79. School Photos

Summary

The Economics of Everyday Things: Episode 79 - School Photos

Hosted by Zachary Crockett, Freakonomics Network

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Introduction to the School Photography Industry

In Episode 79 of The Economics of Everyday Things, host Zachary Crockett delves into the lucrative world of school photography, uncovering the intricate economics behind the annual tradition of school photos in America. This episode provides an in-depth analysis of how for-profit photography firms like LifeTouch have turned a simple school photo day into a billion-dollar industry.

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The Dominance of LifeTouch

Ken Murphy, CEO of LifeTouch, the largest school photography firm in the United States, provides foundational insights into the industry's structure and dynamics.

Ken Murphy [02:56]: "There is this interesting bell curve where families are quite keen to preserve imagery of their children early on and then again as they're graduating. There's a new class of preschoolers every year. You have graduating seniors, so you have a replenishing customer base. The opportunity is really great."

LifeTouch photographs approximately 30 million students each school year, commanding between one-third to half of the national market. The company's rise to prominence is attributed to innovations such as automated camera technology that links negatives to individual students, significantly enhancing operational efficiency.

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Business Model and Revenue Streams

The school photography industry's estimated value stands at $1.6 billion annually. LifeTouch's business model is heavily predicated on high-volume sales rather than artistic endeavors. Success hinges on satisfying a dual customer base: schools and parents.

Ken Murphy [03:48]: "First, we must earn the business of the school. They ultimately make the decision whether to invite us in or to keep us in. And then we've got to benefit the parents as well. The school votes with yes. You can be my picture provider or not. Mom and dad vote with yes. I'm gonna buy this picture or not."

LifeTouch secures contracts with schools by offering significant commissions, which can range from 15% to 50% of photo package sales or flat fees per package. These commissions are integrated into the pricing structures charged to parents, creating a symbiotic revenue system where both schools and the photography company benefit financially.

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Operational Efficiency and Technology

LifeTouch's success is underpinned by its advanced technological infrastructure. Automated face detection and head sizing software ensure consistency in photo quality, mitigating issues like the "big head effect" often seen in yearbooks.

Jeremy McComb [21:00]: "Nobody wants to be that kid. In the yearbook, we have automated face finding that does auto head sizing. Basically, it'll find your eyes, chin, and forehead, and then basically place each kid at the same spot."

Photographers are equipped with high-efficiency cameras and software that upload images to a centralized cloud system in real-time, streamlining the production and distribution process. This technological edge allows LifeTouch to handle large-scale operations seamlessly, photographing up to 250 students per day under tight time constraints.

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Workforce and Field Operations

The backbone of LifeTouch's expansive operations lies in its seasonal workforce. Each fall, the company hires up to 6,000 seasonal photographers who manage photo shoots across approximately 50,000 schools and childcare centers nationwide. These photographers are trained to handle diverse age groups, from eager kindergarteners to more reticent middle schoolers.

Jeremy McComb [17:15]: "We actually advertise for customer service. I just want somebody that enjoys kids, can make kids smile and then I can teach them the photography stuff."

The training emphasizes not only technical photography skills but also interpersonal skills to engage with children effectively, ensuring a smooth and efficient photo-taking process.

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Challenges and Market Shifts

Despite advancements in technology, the industry faces significant challenges, notably the rise of smartphones. Parents now have the option to capture countless candid moments of their children, potentially reducing the perceived need for professional school photos.

Ken Murphy [22:16]: "I think you would be naive not to think that that's a seismic shift in the reality of the landscape. Twenty years ago, it would be quite characteristic for three out of four families to participate in School picture day. There are less that will do that today."

However, Murphy remains optimistic, asserting that the tradition and heritage associated with school photos offer a unique value proposition that personal snapshots cannot replicate.

Ken Murphy [22:45]: "There is something about the tradition. There is something about the heritage... to capture that one moment in time that you can then go back and look at your child's development and growth through the years is really remarkable."

