to competitor like Mediavast’s Contour or Getty Exclusive collection. It is a huge mistake. For very long, Outline was the Tiffany or Cartier of the photo industry. High end photographs for a high price. Quality is something no one has a hard time paying for. But, as they lost their top contributors to the competition, and Corbis being Corbis, they have now decided to create a discounted version of itself. The result ? Not only they are they not responding to customer demands for higher quality and new cutting edge talents, but they are diluting their valuable brand. If anything, other celebrity portrait agencies are raising their prices, not lowering them. But as usual, in a panic situation, the first instinct is to lower prices.
Now, let’s look at Getty. They are not lowering any of their pricing. Quite the opposite, I would expect them to increase their rates, including in microstock . They are combating over supply with different tools: Customer service, quality, service, and mostly by leveraging technology. They are also about to enter international markets by producing local production. The celebrity world is good example of how this works. Take “American idol” or any reality TV show that are now some of the most watched. The concept of the show exports very well but in each of its countries it creates local stars that are completely unknown outside their borders. It is easy to license images of Tom Cruise but impossible to license any images of the new American Idol winner. Politics are the same. Sports can be very localized too.Try to sell a photograph of baseball Derek Jeter to Italy. And those are the images that sell the best. As I had written in a earlier post, to be global, you have to go local.
While slashing pricing always seem to be an obvious reaction to keep or maybe increase market shares, it always, always a bad idea. First and foremost, your loyal customers suddenly realize that you were overcharging them all this time. Second, if you do not have what they need, they really do not care how much you charge. And finally, revenue always follow the trend, they get slashed too.
In 1929, when companies realized their product did not sell anymore because of poor demand, they all started cutting their prices in a downward spiral until they hit the ground. The loss of income impacted the quality of their product. They misread the reason why their product were not selling.
PS: One big lesson of 1929 is that only the companies that maintained product quality and worked with their customers made it.