iStock Angers Contributors with New Royalty Formula

Posted by on Thursday September 16, 2010 | Business

Microstock distributor (and Getty subsidiary) iStockphoto has announced plans to change it’s royalty structure to reward contributors who bring in the most revenue over the short term, instead of rewarding contributors for accumulating downloads over time. The new system, which is designed to increase iStock’s gross profits, takes effect in January.

iStock COO Kelly Thompson’s announcement about the changes on September 7 drew hundreds of responses from contributors. Many concluded that they would lose income under the new system, and expressed their outrage.

Thompson responded the next day, explaining that only 24 percent of contributors would experience a royalty-rate decrease under the new system, according to iStock’s projections. The rest would retain their current royalty rate or get an even higher rate, according to Thompson.

He also explained why the current royalty system, which raises contributors’ royalty percentages of as their lifetime download counts increase, had to go.

“As the company grows, the overall percentage we pay out to contributing artists increases. In the most basic terms that means that iStock becomes less profitable with increased success,” Thompson wrote. “As a business model, it’s simply unsustainable: businesses should get more profitable as they grow. This is a long-term problem that needs to be addressed.”

It hardly calmed the anger, drawing hundreds more mostly negative comments.

“Greed has taken over iStock,” wrote one contributor. “I feel like I’ve been stabbed in the back.”

Particularly angry are non-exclusive contributors, who already receive lower percentages than exclusive contributors. Under the new system, they are eligible to receive a maximum of only 20 percent of their sales. Exclusive contributors will receive a minimum of 25 percent, and a maximum of 45 percent.

To calculate royalty payments, iStock will track the so-called “redeemed credits” for each contributor’s images. Customers buy credits, and redeem them for image downloads. Larger image files cost more credits than smaller ones.  So redeemed credits accumulate not only on the basis of how many image downloads a contributor has, but what file sizes those downloads are. The more large image downloads a contributor amasses in a calendar year, the higher his or her royalty percentage will be the following year.

That effectively rewards the best and hardest-working photographers. By tying percentages to accumulated downloads, the old system rewarded not just talent and hard work but also longevity: Percentages crept upward toward the maximum of 40 percent regardless of how active the contributor was.

Although iStock is trying to assuage anger by emphasizing that contributors’ incomes will continue to rise as  iStock’s overall revenues climb, iStock’s own gross profit will rise even faster. After all, iStock says “we can’t pay everyone 40 percent and remain competitive,” so it is changing the rules to make sure it gets a larger share of the pie in the future, regardless of whether total revenues increase.

It’s a reminder of how much power distributors have in a market glutted with stock images. And the irony of the angry reaction from iStock contributors is how much it echos the reaction of rights-managed and royalty-free stock photographers back when Getty and other agencies were cutting their percentages with impunity. One rationale for those cuts was that the traditional agencies just couldn’t compete with upstarts like iStock, which was selling images for as little as a $1, and attracting contributors in droves who were grateful to sell their work for almost nothing.

History is apparently repeating itself, and it’s probably no accident that iStock’s new royalty schedule is designed to entice the next wave of hungry new stock photo producers.

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