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Financial Sustainability and Profitability

LifeTouch operates on a model where initial costs are front-loaded, encompassing equipment, labor, and logistics. Profitability is achieved through high sales volumes, with the company aiming for at least 30% of parents purchasing a photo package averaging $25 to cover costs.

Ken Murphy [09:26]: "So much of our cost structure is front loaded... ultimately customers get to vote with their wallet whether they want to participate this year."

While occasional losses occur due to unforeseen issues like equipment malfunctions or low participation rates, LifeTouch mitigates these through its extensive market presence and diversified customer base.

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Conclusion: The Enduring Appeal of School Photos

Despite the challenges posed by digital photography, the school photography industry, led by giants like LifeTouch, continues to thrive by emphasizing tradition, quality, and the sentimental value of professionally captured memories. The episode underscores how everyday elements, such as school photos, are deeply intertwined with economic principles, showcasing a blend of technology, business strategy, and consumer behavior.

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Notable Quotes:

• Ken Murphy [03:48]: "First, we must earn the business of the school... And then we've got to benefit the parents as well."
• Jeremy McComb [21:00]: "Nobody wants to be that kid... it'll find your eyes, chin, and forehead, and then basically place each kid at the same spot."
• Ken Murphy [22:45]: "There is something about the tradition. There is something about the heritage... to capture that one moment in time."

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Produced by Zachary Crockett and Sarah Lilly, mixed by Jeremy Johnston with assistance from Daniel Moritz Rapson.

Transcript

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[Zachary Crockett]

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[Stephen Dubner]

Hey there, it's Stephen Dubner from Freakonomics Radio and I am busting into this Economics of Everyday Things episode to tell you that we are doing a live Freakonom radio show in Los Angeles on February 13th and I hope you'll join us. Guests will include Ari Emanuel, the CEO of the sports and entertainment firm Endeavor, the filmmaker RJ Cutler, and the Freakonomics Radio House band led by Luis Guerra. For tickets go to Freakonomics.com liveshows a portion of our ticket sales will go to Wildfire relief efforts. Again, that's Freakonomics.com liveshows February 13th in LA. I hope to see you there.

[Zachary Crockett]

Every fall, kids across America take part in a strange ritual. In the middle of a school day, they're corralled into a gym or cafeteria, organized into lines and photographed one by one. This is done by a for profit photography firm that charges top dollar for 8x10s and wallet size prints. For the parents of these kids, it's an annual tradition and for the companies that take all the pictures, it's a lucrative one.

[Ken Murphy]

You walk into a school, you've got 500 kids organized in 25 different classes, teachers need to get them in and out very quickly. It is mass chaos. But if you can deliver, you can generate a very profitable business.

[Zachary Crockett]

That's Ken Murphy. He's the CEO of LifeTouch, the largest school photography firm in America. The company photographs 30 million students each school year, from preschoolers to high school seniors.

[Ken Murphy]

There is this interesting bell curve where families are quite keen to preserve imagery of their children early on and then again as they're graduating. There's a new class of preschoolers every year. You have graduating seniors, so you have a replenishing customer base. The opportunity is really great.

[Zachary Crockett]

By one estimate, the school photography industry is worth $1.6 billion a year. People who work in the trade say it's more of a high volume profit machine than an art form. But to survive in the business, you have to appease your customers. Not one, but two of them.

[Ken Murphy]

First, we must earn the business of the school. They ultimately make the decision whether to invite us in or to keep us in. And then we've got to a benefit for parents as well. The school votes with yes. You can be my picture provider or not. Mom and dad vote with yes. I'm gonna buy this picture or not.

[Zachary Crockett]

For the Freakonomics radio network, this is the economics of everyday things. I'm Zachary Crockett. Today, school photos for profit. Photographs have been a part of America's school system for more than 100 years. Public schools and photography both became prevalent around the same time in the mid to late 19th century. By the early 1920s, schools began taking students photos for record keeping purposes. And an industry emerged to handle the work. Photography companies provided photos to the schools for free and made money by selling copies to students and parents for 10 cents apiece. Dozens of other companies would later form to serve regional markets around the country. And one of them came to dominate the National School Studios, later renamed LifeTouch.

