What is the value of a commercial or editorial photo collection?

December 15th, 2009 by

Valuation of Commercial Photographic Collections

(Portions of this article first appeared in the July, 2009 issue of The Picture Professional – the Quarterly Magazine of  the American Society of Picture Professionals) Fair warning: The following is rather technical and long!

Those who own or license the copyright associated with commercial images need qualified appraisals for legal, insurance and tax matters.  It is the job of an appraiser to determine the value of future licensing income or what an appropriate licensing fee should have been in the case of  litigation.

Commercial photography collections or individual images may have little or no value as fine art but the copyrights associated with the images can be worth a great deal indeed. Although copyright is classified as an  ‘intangible personal property’, the type of appraisal required is generally considered a business valuation, as it is the past or potential licensing revenue that is valued. If the work is collectible in addition to having licensing value, a personal property valuation is also required as part of an overall appraisal.

The value of reproduction rights can be important in litigation. A photographer may believe that a publisher reproduced an image in a manner that exceeded the original license. An appraiser could be hired to give an opinion of what the licensing fee should have been at the time of the alleged infringement. Original film or image files that are lost by an ad agency or design firm were valued at a ‘standard’ $1500/image in the past. Today the court has dismissed that standard in several cases and appraisers acting as expert witnesses are being asked to determine a more verifiable value. It is the business of a qualified appraiser to determine the future revenue of the images and thus the value of the loss. Generally income figures for similar work, especially by the photographer whose work is under review, can be used to estimate the value of lost future income over the remaining useful lifetime of the work and is called a revenue-based appraisal.  The best appraisals will state the revenue and also provide a detailed analysis of the income.

In other cases, the court may ask that an opinion be given as to the ‘fair market value’ for the licensing of an image or group of images. Fair market value is defined as the amount that a willing seller and a willing buyer would agree upon, neither one of who is under pressure to complete a transaction and when both are aware of all the circumstances around the transaction. When an opinion of fair market value has a specific licensing date, the value will be ascertained using historical price guides or from interviews with individuals involved in setting licensing prices for similar work.

Cost basis is seldom used in photographic matters, as exact replacement of a set of images is often not possible.

What are the factors that an appraiser looks at when valuing a collection? First the scope of the appraisal has to be determined. Will the appraisal involve a certain cut off date such as the date of separation of the parties in the matter of a divorce? Or perhaps the figure needed is the estimated useful lifetime value of the images for inheritance purposes. Once the scope and purpose of the appraisal has been determined, the appraiser ascertains the following among other facts:

  1. Are there records showing the income produced by the work or by similar work from the same photographer on a similar subject?
  2. Does the photographer or agency own the copyright or have the legal right to license the work?
  3. Are there contracts or licensing agreements that involve the work?
  4. What is the format? If film is involved, what will be the cost of scanning?
  5. Are there model releases? Are they valid?
  6. How accessible is the metadata.
  7. If digital, have the images been previously keyworded or otherwise documented?
  8. Will the material become dated quickly and thus have a rapidly diminishing revenue stream? Or is the work of an ‘evergreen’ sort such as images of botanical species?

Using the above information, the following can be assumed:

    1. If the format is film and the images will have to be scanned in order to create revenue, the cost of scanning must be deducted from the final value.
    2. If the images contain people and the best and highest use of the images is for advertising or promotion and there are no releases, the images have little or no value.
    3. If the images are of an editorial nature and don’t require releases the value of the images are increased if the date such as genus/species of plants and animals or specific details about the images are associated with the image adds to the value or if the image(s) are rare and not easily replacable such as images of a riot or disaster.
    4. If the useful life of the images isn’t impacted by time, the value of the revenue stream will diminish slower than for photographs that are of a trendy nature.
    5. If the images or the photographer have no prior record of income from photography, the images cannot be appraised using the fair market value approach…they have no value in the strictest sense of the appraiser’s world. (of course there could be exceptions…say the only photo of an important event was uncovered that had been taken by an amateur that had no previous income from photography). Nevertheless the photo(s) could have a great deal of value in future licensing revenue. It is the job of the appraiser in such circumstances to use similar situations to determine fair market value.
    6. Does the photographer’s reputation add value to any of the work under review?
    7. If the photographer is seeking an appraisal of her own work for the purpose of donating the work to a museum and obtaining a tax deduction for the value of the work, the only figures that the appraiser can utilize is the actual cost of the work. Whether the photographer’s work is collected as fine art or licensed for large figures, the donation for tax purposes can only be for the cost of the work, excluding travel, cameras and other costs that have most likely been previously deducted as business expenses. And even if not, the only value is that of the cost.

