01 Feb 2016 Shutterstock Explains Royalty Cut is to Enable Price Cut
Last week Shutterstock announced a royalty cut for their Extended Licenses – which they call “Enhanced Licenses” – which was not well received, both for its lack of clarity as well as generally being bad news for contributors.
They have now responded to the feedback by providing more details.
The update says that the royalty cuts are to enable a future price cut for Extended Licenses. At least that’s how I interpret the still-not-quite-clear announcement.
The Shutterstock Price Cut
He acknowledges price pressure on extended licenses and says they’ve been testing for ways to increase the volume.
Their “extensive testing” found that the best strategy to increase volume was to… wait for it… cut prices. Genius!
Thus, the recent royalty cut is preparation for that, which hasn’t been announced yet – buyers are still paying the same prices despite the royalty cut having already taken effect.
Shutterstock under Price Pressure
The pressure they refer to is primarily Adobe, who are leveraging their deep pockets and massive software revenue to undercut Shutterstock’s prices.
That undercutting takes the form of a 40% discount to the otherwise equal prices, available to all of Adobe’s already-paying Creative Cloud subscribers.
This is a major complication for Shutterstock who isn’t able to match those prices without taking a massive hit to its core revenue stream, and wisely doesn’t want to enter a price war with a company 40 times their value.
Despite claiming in their last earnings call that they compete on their collection and their search, they are looking at ways to remain price competitive around the edges, without touching the cash-cow of their primary subscription product.
Last March they raised the reproduction limit on the standard license from 250k to 500k to match Adobe’s license, which obviously lessened demand for Extended Licenses.
Now reducing the price of Extended Licenses is a further such change.
But cutting prices where they can isn’t the only way they’re working to maintain their high 30% growth.
How to Reduce the Cost of Supply?
Royalties are Shutterstock’s biggest expense. The company has been making moves to lower their overall royalty expenditure without – until now – actually lowering royalties:
- Last July they lowered the payout threshold from $75 to $35 further encouraging contributors on the lower royalty tiers
- Last December they lowered the entry exam requirements from 7 of 10 to just 1 of 10, compounding the appeal to new and less experienced contributors who earn lower royalty rates
Now cutting prices and royalties for extended licenses is the latest, and not likely the last.
From the agency perspective, this makes a lot of sense. Top contributors are earning a fortune and aren’t going to remove their content or stop producing if they earn a little less. Yet new contributors can be encouraged by getting more sales, and their royalties are far cheaper. So if an image is of comparable quality, it’s better for the agency to have the sale go to the newer contributor on the lower royalty rate.
What I can’t believe is that they’re telling contributors they’ll make up the lower royalty with higher volume, #4 on the list of eye-roll inducing agency lines.