[Ken Murphy]

We were not actually the first to the party again.

[Zachary Crockett]

That's Ken Murphy, the CEO of LifeTouch.

[Ken Murphy]

Our company was founded in 1936 by a couple of traveling salesmen who had an opportunity to work for a much smaller regional school photography business in the Midwest. And as those two saw that business, they had the thought to start their own thing.

[Zachary Crockett]

Over the ensuing decades, LifeTouch rose to national prominence. They did this partly by developing special technology like a camera that automatically printed data on a negative, linking it to the student being photographed. Until then, photographers had to manually keep track of which shot depicted which student.

[Ken Murphy]

That invention was one of the really breakthrough moments for LifeTouch. Because it now could go at great speed, it could churn these images out.

[Zachary Crockett]

Today, LifeTouch contracts with around 50,000 schools and childcare centers across the country. It controls somewhere between one third and half of the entire market. That business is so valuable that a few years ago, the Internet based photography company Shutterfly purchased LifeTouch for $825 million. Although there are still hundreds of regional school photography companies in operation, LifeTouch is the only one with a robust national presence. It's acquired more than 250 smaller firms over the years and has often been called a monopoly.

[Ken Murphy]

Yeah, I probably shy away from the monopoly word, but I do take a ton of pride that LifeTouch categorically and irrefut is the market leader. The next largest competitor probably is five, six, maybe 7,000 schools.

[Zachary Crockett]

The school photo market encompasses many different products. There are yearbook photos, commencement photos, sports photos, preschool photos, senior portraits, and spring photography where students can do silly freeform poses. But LifeTouch gets the bulk of its business, around 50% from fall picture Day. Think those formulaic sheets of awkward teenage headshots buried somewhere in a box in your attic.

[Ken Murphy]

When folks think about Fall Picture Day, it's largely your child. Every year, in a similar image, it presents for families the opportunity to look back and see the evolution, the growth of their child.

[Zachary Crockett]

Ultimately, it's schools and districts who choose which photography providers to entrust with this tradition. And earning that business isn't so simple. LifeTouch has account managers all over the country that build relationships with school officials. Every deal looks a little different depending on who's calling the shots.

[Ken Murphy]

In some instances it's a principal. In some it might be a school secretary. In some it might be the yearbook administrator or advisor. And some it might be the sports or the athletic director. And that's just for schools that make their own independent decision. A lot of the business today is moving to district based decision.

[Zachary Crockett]

The photo provider does not get paid by the school or district to show up on picture day. The deals they sign are merely for the right to work the job. And they make their money back when parents order photo packages. Oftentimes to win business, LifeTouch will promise to pay the school or district a kickback on its sales.

[Ken Murphy]

Some may say, I want a percentage of every photograph that your parents purchase. There are some regions where it's an expectation we'll cut the school a check at the end of the school year.

[Zachary Crockett]

Commissions paid back to the school or district can range anywhere from 15% to 50%. In other cases, it's a flat fee like 2 or $3 per package ordered. Some schools have a guaranteed minimum commission and even receive signing bonuses for working with LifeTouch. These fees are baked into the prices that the company charges parents. On the surface, it's a bit risky to commit to provide an expensive service for free and hope that revenue is made back down the line.

[Ken Murphy]

So much of our cost structure is front loaded. You know, all of the camera equipment, all of the photography labor, you take everyone's picture and then you're hoping that enough families will decide to purchase that we don't do a good job, we're not going to get paid. Because ultimately customers get to vote with their wallet whether they want to participate this year.

[Zachary Crockett]

Before each photo day, parents receive order forms and have the option to buy photos ahead of the shoot. But some portion of the revenue also has to be made on the parents who commit to buy after the photos are already taken. Murphy says that to break even on a photo shoot, LifeTouch generally looks for a school with at least 200 students per photographer. The company also needs around 30% of parents to buy a photo package with an average order of $25. That's enough to cover the cost of labor, transportation, equipment, printing, and shipping. Most schools meet these criteria.

