Replacements Ride to Camera Market Rescue

By Greg Scoblete On Jan 7 2008 - 8:00am

The digital camera market has been rescued from a previously predicted slow-down in sales by an up-tick in replacement purchases, according to vendors and analysts.

Consumers looking to trade up have been lured into stores by higher resolutions and new (or newly popular) technology such as optical image stabilization, facial detection and high sensitivity, vendors say. Design, too, has played a role with compact and colorful cameras driving sales.

Digital camera unit sales will likely see 19 or 20 percent growth year-over-year, reaching 33.5 million units (both point-and-shoot and digital SLR), according to NPD digital imaging analyst Liz Cutting. "We're expecting to see growth next year as well, although it may be in the single digits," she added.

The category has been propped up by repeat purchasers, who made up 58 percent of the market in the third quarter of 2007, Cutting said. Half of all camera owners bought a straight replacement for an existing camera while the other half added a new model to the family.

"One difference in 2007 compared to previous years is that household penetration as a statistic is losing its relevance," remarked Chuck Westfall, customer relations director, Canon. "The number of digital cameras per household is becoming a more important factor."

Despite the continued buoyancy in unit sales, dollar volumes have sagged as declining price points have weighed down the category's revenue. Dollar sales are predicted to have grown only three percent for 2007 and either flatten or decline this year. The average selling price (ASP) for digital cameras, including d-SLRs, dropped from $320 in 2006 to $250 in 2007, according to the research firm IDC.

Sixty percent of all point-and-shoot cameras sold in the third quarter of 2007 were under $200, versus 47 percent last year, according to NPD.

Prices have dropped rapidly in the past several years in part because digital camera makers have pushed the notion that a camera is a personalized device – like an MP3 player, said Karim Noblecilla, Cyber-shot marketing senior manager, Sony. "Now that we're under $200, I think you'll see it start to stabilize."

Declining revenue in the digital camera market is less important when compared with the overall growth in the digital imaging category as a whole, argued Phil Scott, digital capture and device marketing director, Kodak.

"When you look at the whole picture – frames, printing, other elements of the imaging eco-system – it's very healthy," Scott said.

That said, the recent realignment of HP's digital camera business is a harbinger of things to come as the market inevitably cools, said Chris Chute, research manager, IDC.

"We're seeing consolidation," Cutting seconded, "but there are also niche players who have successfully keyed in on novel features."

To stem the price erosion, manufacturers have added more features, observed Peter Labaziewicz, imaging business unit CTO, Texas Instruments. Optical image stabilization in particular has grown rapidly as a must-have for digital cameras; in the third quarter of 2006 only 19 percent of digital cameras sold possessed the feature versus 45 percent in the same period in 2007.

The challenge is shifting the marketing terrain to promote those features over the more common litany of resolution, zoom and LCD screen size. "It's really incumbent on us to educate the market on these new features," Scott said. "The industry has to push the message that more megapixels is not necessarily better."

"Next year, 25 percent of all shipments will be 10-megapixels or higher," predicted Bill Drysdale, VP and GM, Fujifilm. "By 2010, about half of all cameras sold will be 10-megapixel or above so at that point, I think the relevancy of higher resolution will start to fade."

Increases in megapixel represent "incremental change" but consumers are looking for more significant improvements in camera technology, said Michael Hunter, marketing VP, Olympus. "We have to focus on major technological changes."

"Intelligent image processing" will remain a hallmark of camera development in the years to come, predicted Labaziewicz. "Developing cameras that are able to understand what they're looking at will give them the intelligence to improve the scene," he said.

Improving the quantity of information in a photo is also important, Labaziewicz said. "Facial recognition could connect a face to a specific name, with a time stamp and GPS tag for geo-location."

"The ultimate goal of facial recognition is to find and organize pictures by face," Drysdale added.

Despite the desire by manufacturers to shift away from megapixels, consumers continue to gravitate to higher resolution models, Cutting said. In 2007, 60 percent of all point-and-shoots sold were 7-megapixels, up from just 11 percent in the third quarter of 2006.

For those despairing of the endless megapixel race, an end is in sight, said Labaziewicz. Current image sensor technology will run up against the laws of physics, he said. "As the pixels on a sensor approach 1 micron in size, you're nearing the size of a wavelength of light."

But, he added, "you can never say never. It's not inconceivable that we'll hit 20-megapixels."