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

Paul Brennan, Shutterstock’s VP of Content Operations, who sent the previous email, posted the update in their forums.

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:

  1. Last July they lowered the payout threshold from $75 to $35 further encouraging contributors on the lower royalty tiers
  2. 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.

  • Alexander Jemeljanov
    Posted at 18:31h, 01 February Reply

    We are facing the age of low priced content – proved by PhotoDune. iStock showed us that the authors are just a slaves. I think this Shutterstocks change does not move it close to iStocks neither to PhotoDunes politics. Still SS is stable and solid in my eyes. What other thought we have?

  • Andreas Hohl
    Posted at 18:43h, 01 February Reply

    Price cutting in this industry is totally nonsensical. If someone needs an image, video or whatever media product, they will pay whatever the price is. For some reason these agencies are grasping at straws trying to appease the damn share holder while screwing the artists/contributors – which in the long run will be a losing proposition for all three; the agency, the contributor and the share holder. It is unfortunate that Shutterstock is shuttering at the prospect that Adobe might be competitive. WHat the heck did they think was gonna happen. Reality is Adobe may not be as successful at this as many may think. Even they rely on artist/contributors and if they start these types of “wars”, then they may also get or feel the brunt of the attrition of artists willing to contribute. These companies make some of the dumbest decisions without ever actually talking to contributors or in particular buyers! After all, they depend on both equally.

    • Lee Torrens
      Posted at 19:28h, 01 February Reply

      I don’t think it’s as dumb as it sometimes looks. They have a lot of data and they talk to a lot of contributors. As contributors whose careers are photography, videograph or illustration, it’s easy to look at the long term and see the negatives. But few agencies and very few shareholders are looking at even the medium term, because it’s either a job or an investment for them, not a career. The market is changing so fast that even the medium term will be totally different to what we have today. I think it’s naive to look at the long term. Trust in your abilities and your intelligence and do what works today and tomorrow, and know you’ll figure out the future as it gets closer.

      And more specifically, price cutting works. Agencies can see that. The people making these decisions are very intelligent and they don’t just cut prices without first testing them to see the results. They even said that straight up in today’s clarification.

      And Adobe is already very successful and know exactly what they’re doing. And they have billions to invest in it. They will be very successful at this and will take the lead position away from Shutterstock in the next 2 – 4 years. You watch! 🙂

      • Lawrence Sawyer
        Posted at 22:49h, 17 March Reply

        Wrong. Price cutting works to grab market share, but if it ALSO means a commensurate cut in income to your suppliers, then that’s not sustainable. They will lose their suppliers of good imagery. Newbies might step in but the quality won’t be there. What supplier would agree to that? When Ford cuts prices on their cars do you think their parts suppliers suddenly cut their prices for parts for the next production run? Hell, no. The only reason stock distributors can get away with cutting prices is because the structure forces Cost of Goods Sold down at the same time.
        You can only do what works tomorrow if there will be a tomorrow. With the trend toward free images, tomorrow won’t even exist for more and more stock shooters.

  • Trey
    Posted at 04:53h, 02 February Reply

    Really ??! not dumb ?
    I have long term data too .. 40% percent less sales than 2 years ago on Shutterstock 😐
    All thanks to shutterstock amazing insight and marketing stunts :p
    Microstock is nothing but a sinking ship with all the price cuts from the contributors.

  • Alexander Jemeljanov
    Posted at 16:05h, 04 February Reply

    We do not have any data on how much cutting it will be, am I right? And considering that this cutting will affect only Extended license should not make a huge bank breaker. What could be the numbers? 5% -10% in loss? Or even less?

  • christian lagereek
    Posted at 05:45h, 12 March Reply

    No doubt we, the contributors to this industry ultimately will be the victims. Anyhow I have shot stock since 1988, seen a lot come and go. The one thing I have learnt is that agencies should look after their “life-blood” their members who can supply sellable and commercial material.
    Dreamstime put all hopes in newcomers and weekend-snappers and just look whats happening! old photographers are leaving, opting out of various licenses and they have sunk badly in the ranking.

    I think its imperative for SS to really start thinking in terms of preserving faithful people, the people that have built the company to what it is today.
    Price cuts, well we are used to that but I doubt very much that is the answer. Soon buyers will expect images for free.

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