There’s an old folk tale that tells of Neil Armstrong having sent a
letter to the leader of the Flat Earth Society with an enclosed photo of
the Earth taken from space. His one-line inscription simply read,
“SEE?!” To which Armstrong got a reply saying, “We never said the
Earth wasn’t circular!”
With some people, there are arguments you just can’t win, no matter how
persuasive the evidence. And most of the time, such arguments aren’t
worth having anyway.
Other arguments are worth having because you really believe in the cause.
And then there are those arguments that turn into “controversies.”
These are special arguments where the issues galvanize core groups of
supporters on both sides, tempers flare, and before you know it, there’s
real money (or power) to be gained.
Yes, and though it may be odd to see it this way, here is where new
economic ecosystems begin to form. As a controversy gains momentum,
more and more people benefit in one form or another by keeping it
alive. If it garners enough critical mass, real money can be made,
social fabrics can be formed, and political affiliations created. All
of these represent different goals and objectives for the individuals
involved, which make the intertwining of motivations, methodologies and
psychological dispositions fascinating for behavioral economists:
those who study people’s behaviors as they pertain to market conditions
and self-interest.
In the photography world, there is no better place to study behavioral
economics than in the controversy surrounding the Orphan Works Act. And
from these observations, one can look for known patterns of behavior that
themselves help forecast where there may be investment opportunities.
A Case Study
The Orphan Works Act (aka, OWA) happens to
be the perfect controversy—and a very representative in populist
movements—because its complexity is beyond most people’s
understanding, even that of the leadership. This makes it ripe for
oversimplification, misinformation, disinformation, and persuasion. (And
when leadership unintentionally misleads its members, there's great
protection in plausible deniability.)
Because the OWA involves the intertwining of law and economics,
many who preach aspects about it simply aren’t educated
enough to understand what they’re saying. Furthermore,
the “base” followers are not the type to critically question—just
to “believe.” Leaders toss out straw-man arguments all
over the place. The classic example is one that I mentioned earlier
here:
"someone can now steal your photo and claim it's an orphan work, and
you have to spend $50,000 filing a lawsuit just to prove them wrong. No
photographer can do that!" This is the galvanizing argument that's now
settled into the mantra in photo discussion groups.
But this is a senseless argument because someone could steal an image
and claim anything, not just that it's an orphan work. But the
reality is that it's the infringer, not the photographer, that has to
spend $50,000; the onus is on the defense to show he's protected by the
Orphan Works Act. And that's not quite so easy because the defense
has to show evidence to support a "diligent search", which itself is
a costly process—rather, costly enough that it'd be cheaper to have
just licensed the image legitimately in the first place (usually a few
hundred dollars at best). Lastly, there's the OWA provision that only
make certain entities eligible for OWA protection in the first place.
The pragmatic reality is that the infringer will pay the photographer
a settlement, even if the OWA were on his side. In short, the
OWA will almost be an entirely inert legislation for most artists.
(It will give protection to libraries and documentarians who are looking
to create archives or media of historic events, which was what the OWA
was intended for anyway.)
Yet, none of this very basic, standard legal information is disseminated
in the artist community hierarchy. In fact, quite the opposite. But why?
Once again, it's all about behavioral economics: there are benefits to
keeping the issue a controversy, and in keeping the controversy alive.
The Players
Several unique sets of conditions converged at
once that allowed the OWA to become the nuclear power station within the
photographer community. The stock photo industry has been suffering from
economic hardship for quite some time, which itself has threatened
industry leaders and organizations, who naturally respond by finding
galvanizing issues to maintain control and continuity.
At the bottom of the ecosystem are the core (“base”) believers who are
told they have a stake in the game: "If the OWA passes, you will lose your
rights to protect your images." The base believers buy into this, and reap
psychological dividends by being part of an impassioned movement against
the OWA. It’s in this ecosystem where there is a rather dogmatic and
cohesive community that typically responds well to populist rhetoric,
while being derisive of non-conformist views. In fact, the use of populist
rhetoric is prototypical among leaders of economically distressed groups.
On the sidelines is a panoply of catalysts, eager to participate as well:
reporters who objectively journal the events, investigative reporters who
tell the story from behind the scenes, lawyers and media consultants who
work on behalf of their clients to effect a certain outcome, analysts who
churn the data to assess the likelihood of various outcomes, and the
investors who seek opportunity. Everyone has a vested interest in the
process. And therefore, such people become participants.
I too am a player in this eco-system. I’m an analyst, and my economic
benefit is the clientele who pay me to do objective research so they can
make financial decisions (investments or divestments) based on the likely
outcomes of certain events. The Orphan Works Act is one such event. Since
it also happens to be a hotly controversial one, at least within the
photography ecosystem, the question for these investors is not whether the
OWA puts the future of image licensing at risk, but where’s the
opportunity for investment? Smart money goes to companies and individuals
that know how to capitalize on opportunity. In this case, opportunity lies
within those organizations that have a solid, realistic understanding of
the state of affairs. My job is to find those opportunities.
