Yesterday Digital Railroad announced to our members changes regarding pricing for archive subscriptions, storage and transaction fees. As anticipated, some of our members have had questions about the changes we've made. Serving as ombudsman for the photographer community, David Sanger, and Charles Mauzy, CEO for DRR, engaged in the following email dialogue that we thought would be helpful for all of our members to read:
DS: The latest announcement came through from DRR and I cannot say that I am surprised in the change in Marketplace from 80% to 70%. What can you add as background for SAA members?
CMz: I cannot say I was surprised either when the first eMail I received on the announced changes was from you with a list of questions; and that you were equally not surprised at the changes by DRR in these areas. As a businessman as well as a professional photographer you are only too well aware of the operating costs required to build, sustain, and continue engineering innovation on a service like DRR’s platform. This is even truer of the costs associated with supporting, marketing and expanding a managed channel like Marketplace. Our early modeling clearly showed that a 30% Marketplace transaction fee would likely be required to run DRR but the conscious decision was made to subsidize the costs to our early members and Marketplace supporters by running at a lower fee structure. We did this in the face of many advising us that changing to our required margins later would engender some flack and possibly ill-will.
It is easy for the cynical mind to suggest that this was a loss-leader strategy to bring in customers, but our motivation was exactly the opposite: give back more to our early adopters and supporters while the Marketplace, and Research Network were in alpha/beta and the total opportunity for return on member investment was small. It was a decision to learn on our dime rather than our members – especially with the Marketplace. This approach also allowed us to throw down the gauntlet to the legacy incumbent market leaders and give them pause to further shifting the photo economy away from the independent photographers.
With our recent launch and debut of the PLUS-based automatic pricing tools we now consider ourselves officially out of beta. We are also beginning to see the right kind of trend lines with buyer adoption, repeat buyer business and a rapidly growing sales pipeline that positions us to also finally move our pricing out of beta-level subsidy to the levels required to run DRR as a business. The 30% transaction fee still offers one of the best managed-channel return opportunities for professional photographers available in the world and still represents very good distribution channel economics for our agency members. The DRR SasS platform continues to represent a great high-value, low-cost solution for professional photographers and agencies.
DS: A couple of questions though:
DS: Can we reiterate a subscription discount for SAA members? The APA discount is 20% off the annual fee, plus waived set-up. Can we confirm that for SAA members too?
CMz: The 20% discount for SAA general members continues; however the onetime setup fees are no longer waived. Our costs of supporting new members are considerable and typically extend well beyond our platform – extending into many other aspects of their workflow. The 20% discount for general members of other photography associations will also continue, with the same change to the one-time setup fee.
DS: What can be done to expedite collections on licensed images? Several SAA members, including myself, are noticing long, 90-180 days lags in payments.
We are adding dedicated accounts receivable professionals to our new Seattle-based Finance team and adding more automation to our back-end to cut the cycle time on billing, reporting and collections. This is a top company priority for us. The early beta period with the original NY-based accounting team created a very small number of delayed billing/delayed collection transactions that we are now aggressively pursuing.
There is a growing trend to extending the payment cycle across several market segments; especially in the editorial segment. We are also making a concerted effort around training our buyer members on how we prefer payment – net 30 days – but the feedback we receive from our buyer members is that most of their “vendors” are increasingly flexible with their payment terms. We have no way to verify this; but if our industry is “redefining” the traditional Net-30/45 it adds another pain point for photographers who need to keep payment cycles tight relative to their expenses in producing the original works. This is especially true with those photographers who are with traditional agencies who pay quarterly.
DS: There already is a built in delay between licensing of the image and invoicing and then posting the account. My recent sale for the May issue of l’Express was May 1 (when the license began), was invoiced mid June and finally posted on June 30th. How can you assure that licenses made in July will still be at 80% even if invoiced or posted after August 1st?
CMz: The built-in delay is in fact the “human hands” part of our backend workflow that we are working to fully automate. The gap is largely related to staffing levels and the rapidly growing activity volume on MP and RN. This will get better as our dev team is now focused on some critical “infrastructure” engineering and we are aggressively adding staff to bridge the gap to full automation.
The new Marketplace transaction percentages only start upon renewal for existing members (or those who sign up before Aug 1st) and apply immediately for any new members signing on or after Aug 1st. Our business rule is that the transaction fees in place with each member’s agreement at the time of the sale will govern the percentage split applied. We will track that carefully.
DS: What will DRR be doing with the 50% increase in revenue from Marketplace? Increasing sales force? Increasing advertising? Improving interface and contributor tools? Increasing salaries? Paying off old debts? How do you expect this additional “transaction fee” (reduced royalty) to translate into sales? Any specifics?
CMz: Use of “proceeds” will be primarily dedicated to operating costs – specifically: increasing our SEO investments, advertising, adding internal sales support and finance staff, aggressive engineering efforts on automation, and ongoing investments in our products & services. The largest growth in our forecasted spending through ’08 and into ’09 is SEO and Marketing. The majority of our revenue is performance based so we make money only when we are making money for our members. With a 30% transaction fee we have to make a lot of money for our members and we have to keep our average license fee per image up across that increasing volume.
DS: How do you see the medium term development of DRR Marketplace in terms of the mix of editorial photo buyers and commercial buyers? 96% of my own DRR MP sales have been editorial. What is the system-wide average and how quickly do you see it changing?
