Shutterstock – what to do next?

The change in contributor earnings announced just 6 days ahead of the operative date of June 1, 2020, has set the world of the contributors alight. Currently there are almost 6000 posts on the forum on this topic alone (and some have been deleted by the administrators), Facebook groups have been formed to organize action and there is a plan to have D-day on June 15th where contributors around the world will deactivate their Shutterstock portfolios. Why all this angst? Shutterstock has moved from a fixed payment schedule that benefited long term successful contributors (based on lifetime earnings) into a new schedule which pays a percentage of what Shutterstock claims the customer has actually paid. That last point is carefully worded, because even there, Shutterstock is being less than honest with their approach. A perusal of their SEC filing 10-K – the annual results, shows that the cost of the content – ie payments to contributors, represents 26.3% of their revenue. But what is revenue in a primarily subscription model? To counteract some accounting frauds in the past when companies reported the full revenue from the sale of a gift card, for instance, when they still had an obligation to meet the terms of that card, the rules were changed and now Shutterstock reports each piece of income as the customer “spends” it. So in simple terms, if the customer paid $100 a month for 100 images, Shutterstock reports $1 of revenue every time the customer downloads an image. So far so good. But what about the end of the month when the subscription renews and the customer has only downloaded 80 images? Rather than report the extra $20 on the last day of the month (companies don’t like sudden changes to revenue), they state “Management estimates expected unused licenses and recognizes the revenue associated with unused licenses throughout the subscription period.” So even here, Shutterstock pays contributors based on one view of revenue but reports to its shareholders based on a larger estimate. There goes any claim that they couldn’t base this payout on real revenue.

It is pretty clear from the results we now see that Shutterstock was losing money on quite a proportion of downloads under the old scheme. If someone pays annually for the largest package, they pay the equivalent of $0.22 per image. Shutterstock knows they won’t use all of these, but even with a higher assumed price of $0.27 say, they were paying out $0.38 per image to long term contributors and making a loss of $0.11 on each image. Of course, they set those prices, but presumably they did that because of market forces, not simply a desire to be the cheapest site around. Their new method of compensating contributors pays a percentage of this simple revenue calculation (using the $0.22 number) and it ranges from 15% to 40% based on annual downloads. For some impenetrable reason, they reset this count in January each year so everyone starts with just 15% and has to build up to the higher percentages again. Of course, we will be able to see, in the next quarterly filing, what this has done to the percentage they are paying to contributors, but what to do about it now?

In a previous post, I calculated the impact on my portfolio after just a few days. I stressed the statistics were weak at that point, but where are we now? Interestingly, it hasn’t varied very much. After 277 subscription sales, I am looking at an average payout per subscription (as Level 5) of $0.23 to show a loss of 40% on what I received before. On demand images were fixed income products before and now are percentage based, and I am seeing an average price paid of $3.19 on 31 ODs compared to $2.85 before – an increase of 12%. Single and Enhanced downloads were always percentage payouts and those increased for a Level 5 contributor but of course they are few and far between. The only way to calculate the impact is to apply these changes to the historic mix of subs, ODs, SoDs and EDs and see what the result is. I’ve seen many comments just focused on subs alone or on the revenue per download in June to date, but that is very dubious statistically, in my view. I got a very good single sale this month ($119) and so my RPD is up – but I don’t expect that every week. So my approach is the best that I think you could do and looks like this:

My end result over these 30 months is that I will lose $56 a month – an 8% drop in income. Level 6 people will probably make more. Everyone below Level 5 (the majority of contributors have relatively small portfolios) will lose even more.

But what can we do – we are literally hundreds of thousands of people around the world with no central organization. Everyone is driven by their own needs and, to some extent, if some contributors leave Shutterstock, it gives more potential for those that remain. This has always been the conflict with any type of contributor action – people can see the benefits of sticking together to force a change, but they are also keen to look after their own interests. So each person has to decide for themselves.

I can see why Shutterstock would want to do this, but they have not only come up with an approach that leaves almost everyone worse off, but they have managed it abysmally. They launched with little notice, used the usual “this will help successful contributors to earn more” line, weren’t ready on the launch date with the system changes and have basically ignored any and all requests to reconsider. The annual reset seems to be nothing but an attempt to put money in Shutterstock’s pockets – there is no incentive to any contributor to do something different if everyone goes back to the lowest tier. If I was on the Board of this company, I would be demanding to know how they could have got the management of this so wrong – and, for any lawyer out there, there is probably an SEC lawsuit waiting to happen as they don’t seem to have told shareholders in these filings that there is a risk of significant loss of contributors and creative assets due to their own actions on payouts.

Bottom line – I have decided to support the deactivation of files on June 15th. You can also see Alex Rotenberg’s take on Shutterstock’s position on this over on his Brutally Honest blog.