I prepared an appraisal for an amateur photographer who was donating his photos to a university library as research materials. The work had been produced over a period of 35 years. After an exhaustive study to determine film/processing costs over those years, the work was valued at just around $50,000. So even though the man had made no money as a photographer, he was able to deduct cost from his taxes.

  1. Occasionally a photographer or a publisher will use the future value of the licensing rights to a group of images as collateral for a loan. Again in those cases, a consistent and verifiable income must be presented in the appraisal for the bank.

Who is qualified to be an appraiser? Although it is certainly not necessary for a prospective appraiser to be a member of one of the professional appraisal organizations, membership will ensure that they have taken an ethics test and passed a qualifying course and examination called the USPAP (Universal Standards of Professional Appraisal Practice.) It covers conduct, management, confidentiality, and record keeping standards. The USPAP is governed by the Appraisal Foundation and partially funded by the U.S. Congress. The three major appraisal organizations that are most likely to have members qualified to assess the value of photo collections are the American Society of Appraisers, Appraisers Association of America and the International Society of Appraisers. They each have somewhat differing membership requirements and specialties. Each offers referrals on their websites and conduct classes and courses.  Business experience and education can contribute to the worthiness of an appraiser.

The IRS has specific rules and regulations that cover tax related appraisals. In 2006 the Pension Protection Act was passed that amended the IRS code to include penalties for those that aid taxpayers in under valuing for inheritance reasons or inflating the value of charitable deductions of personal property. They also strengthen the definitions of ‘qualified appraisal’ and ‘qualified appraiser’. An appraiser is obligated to sign a portion of the tax return when it involves appraisals for estate or inheritance issues above a certain amount and must include a statement in the appraisal that indicates that the appraiser is aware of the penalties imposed for false appraisals.

The most interesting appraisal that I have been asked to do was to determine the value of three rolls of film taken by a 16 year old at an event where a very important political figure was assassinated. The boy claimed that he was the only person taking photos in the moment that it happened. His film was confiscated at the time of the celebrity’s death and he was told that the court ordered that his film be held for twenty years after the case went to court.  (As an interesting aside: the film taken by the working press after they arrived at the scene was returned the next day but the boy’s photos were not.)

Twenty years to the day later, the boy now a man and a working photographer, went to the police to demand the return of his images. He was told that the film was stored in the state archives. He wrote to the state archivist and was told that they had no record of his film. Because the event had great political consequences and was extremely newsworthy, the photographer initiated a lawsuit against the police department. Eventually the police produced a document that stated that his film had been burned in the incinerator of the county hospital in weeks before the trial of the man accused of the crime.

The case dragged on for years. Just prior to the date for opening arguments in the jury trial,  the state archivist informed the photographer that they had located his film but that they had proof that he had only taken one roll of film and that it wasn’t in the room where the murder took place. A contact sheet was produced proving that the film had been developed while in the hands of the police but there appeared to be irregularities on the contact sheet. The attorney and I asked that the state provide us with the actual negatives so that we could see if the contact sheet had been made up of photos from more than one roll of film. A bonded messenger working for the police flew the images to the city where the case was being tried. Strangely, he stated that he had a flat tire on the way from the airport and his briefcase with the film was stolen from the car while he walked around to check all his tires or some version of that unlikely story.

Thus I was asked to testify to the value of the photographs with no proof that the key images ever existed beyond the photographer’s own testimony. I needed to ascertain that the kid had the talent to take images during a frantic and frightening event as it takes practice and skill to successfully photograph rapidly unfolding events.

Fortunately the young man had worked as the photographer for his high school newspaper and had kept a file of the photos of sporting and other newsworthy events that he had taken for the paper. Among those images were some very good ‘decisive moment’ captures of key plays in various games and most telling, photos of a fight that took place during a protest outside the school. In each case the boy had the presence of mind, eye and skill to get the image. I showed these images to the jury to justify my belief that the young man could stay calm and collected enough to take photos while chaos reigned around him.

I based my appraisal of the licensing value of the key photos on the assumed skill of the photographer and the licensing revenue of similar types of images based on historical data and research.  I felt that the story had value as a future book if the images could be found and researched the possible income from such a book. All together I was able to demonstrate a value to the court of well over a million dollars. The jury agreed and awarded the full amount to the photographer although the police department appealed and the photographer settled to avoid going to court again.