CMz: Up to today our sales by industry segment have been definitely weighted to the editorial buyers. Over the first 6 months of MP 25% of our sales were to Magazine Publishers, 24% to Book Publishers, and 5 % to Newspapers. Corporate buyers comprised 23% and the Advertising plus Graphic Design firms combined for 19%.
We are very focused on shifting this mix to increase the percentage of sales going into the Advertising and Graphic Design segments where there is still a proven need for higher value rights-managed imagery and licensing fees are higher in general. To add some color to this, over the same 6 month period our average license fee per transaction into the Advertising segment was $609 and into the Magazine Pub segment $243.
DS: Contributors to other sites are seeing an increasing number of low dollar sales which we are told is in response to photo buyer pressure for bulk discounts, high volume online usages, subscription deals for a set number of downloads, novel uses by small buyers and the like. How is DRR responding to pressures from photo buyers for special deals, or for more and more images at lower and lower prices?
CMz: There is downward pressure on pricing – no question. The emergence of Microstock and the growing quality of that offering has created an increasingly viable low-cost option for buyers where the need for rights management is secondary to their budget. While this emerging option is stimulating some growth in new buyers it is also shifting the mix-share between licensing models (RM, RF, Subscription and Micro) to the lower-cost offering and exerting a commoditizing pressure on pricing in general.
This is a somewhat different issue (although conditioned by the emergence of Microstock) than the growing practice of high-volume buyers negotiating lower “volume purchase” fees in exchange for a piece of their business. This is a reality in the editorial markets today and growing in the advertising markets now. The practice allows these big buyers to cut costs – operating costs in particular (headcount for art buyers, researchers, etc.). For these larger corporations the operational savings realized by limiting their buyers to a small select set of vendors with pre-negotiated pricing is frequently the greater motivation for the practice. The two savings combined assures that the number of companies already under earnings pressure who adopt this approach will only increase.
The total spend here is not trivial and DRR selectively pursues these buyers on behalf of our members; but there is a limit to what is a reasonable “volume discount”. Even with our greater efficiencies which come from being a “digital & largely automated operation” there is a bottom line where the opportunity for return is nil and agreeing to the offered terms simply becomes rewarding ridiculous buyer behavior.
DS: Do you have any plans to subdistribute DRR MP images through other providers, or can you confirm that this will not be done?
CMz: We have no plans to establish sub-agency distribution. We are already global by virtue of our web-based platform. We will selectively add local key-account sales people in certain international markets, but these will be DRR staff.
DS: Is there a way that you can provide overall sales performance to members on, say, a quarterly basis? For years Alamy, also privately held, has reported the mix of sales editorial/commercial agency/photographer along with average sales prices RM and RF. Now they also report their total dollar sales and volume. This of course allows contributors to see the (hopefully upward) trend and identify changes in the mix.
CMz: We started sharing a number of key metrics in our last member newsletter and this will become a regular practice. We are also looking at ways to efficiently share buyer search/request data, especially where search results are nil or we miss the sale. This will allow our members to focus new production, prioritize uploads into the DRR Marketplace and prioritize the scanning of film based assets.
DS: I know you have stated that the business focus is now on increasing Marketplace sales and revenue. Are you still working on contributor tools and are there any features in the development pipeline that we can look forward to? Anything that makes uploading and getting images to market is helpful for photographers.
CMz: We have been very focused on the contributor tools over the last several years and concentrated heavily on developing the tools and services which comprise the DRR platform – so much so that it arguably delayed the release of Marketplace. We are now equalizing that out with an increasing focus on Marketplace. This is not only an internal balancing of our development and marketing efforts – it is a direct response to our member’s feedback.
A large percentage of our members want to protect their creative time, if not expand it, to increase production of fresh new work – to do that they need more productivity from their market channels. The use the direct sales & distribution tools in the individual archives but they want more sales out of MP. To meet that demand we are investing heavily in Marketplace marketing and working hard on new buyer features – but we have not stopped our engineering investments in the platform and archive tools. We have some very exciting new features slated for release this year that are archive focused.
DS: Where do you see DRR MP a year from now? five years?
CMz: Our intention is to become a major force in the photo licensing economy. Our mission is to stand the current photo economy, which gives control and advantage to the incumbent agencies, on its head and to shift the economics back to the photographers, give them control, and give them choice. We need to run as a real business to challenge mega-business and the changes you see at DRR are part of that effort.
DS: All in all I have to say that Marketplace is emerging as a promising venue for stock photographers. I trust that this new structure will enable increased success and revenue for contributors
CMz: Thank you – DRR is a company envisioned, built and driven by photographers & photo professionals – most of our team are “lifers” in this industry and share a mission to challenge the existing legacy model that is choking the life out of our creative community. We are succeeding, and we need to be a viable business to continue this success.
Bringing our pricing out of “beta” along with expanding our product offerings is absolutely intended to allow us to generate and deliver more revenue back to our photographer/agency members and deliver a better experience and better choice to our buyer members. The end result of this will be a very different photo economy than what we are faced with today – with the economic power back in the hands of the people who create the work & those who use it creatively. To the extent we can disrupt the current intermediaries and shift the economics we all win.
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