A Snapshot of the Image Business

The CFO of Shutterstock tells how the digital-image company pursues growth amid a crowded competitive field.
David McCannMarch 4, 2010

If imitation is indeed flattery, then Shutterstock, which offers a vast library of downloadable digital images, should have a healthy ego. But because the six-year-old company’s business model has spawned a number of imitators, its CFO and president, Adam Riggs, is focused largely on how to grow the business amid all the competition.

Shutterstock gets its content through crowdsourcing — that is, photographers and videographers are licensed to upload their photos or footage to the company’s Website and receive royalties from the company when customers download the images. Most of Shutterstock’s customers pay either a single monthly subscription fee to use 25 images per day or a lower annual fee for on-demand access to up to 60 images anytime during the year. They don’t have to pay royalties as they would if they negotiated a customized set of rights to use specific image, another common industry practice.

Neither crowdsourcing nor the subscription sales model — as opposed to a payment method by which customers buy credits to spend on one-off transactions based on the size and type of image — was unique to the stock-image industry when Shutterstock got started in 2003. But Riggs says that as far as he knows, the company was the first to package those two elements.

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He claims Shutterstock is now the number-three player in the segment, after Getty Images and Corbis Images, though the privately held company keeps its financial results under wraps. Shutterstock currently has more than 8 million images in its library and adds 75,000 to 100,000 new images per month.

Although the company is based in New York, Riggs and his family moved to Germany last summer in a quest for new business. Following is an edited version of CFO’s recent interview with Riggs.

Why did you move to Germany? Since all of your business is electronic, what does location have to do with it?
We decided early on to internationalize the business, which is something the Web really lends itself to. What I’m [in Germany] to do is investigate how to increase our footprint in Europe, where people are amenable to online transactions but less so than Americans are. So I meet with the media, attorneys, accountants, and others to talk about the different options we might have for growing that footprint.

We’re making a lot of progress. We have customers in about 150 countries, and our European business is substantial, based just on a translated Website, euro pricing, and a foreign-language customer-service experience. But those things can only take you so far. There are other ways to increase our presence in Europe, including opening an office there, though that is not inevitable.

Adam Riggs

With so many competitors in your field and the Web affording easy access to images, people don’t really want to pay a lot for them anymore. Do you worry about the long-term viability of your business?
You mean, are we helping to accelerate a race to the bottom on pricing so that eventually everything will be free? I don’t see it that way. You have to pay [the image submitters] enough to incentivize them to work. It’s true that customers don’t want to pay a lot, but we feel we have found a good balance between our royalty schedule and our pricing.

We pay a variable royalty rate depending on two things: the lifetime earnings of the submitter and the type of license the customer has. Besides our standard license we also sell an enhanced one, which is a commercial license for people who are designing [merchandise] for resale or distribution. Submitters get paid a lot more when their images are downloaded by enhanced-license holders.

How much does your service cost?
The pricing for our core product, which offers 25 downloads per day, is $249 a month.

How did you arrive at those figures?
We started out with an unlimited-download product. But my partner, Jon [Oringer, Shutterstock’s founder], soon limited it to 25 downloads a day, knowing that was far above most people’s needs. It was a way of defining a limit so we could do things like plan for IT capacity.

The blended royalty rate for a download within one of the standard licenses is in the low 30 cents per download. Say it’s 32 cents: if someone downloads 25 images daily for 30 days, that’s $240 in royalties paid out. We barely break even. But while some people do that, the way most people get value is by knowing that if they have a burst in their need, then 25 is probably enough to meet it.

Subscriptions are in our DNA, but there are a lot of stock companies that don’t like subscriptions because they haven’t figured out how to price them in a way that guarantees positive cash flow and is also a value proposition to the customer.

Last year you acquired a competitor, BigStock Photos, which uses credits as its payment method. If you’re so committed to subscriptions, why did you do that deal?
It was a pretty easy decision. For a long time it’s been a question of whether to buy or build to get into the credit-purchase side of the business. I feel it’s clear that if you line up these two pricing models next to each other, the subscription solutions are a better value. But it’s a fact that a lot of customers don’t feel like a subscription solution meets their needs. One challenge for us has always been to educate people as to why a subscription would meet their needs, and at a lower price. But being realistic, it can’t all be about education; we also have to go after customers directly.

What does your daily life as a CFO look like?
Since I’m also the president of the company, I have a wider portfolio than most CFOs. But as the CFO, beyond the financials and compliance, the most important thing I do is make sure to understand the levers and buttons in the business that impact our top and bottom lines. As we design new products, contemplate new features, or make changes to the royalty schedules or our hiring plan, I need to know with a high degree of certainty what the financial impact of decisions will be at any given fork in the road.

What is your biggest worry? What keeps you up at night?
So far we’ve done a good job of executing on a pretty simple and easy-to-understand product and idea. We started with just one product, the 25-a-day monthly subscription. Now, six years on, digital cameras have become so powerful that anyone who wants to learn how can take a great picture [and post it on the Web], which means cost presents no barrier [to getting access to images]. The customers’ needs are developing. So what I worry about is continuing to execute well as the company gets bigger and the demand side gets more complicated. Plus we’re still relatively small compared to the two large players in the industry, so we have to be agile.