Analyzing the Ecosystem
I had a conversation with a lawyer who has been rather outspoken
against the OWA on behalf of a trade association for a different
industry. I asked, “If the OWA passes, and if a case came up that
you had to prosecute an infringer who tried to hide behind it, what
would your strategy be for dealing with this?” Essentially, I was
given a more balanced legal analysis on why the OWA isn’t
a threat to artists. The response I got was used as the basis
for this blog entry, modified to address the photo space:
Courts and Law (Thursday, August 28, 2008).
So, I then asked, “Why don’t you say anything like this publicly?”
The response: “Because my client doesn’t want me to. I’m paid to
make these statements and support the objectives of my client.” To which
I replied, “Why aren’t you telling your client to soften up on the
OWA?” And then came the unsurprising answer, “Because it galvanizes
their membership. Renewal rates are up, and they haven’t seen as many
new members join in years.” One can only surmise the additional social
and political dividends the leadership receives as a result. Short-term
economic benefits clouds longer-term judgment. Text-book Behavioral
Economics at its finest.
Needless to say, the companies and individuals that hired this lawyer
would not be considered “worthy investments” by my clients. (There’s
nothing wrong with the lawyer, of course; but that’s not who the
investors are interested in.)
To illustrate a more tangible, but more complex example, recall the time
when Getty was looking for a buyer to take it private. The company was
public, but its share price was dropping quickly, revenue and profits were
evaporating, and the nature of stock photography itself was going through
a major transition.
One particular suitor asked me to look into an element they believed to be
a vulnerability of the company: the economic effect of being “responsive
to photographer demands.” Because the investor believed that Getty made
key strategic decisions based what its photographers wanted, the question
was whether photographers' demands were economically sound. That is, if
Getty appeased photographers, would they make more or less money as a
result?
A hint that gave them concern was Getty’s acquisition of iStockPhoto. It
wasn’t the acquisition that bothered them, of course. It was a
good investment. The concern was: why did it take them so long? If
Getty was an innovator in the stock photo industry, they should have done
this years earlier—not late in the game. The critical question was: what
slowed them down? The answer is photographer objections. Because
Getty defers to photographers too much, they have a record of failing to
make wise, profitable and economically sound business decisions.
What might the long-term risks be? Are photographers always so
wrong? Or is this just an isolated case? What does this say about the
future? Would Getty lead forward, or will photographers hold the company
back, causing the company to miss or delay other key strategic moves as
well?
What I was asked to research had nothing to do with Getty, per se, but the
effectiveness of pro photographers’ influence on their own
industry. Specifically: at key turning points in the economics
of the photography world, what were the “photographers’ positions”
on those events, and were their forecasts right? Did they fare better or
worse as a result of their collective recommendations to their community
membership?
Without getting into the details of my report, the data was rather bleak
for photographers. In the 1970s, after the supreme court ruled that the
ASMP violated “restraint of trade” rules by publishing price lists,
the union was disbanded, and a power vacuum resulted. A variety of
disparate trade groups started forming, each of which differing only
slightly from the others. Yet, at no time did the socio-political strategy
change; the culture of the photographer community remained strongly
union-oriented. The message remained “all for one” with a strong
discouragement of individuality in building a career. Conformity was
and always has been the social rule, which itself runs counter to
open-market economic conditions.
Assessing the Pros and Cons of Economic Equilibrium
In other words, does the cost and risk growth outweigh the more
conservative path of maintaining equilibrium? Assessing this is not
as straightforward as it may first appear. To wit, at no time did I
find any key recommendations by the pro photographer community to
result in positive economic gains for the industry. At one point, they
discouraged photographers from shooting “stock imagery” because
it would “ruin the careers of assignment photographers.” They
also discouraged using the internet as a place to sell photos because
“people will only steal them.” They also said it would “compete with
traditional stock agencies” (who themselves resisted using the internet
till royalty-free images moved from CD-ROMs to internet sites). Their
poor analysis and responses to matters such as royalty-free, microstock,
social-networks, consumers, semi-pros and other industry trends have all
been entirely off base. I’ve written extensively about each of these
phenomenon at great depth on my blog.
Photography trade associations’ economic advice has also been similarly
off target. Membership levels in most all groups have seen very little (if
any) growth, despite the fact that hundreds of millions of more people own
high-end digital camera gear and contribute larger and larger proportions
of images to the stock photo base. The outright rejection of the consumer
and weekend photo enthusiast has been one of the primary factors
associated with their inability to grow financially, which has also
weakened their political influence.
An incident that summarizes it all is when the Stock Photographers
Alliance, a trade association, sent a letter to Getty images
strenuously objecting to their having lowered photographers’ royalty
rates, seemingly unaware that the company’s sales and profits were
plummeting. (This would be like auto worker unions asking General Motors
for raises just before they go into bankruptcy.)
