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Alamy's Fuzzy Math: When a 10% Royalty Reduction isn't 10%

Alamy recently announced they would be adjusting the percentage of royalties they would be paying by 10% – in their favor. The reality, is, though, that it's actually going to impact your revenue by much more than that. It is important to note that Alamy pays one rate to the photographer when they have a “Direct” sale via their website, and one rate to the photographer after an Alamy “Distributor” (a.k.a. sub-agent) licenses an image, so both are provided. Here's how their numbers break down:

Alamy's 10 point Royalty Rate Reduction Direct
Sales
Distrib
Sales
Previous Royalty Rate to Phototographers 60% 40%
New Royalty Rate to Photographers (10 percentage point reduction) 50% 30%
Commission Paid by Alamy to Distributors on their Sales (unchanged) NA 40%
     
Example: $1000 gross sale Direct
Sales
Distrib
Sales
Gross Revenue Received by Agency $1,000 $1,000
Distributor Commission $0 $400
Net Sale After Distributor Commission $1,000 $600
     
Effect on Alamy's Share of Sales Revenue Direct
Sales
Distrib
Sales
Alamy Old Share of the Revenue $400 $200
Alamy's New Share of the Revenue $500 $300
By Dropping Photographer's Royalty by 10 points, Alamy Increased Revenue 25% 50%
     
Effect on Photographers' share of Sales Revenue Direct
Sales
Distrib
Sales
Photographer's Old Share of the Revenue $600 $400
Photographer's New Share of the Revenue $500 $300
Alamy's 10 point drop in Photographers Royalties Reduced Photographers' Revenue 17% 25%


Can this royalty reduction ultimately increase revenues to photographers?


Alamy has implied that this reduction in photographers' royalties will be invested into improvements that will result in increased gross sales revenues, and by extension, increased revenues for photographers. To increase gross sales revenues, Alamy must either increase its prices to customers (doubtful) or grow its sales, or both. Let's do the numbers.

How much would Alamy need to increase sales in order to provide photographers with the same revenue received under the old royalty rate? Direct
Sales
Distrib
Sales
After reducing royalties by 10 points, Alamy must increase sales by these percentages in order to provide the same revenue to photographers. Note: This is the minimum, providing 0% benefit to photographers. To provide any benefit to photographers, Alamy would need to beat these percentages: 20% 33%


Do you believe that given current market conditions and trends, Alamy will successfully increase worldwide direct sales by a minimum of 20% and worldwide distributor sales by a minimum of 33% ? If they don't hit these minimum targets, photographers will experience drastic reduction in royalty revenues from Alamy. If they hit these minimum targets, photographers will be revenue neutral.

If Alamy successfully grows its sales so as to meet the growth percentages indicated in the above section, what is the benefit to Alamy? Direct
Sales
Distrib
Sales
If Alamy achieves sufficient sales growth to provide photographers with the same revenue received by photographers under the old percentage (0% benefit to photographers), the net revenue to Alamy after paying photographers/distributors will have grown by: 50% 100%


Although Alamy is unlikely to increase its prices to customers, it is helpful to consider an example. Using the $1000 example sale referenced above, let's see how much Alamy would need to increase its prices in order to provide photographers with the same royalty revenue received before the 10 point royalty reduction.

  Direct
Sales
Distrib
Sales
Example: gross revenue on a sale $1,000 $1,000
The royalty revenue to the Photographer at the old royalty rate was $600 $400
To provide that same revenue to the photographer under the new royalty rate, Alamy would need to increase that $1000 sales price to $1,200 $1,333.33
This increase in pricing to customers would be 20% 33%
     
Alamy's Share of the $1000 sale before dropping photographer's royalties and before increasing sales was $400 $200
The amount received by Alamy under the new scheme, after increasing sales sufficiently to provide photographers with the same revenue as photographers received previously $600 $400
Amount of the increased revenue to Alamy $200 $200
By decreasing photographers' royalty rate and by then increasing sales sufficiently to provide photographers with the same royalty revenue as received under the old royalty rate (a 0% benefit to photographers), revenues retained by Alamy increase by 50% 100%
(Continued after the Jump)

Is this fair? Well, it's a business decision. However, let's take a step back. The 50/50 percentage hasn't been fair for at least a decade. Why? Back in the analog days, it cost money for a New York-based stock photography agency to receive, catalog and store your images. Once that effort was made, when a call came in, for, say, a Time Magazine stock request, an image license for 1/4 page was about $250. There was physical labor involved in locating the image, filling out the tracking sheet and delivery memo, packaging the image for shipping, and then, when the image was returned, confirm the image wasn't damaged, and then re-file it, all for a 50/50 split of $250, or $125 to the stock house. I'll even include a few years where the stock house was converting their libraries from analog to digital, and so they incurred those costs. Now, it's all digital, with little to no human interaction required, yet not only did the 50/50 split persist, but it's eroding away even further, and unfair. Now more than ever, photographers need to be their own distributors. You will see Getty Images making a similar shift in percentages in the near future. We'll tell you why, when they announce it.


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