[Ken Murphy]

We have smaller schools where a single program is sub $2,000 in total packages all the way up to some schools that would be, you know, six figures.

[Zachary Crockett]

But Murphy says LifeTouch sometimes takes a loss on a job.

[Ken Murphy]

It happens every year across 50,000 schools and childcare centers. You're going to have some schools where you had a bad day, there was something wrong with the equipment, or you had photographers that hadn't been trained well, or they were more focused on just getting people through the line and not stopping to try to encourage a smile or a more natural picture. And there are some schools where there are not enough students, families participating, where on an individual school basis, we know that we'll lose money. But if they're part of a district and the district's, you know, 88 schools, you gotta have the ones that we know are gonna be prolific and those who aren't as well.

[Zachary Crockett]

Most of the time, though, LifeTouch is able to make a substantial profit on a shoot, partly because its photo packages aren't cheap. LifeTouch offers all kinds of packages, various combinations of 8x10s, 5x7s, and miniature wallet prints. Prices can vary by school or district, but most packages fall somewhere between 15 and $100. And the company takes the design and pricing very seriously.

[Ken Murphy]

We've got a team of data scientists looking at purchasing behavior, propensity to buy, how folks work up and down what we call the package ladder. We know if a family participates in year one, but not in year two, we can go back and see perhaps why they didn't. We know if a family participates in two consecutive or three consecutive years, but their buying behavior within the purchase decision is different. That also informs if we've got an opportunity to tighten pricing or to expand the offering.

[Zachary Crockett]

These decisions are all made by LifeTouch at its corporate headquarters in Eden Prairie, Minnesota. But the real work happens out in the field, where photographers have to wrangle unruly children into gyms and capture a saleable product.

[Jeremy McComb]

The period starts, you've got 300 kids that flow in. It's like clock ticking, right? You got 45 minutes to get these kids out of here.

[Zachary Crockett]

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[Jeremy McComb]

My name is Jeremy McComb. I am a senior manager of photography for LifeTouch.

[Zachary Crockett]

McColm started out as a photographer with LifeTouch in 1995 in Riverside, California. He was 19 at the time, a new father, and he needed a part time gig to make ends meet.

[Jeremy McComb]

I saw an ad for a part time photographer. I thought, well it's photography. I like kids. Let's give it a shot.

[Zachary Crockett]

When hiring for school photographers, McColm doesn't necessarily care about photography experience in its job postings on websites like indeed, LifeTouch advertises for candidates that are willing to work mornings, have a valid driver's license and have good rapport.

[Jeremy McComb]

We actually advertise for customer service. I just want somebody that enjoys kids, can make kids smile and then I can teach them the photography stuff.

[Zachary Crockett]

The photographers the company hires are part time workers paid an hourly wage, usually somewhere between 15 and $20 per hour. They're given six cases full of LifeTouch, a camera, a lighting kit, a background screen, a reflector and stands, and they shadow another photographer for a few days before going out on the job. For a school photographer, the day tends to start early.

[Jeremy McComb]

You're up out the door at 5:15, probably driving an hour on average to your school. Then it's looking for the custodian, which usually involves walking around the campus, knocking on windows. If we get there an hour ahead of time, we'll unload our gear. Takes about an hour, get everything dialed in, and get the schedule from the school, and then the kids start rolling in.

[Zachary Crockett]

Depending on the size of a school, LifeTouch may send out multiple photographers for each job. That's partly because schools tend to be strict about their time allowance for a photo shoot. Once the students are on site, photographers have to move very quickly.

[Jeremy McComb]

Typically, you're photographing during a period of time, so say English class, PE class. So you're there for the duration, and that's just waves of kids. In most cases, you'll photograph maybe 200, 250 kids a day. With a good schedule, it's fairly easy to execute if you got them flowing and you just can get them in their spot and make sure they look good.

