25 Jan 2016 Shutterstock Cuts Royalties
In a turning point in the company’s history, last Friday Shutterstock informed contributors that they’re lowering the royalty rate for the Enhanced (what everyone else calls “Extended”) licenses, moving them from a fixed royalty of $28 to percentage rates that vary based on lifetime earnings. This will result in lower royalty amounts across the board. The new system starts running today, January 25.
The messaging in the notification email, quoted below, is the intelligence-insulting, non-specific excuse making that we’re used to from other agencies, but not Shutterstock. Rather than state what they’re doing, they exclude all details and instead attempt to present this as a way for them to help contributors, their “partners”, sell more Extended Licenses, as if the 25% of revenue they pay out in royalties is somehow inhibiting their ability to drive sales growth. (2014 Revenue $348M and $83.6M in royalties)
At Shutterstock, one of our most important goals is to drive our contributor’s success by continuously delivering new earnings opportunities to you, our partners. Our enhanced license provides a great opportunity to license your content at a higher price point. Over the past year, we have been testing ways to better communicate the value of this premium license to our customers.
We have determined that a fixed rate payment for enhanced licences limits our ability to continually drive more downloads. Therefore, effective January 25th 2016 the enhanced license payout will move from a fixed rate of $28 to a tiered percentage model, similar to our custom image license. To help simplify the earnings schedule, your enhanced license payout will now be determined by your earnings tier.
We are your partners and our job is to work tirelessly to serve you and grow our marketplace together.
Until today, Shutterstock’s Enhanced licenses paid contributors a fixed $28 rate per download. But now these licenses will net them 20%, 25%, 28% or 30% of the image sale price, depending on their lifetime earnings –the same structure used for ‘Custom license’. Individual sale price is determined by the image pack purchased. With the current prices, any contributor below top tier is getting less than the previous fixed rate.
This is a clear turning point for Shutterstock. It’s been many years since they’ve raised contributor royalties, which was once an annual event, but never before have they lowered the amounts.
They have in effect cut royalties in the past by increasing the license rights without increasing prices or royalties, but this is the first time the actual payout numbers have gone down.
Struggling to Keep Growth Pace?
The most probable reason for this move is that they’re struggling to maintain the 30% quarterly revenue growth rate they’ve been maintaining in recent years.
Missing that target in Q2 of 2015 had a catastrophic affect on their share price, albeit announced simultaneously with the CFO’s departure, but the share price fell 30% overnight.
But if they’re struggling to maintain growth, why cut from contributor royalties and not other areas? Especially when they tout how much money they’re paying out.
Perhaps they just assume their sales power is so strong that they can cut royalties without too much blowback from contributors. Unfortunately, if that’s their assumption, they’re right.