As DSC Sales Cool, Industry Ponders Analog's Example

By Greg Scoblete -- TWICE, 7/3/2006

New York — Digital photography has long since eclipsed its analog predecessor, but as digital camera sales slow, the question turns to whether the photography business model has actually changed with the transition from film to flash memory.

According to industry observers and retailers, the print model has certainly changed. Less clear is whether the hardware model has undergone as significant a transformation.

Regardless, 2006 will be another growth year for digital camera sales, though analysts differ on the rate. According to The NPD Group, camera sales (including digital SLRs) will reach 29.5 million units in 2006 vs. the 25.2 million sold in 2005. The Photo Marketing Association (PMA) is less bullish, predicting digital camera and SLR sales to reach 20.7 million from their estimates of 20.5 million models sold in 2005. Finally, IDC, which tracks camera shipments to dealers, predicts the market to reach 31 million units.

Some categories that were hot in 2005, such as camera/printer bundles, have cooled considerably, while others, such as compact models and digital SLRs have continued to burn, said Liz Cutting, NPD imaging analyst.

“Overall, growth is starting to slow,” said Fred Lerner, Ritz Interactive president. “But the growth in digital SLRs has taken everyone by surprise — it's still at double digits, driven by some really spectacular products.”

Through May, digital cameras (including SLRs) were up 17.5 percent in units and 12.1 percent in dollars vs. the same period in 2005, Cutting said. The category has also come off its single best week during the run-up to Mother's Day, suggesting that the gloomier forecasts may be a bit too pessimistic — at least for 2006. “We don't see a downturn until 2008,” Cutting predicted.

As digital photography settles comfortably into the mainstream, the question arises as to whether it will resemble in yearly sales and customer behavior, the film model which dominated for decades. According to PMA, since 1975, film camera sales never slipped below 15 million units, suggesting a natural “floor” through which digital camera sales may not drop.

However, Dimitrious Delis, PMA analyst, noted that digital cameras are different animals. First, there is the replacement cycle: the technological changes in digital cameras are far more significant than the changes between film cameras, an indication that digital cameras may sell stronger than their film counterparts.

“It's like a cellphone, in that you're constantly looking to trade up,” Lerner said. Driving the step-up market are still higher megapixels — 10 in several cases — improved low-light shooting and image stabilization. “Taking a photo without a flash to capture exactly what the human eye sees – that's the home run,” Lerner said.

Yet a replacement market cannot sustain growth, and the cycle is slowing, Delis notes. “The difference between a 3-megapixel camera and a 5-megapixel camera is greater than that between a 5- and an 8-, so consumers will hold onto their newer cameras longer.”

Repeaters are also one culprit behind sagging bundle sales, Cutting observed. “The value cameras in a bundle aren't attractive to repeat buyers.” Those buyers frequently have their own photo printers as well, Cutting added.

One bright spot, predicted to weather the slowdown in compact camera sales and provide a healthy dollar volume, is digital SLRs. “We don't see d-SLR sales slowing until past 2009,” Cutting said.

Will more consumers embrace pricier digital SLRs than film consumers of old snapped up 35mm SLRs? Delis thinks they might. In their heyday, film SLR cameras rarely broke the 2 million unit mark. NPD predicts close to 2 million d-SLRs will be sold this year, at a time when d-SLRs are still relatively expensive. All firms predict the strong growth in this category to continue long after compact digital camera sales slow.

Inexpensive d-SLRs have spurred more use of photography in business, Delis said. “During the film era, 3 percent of all cameras purchased were used for business. Today it's 10 percent.”

“There is a very high satisfaction level with digital cameras in general and that has helped drive d-SLR sales” as consumers look to upgrade, Lerner said.

There are an estimated 308 camera models on store shelves from over a dozen manufacturers. The strong growth in d-SLRs has tempted other manufacturers to forge partnerships to get a piece of the action. How long can the market bear the competition?

“There will be a shake-out. We can't continue to support all these manufacturers,” Lerner said.

“There's no room for the old and new entrants,” said Chris Chute, imaging research manager, IDC. The consumer electronics brands have to prove themselves in the d-SLR category where strong photo brands dominate, Chute added. “The real question is whether they take share away from Canon.”

Digicam Channel Segment June 2006

Channel Segment	% of Total Placements*
CE/Computer Stores	49.6%
Clubs	5.5%
Electronics Stores	2.1%
Grocery/Drugs	0.6%
Mass Merchants	18.1%
Office Supply Stores	12.3%
Specialty Photo	11.5%
*Does not add up to 100% due to rounding Source: Current Analysis © TWICE 2006