[Zachary Crockett]

Sometimes with the younger kids, flowing can be a literal description.

[Jeremy McComb]

I've obviously dealt with all the things you would assume. They pee on your posing stool and, oh, God, yeah, a lot of throw up.

[Zachary Crockett]

In cases where there's an irredeemable accident or where a kid just can't sit still, a photographer might take a pass on the photo. Usually there's a scheduled makeup day where kids can get a do over. But in general, McComb says kindergarteners are easier to deal with than middle schoolers.

[Jeremy McComb]

As we get into kindergarten, they're just eager and precious as all can be. So they're pretty easy. Just smile at them. They'll smile back at you. And that's pretty much the case up through third grade, fourth grade, when you get into fifth grade through eighth grade. That's kind of that awkward age where you have to be a little bit more creative on how you might get them to smile. Are they trying to be a tough guy where you're trying to help them out? Hey, is that really what you want to look like? Let's try it again.

[Zachary Crockett]

For school photos that are taken in the fall, there's a certain pose that McComb and his staff members try to coax out of students.

[Jeremy McComb]

We call it a head and shoulders picture.

[Ken Murphy]

Right.

[Jeremy McComb]

It's pretty simple. Let's put the hands here, forward lean. Nice expression. Make sure the details are nice. Put the head in the box, and we're in business.

[Zachary Crockett]

Getting 200 heads perfectly placed in a frame is harder than it sounds. If you flip through an old yearbook, you're bound to see at least one photo where a kid's head looks way bigger than those of his peers. That dreaded big head effect. Today, the cameras that LifeTouch uses are loaded with software to prevent this from happening.

[Jeremy McComb]

Oh, yeah, nobody wants to be that kid. In the yearbook, we have automated face finding that does auto head sizing. Basically, it'll find your eyes, chin, and forehead, and then basically place each kid at the same spot.

[Zachary Crockett]

But the tech isn't perfect.

[Jeremy McComb]

The one caveat is hair. You can't predict how high the hair is. So we do have a high hair algorithm that'll place that hair in a reasonable spot.

[Zachary Crockett]

A photographer might take multiple photos of every student to get the right shot. But after each student, they select the best one and upload it to a centralized cloud system on the spot.

[Jeremy McComb]

So as we're photographing, those images are basically going into our lab.

[Zachary Crockett]

Once photos are finalized, they're printed out at regional labs across the country and shipped out for delivery. While tech has made the school photo business more efficient, it's also introduced a threat. In some ways, the industry's biggest nemesis is the cell phone. Parents now have hundreds of photos of their children on their devices. And ken Murphy, the CEO of LifeTouch, says that some of them are deciding they prefer their own work over that of the school photographer.

[Ken Murphy]

I think you would be naive not to think that that's a seismic shift in the reality of the landscape. Twenty years ago, it would be quite characteristic for three out of four families to participate in School picture day. There are less that will do that today.

[Zachary Crockett]

But Murphy says he thinks his line of work is still safe, perhaps more than ever, because in his eyes, the school photo is more than just another shot in your phone.

[Ken Murphy]

I got a million pictures of my five kids in my phone in my pocket. What's the big deal of school photography? There is something about the tradition. There is something about the heritage. There's something about being able to see Nolan Murphy as a preschooler, as a kindergartner, as a third grader, as a seventh grader, as a high school senior. The chaos of running down to the gym, you got kallax sticking up, you know, you spilled breakfast on. It is chaos, to be sure. But to be able to capture that one moment in time that you can then go back and look at your child's development and growth through the years is really remarkable.

[Zachary Crockett]

For the economics of everyday things, I'm Zachary Crockett. This episode was produced by me and Sarah Lilly and mixed by Jeremy Johnston. We had help from Daniel Moritz Rapson.

[Jeremy McComb]

You know, cheese is obvious. My thing was like, okay, I'm gonna say every word I could think of that has cheese in it. And each kid I'm gonna do something different.

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