EXCLUSIVE: People magazine iPad app delayed by paparazzi

Photo agencies want payment for photos used with new app

UPDATE, AUG. 19, 2:47 P.M. ET: People launches delayed iPad app

The publishing world's headlong rush to Apple's iPad has hit a big hitch.

More than a dozen of the photo agencies that supply celebrity snapshots from the paparazzi are banding together to withhold their prized product unless it can get additional compensation from People magazine, resulting in the postponement of its iPad app.

While the standoff centers on one publication for now, just about any other brand that makes photos of the rich and famous their stock in trade is watching nervously from the sidelines. Whatever deal they strike could set the terms of trade for the industry going forward.

And while talks have been civil, there could be trouble ahead if progress isn't made at negotiations scheduled for Thursday at the Time-Life building in New York.

"I do think it's an important moment as far as the photo-agency business model," said Jill Stempel, New York bureau chief for World Entertainment News Network, which on Tuesday was considering joining the agency alliance. "We need to take a stand."

A People spokeswoman refused to comment beyond offering the following statement: "The People iPad application launch date has absolutely nothing to do with photo agencies."

Executives at People's parent company, Time Inc., had made known their intent to launch the brand's iPad extension in early August. Time has been one of the more aggressive publishing companies looking to make its mark on iPad and has already deployed other major brands including Sports Illustrated and Fortune.

Time insiders acknowledged that reaching agreement with the agencies is a pressing issue. But one exec familiar with People's iPad development blamed the delay on continued fine-tuning of the product, not the agency negotiations, and that early August was always a "soft" deadline.

Time hasn't specified what exactly People's iPad will offer, but those in the know say photos will be a core component of what is expected to be a $4.99 product.

Photo agencies are taking a keen interest in the iPad because while online usage of their snapshots commands a fraction of what their fees earn from print usage, they recognize the potential for the tablet market to be a game-changer.

"They realized that in most cases People.com was not making ad revenue or subscription money off extended use of their photos," said Brandy Navarre, vp at X17, a photo agency that plans to negotiate separately from its unified front of competitors. "But when you're talking about paid apps supplemented by advertisements, that's something different altogether."

Those familiar with discussions say People wants to use photos on the iPad for free, arguing that the app essentially replicates the print product. That negotiation stance has led to the inevitable escalation of posturing: If you don't pay us extra for iPad, agencies argue, you can't use our pictures, which spurs threats of keeping rogue agencies out of the print edition on which the lion's share of revenue is gleaned.

The iPad standoff is no isolated conflict between the photo agencies and publishers. The agencies already are resentful of steep cuts in photo fees the magazines demanded when the recession hit and drained their advertising revenue, which in turn shrunk the number of pages on which they could place photos.

People also is arguing that photo use on the iPad is essentially a marketing tool because there's a clause in overall licensing agreements that allows for promotional repurposing. That's what People argued when it turned around and sold photos in an affiliate deal with MySpace several years ago, further enraging some agencies.

As power struggles go, it's a juicy one considering photo agencies have quite a bit of leverage given how dependent even the biggest publishing brands are on them. The agencies find themselves in a predicament not unlike the various unions that took a tough stand against the studios to maximize the revenue their content derived from still-untested digital platforms. They didn't anticipate how huge a price they would pay for not negotiating a cut of DVD revenue; photo agencies want to avoid a similar miscalculation.

"They don't want to cede ground on this because this is the future," said an editor at a rival publication to People who wished to remain anonymous. "If they don't take a stand now, they're screwed."

Among the agencies ganging up on People are Bauer-Griffin, Startraks, Pacific Coast News, Splash News, Flynet Pictures, Star Max, INF and Fame Pictures.

While there's some unease among the agencies about coming together to form what is essentially a team of rivals, it's a tactic that's worked for this industry before. In 2006, many of the major agencies came together to sue Perez Hilton for unlawfully posting their pictures on his website, a move that paved the way for generating meaningful revenue from the Internet.

X17's Navarre argues that the photo agencies can't afford to be as casual in defining usage parameters on digital platforms.

"When you license for online use, that's where it's become a little nebulous," she said. "That's where certain websites have taken liberties with images, trying to do what I perceive as pulling a fast one on the copyright holder."

To wit, People likely will pay a separate but modest fee for any material it uses for iPad-based galleries featuring photos that don't appear in print.

It's no coincidence that People has become the focal point. It's not only the celebrity magazine with the highest circulation -- 3.5 million in the first half of 2010 -- but the one with the most diversified base of agency partners, paying the most for exclusive snapshots. Depending on size and placement, such photos can cost People anywhere from three to six figures, according to outside estimates, and in those rarest of instances, seven or eight (People forked over $14 million for photos of Angelina Jolie's newborn twins in 2008).

But agencies have noted that other publishers are approaching them about iPad pricing as well, and the one that can cut a fair deal for the new platform will find itself with a competitive edge.

People will likely argue that the photo agencies' price pressures will only end up hobbling the evolution of a medium they have a mutual vested interest in getting on its feet, which could make a grace period worthwhile.

For all the newfangledness of the iPad, there's a precedent for cross-platform deals. Entertainment-news TV shows, for instance, pay a small, additional percentage of the original cost of a photo that they want to repurpose on a mobile extension.

But the increasing multiplicity of platforms is proving to a be a logistical nightmare for tracking usage, which is why publishers are likely looking to steer negotiations to a subscription model, whereas photo agencies prefer a la carte deals that recognize the widely varying value of each individual photo.

While iPad's reach is nowhere near that of preceding mediums, its growth rate is frightening: Apple has sold more than 3 million in just four months. Next Issue Media projects the marketplace for "interactive periodicals" via iPad and its ilk could hit $3 billion by 2014.

Regardless of how the People standoff plays out, it's only a matter of time before the next major bidding war over a must-have photo like, say, the ever-elusive Kristin Stewart-Robert Pattinson public snogfest, will include haggling over iPad rights as well.

Not too many major magazine brands have tested their iPad appeal since the platform's launch. It's been a mixed bag at Conde Nast, where GQ managed a paltry 365 downloads sold of its December issue while Wired likely exceeded sales of its print edition on iPad, generating nearly 80,000 in little over a week in May.