How can a trade association be so out of touch with such basic economic
reality? At one time, I recommended that the trade associations and
publications, such as Photo District News (the flagship publication
for the pro photo trade) shift their focus from such a narrow (and
shrinking) membership of photographers to the broader base of semi-pros,
enthusiasts and even consumers. To do so, one needs to reduce membership and
subscription fees from hundreds of dollars a year to $25/year,
and to begin programs and marketing platforms that appeal to less
traditional photographers. These ideas were rejected, but why?
My conclusions of this study were that trade associations were run by
and for a small group of individuals whose primary goals is to preserve
archaic business models that were once their mainstay. By leveraging
their social and professional celebrity status, especially as artists
and cultural icons, they have a disproportionate influence on those who
join (or wish to join) the club.
If this is the case, why doesn’t the photographer community leadership
recognize this and adjust their message to the base? Here’s where we
come full circle to behavioral economics: there’s money, politics and
reputations involved. Different people seek different objectives, and
without centralized leadership, you hold onto what you’ve got. As one
executive at a trade association told me regarding the OWA, “It’s
the perfect controversy for us because we win whether it the OWA
passes or fails. If it fails, we can say we won; and if it passes,
then our members will think they benefit, and we can say it’s because
of what we did. Taking a stand against it is the only position that
makes sense for us. Besides, it brings everyone together.”
While the citing of populist rhetoric plays well within the club, the
only economic winners are those who capitalize on selling solutions to
the wrong problem.
The Future
The question then becomes what the future portends for the photo industry.
At some point, too many people will realize the Earth really isn’t flat,
and it’s not worth having that argument anymore. New blood needs t be
introduced into the gene pool. There’s too much homogeneity. There’s
no tolerance for dissent. Perhaps the best quote that encapsulates
this situation is one from the 9/11 Commission Report about the errors
in judgment that lead up to invasion of Iraq: “When everyone around
the table agrees, someone’s got it wrong.”
In general, photographers have had no true economic leadership, and
this has lead to a vacuum of economic opportunity. And the evidence is as
overwhelming as the Earth is spherical: extremely few stock photo agencies
are profitable, and of those that are, the margins are slim and getting
slimmer; “publicly traded” stock agencies have had to take themselves
off the market (well before the economy turned downward); most stock
photographers have reported declining incomes steadily for years; and the
per-image license fees have been dropping since records were kept.
When I collect data and do analysis to generate these reports, I have no
personal objective, vendetta, or an argument to settle; I don’t care. I
just want to be accurate so my clients can make fiscally responsible
decisions. And I’m not the only one to come to these conclusions. With
the exception of a few very speculative investors, the “smart money”
stays away from anything in the stock photo sector. As one of my clients
put it, “so long as a company is reactive to the pro photographer
community, it’s a losing investment proposition.”
The problem is, there are too few companies that deal with stock
photography that don’t worry about the political fallout from discontent
raised by the photographer outcry.
What Investors Look For
Smart money, smart lawyers, and smart
legislators all know that there are no risks to either artists or
licensors with the OWA. So, the political theater from the blogosphere is
uninteresting to investors, other than to know where not to invest.
Money looks for signs of intelligence. Any company or investor making
business decisions based on photographers’ outcries would be considered
a poor investment.
But don’t confuse this with an anti-photographer sentiment. Investors
are not anti-anyone. They just don’t want those who don’t understand
economics interfering with business. If a company were to exist that keeps
photographers happy, while also pursing business goals that show
profitability, then that’s great. But the catch-22 in this economic
climate is the challenge: the internet and digital photography changed the
game from how photographers once viewed themselves, and unless and until
they change their cultural disposition, they’re not going to be part of
the solution. The stock photo industry has already shifted to be a
high-volume/low-margin model, which runs antithetical to how photographers
want it. For so long as they don’t accept that, they will be at odds
with any company that attempts it. At which point, the company has to
choose which path to take: upset the pro photographer and succeed, or
acquiesce and fail.
It is for this reason that I’ve predicted for several years that,
barring any new disruptive innovation we haven’t seen yet, or a shift in
photography-industry culture, the future of stock photography is likely to
be inherited by much larger media companies that already deal with massive
media distribution and licensing. They have no qualms about playing
“Borg” and assimilating the photographer community into the flying
cube, all the while chanting, “Resistance is futile.” Once such media
behemoths realize there’s money to be made in photography, they will
likely start acquiring agencies and photo-sharing sites, and building out
the high-volume licensing model that is the only option left for stock
anyway.
As for the controversy about the OWA, it’s just a theatrical venue for
people to gain their individual advantage. Sure, there may be fine-tuning
of language that industry leaders will take credit for to great fanfare,
but that’s also part of the game. The Earth is not flat. But as long as
there’s some benefit to people arguing about it, the controversy will
continue.
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