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TWICE:What did we learn from 2003? NPD and various analysts said that digital camera penetration hit 30 percent. What are the implications of that? What is the outlook for the rest of this year, including into Christmas, and what is going to be hot?
Greg Young, Sony: Actually we don't think the penetration was that high. While we are seeing this amazing growth, there are a lot of people buying their second and third generation of cameras because the technology has continued to improve so dramatically every year. I think the growth we're seeing could continue longer than expected.
Martin Lee, Olympus: Last fall, last Christmas was very fascinating because we are seeing a shift from people buying entry products to people buying premium brand products. People are looking for new things in their cameras.
It is encouraging to see that [digital cameras] have become a branded lifestyle product where people care about brand and design.
Elliot Peck, Canon:We see a continued growth in the market, probably around 30 percent vs. last year. We remain very optimistic about the holiday season. I don't think that we are going to see the pressures in availability the way we saw two years ago. There is going to be adequate inventory in the marketplace. I think it will be a challenge for the manufacturers to anticipate what the customers are going to want this holiday season.
Jon Sienkiewicz, Konica-Minolta:There is a big replacement market, the proof of that's on eBay. You will see a tremendous variety of new and used cameras being sold [there].
If you ask what we learned about consumer habits in 2003, we found out that consumers want cameras that are small, fast, with big LCDs, and God bless 'em, they want interchangeable lenses.
Phil Scott, Kodak:I was looking at InfoTrends predictions of volume, and they were saying that last year it would hit 14.4 million. It wound up being 16.1 million. Last year they predicted 16.5 million cameras for this year, and now that number is 22.8 million. That's the real challenge for us as manufacturers, predicting that exact amount. There is going to be a real challenge to get shelf space.
What are going to be the drivers? Certainly image quality. Image quality is a proxy for resolution, optics, even LCD quality. I think there is another factor here though and that is ease of use. Ease of use to us doesn't just stop at the camera. It really only starts at the camera. I think the industry will be focused on ease of use beyond just capture but on the end result, which is getting the picture and sharing those memories.
David Ryan, Hewlett-Packard:Last holiday there was a very broad degree of success so a lot of price points were driven really hard. There were premium cameras that were small and stylish at $399 and $499 but also the $199 price point was very successful.  was probably the first year that $199 would buy you a balanced camera.
We also saw strength in the concept of a one-box home photography solution, giving someone a complete solution in one box that they can grab and go. The other interesting trend was the North American market would appear to be becoming more design sensitive than it has been in the past. Europe and Japan have been very, very focused on materials, how thin the camera is. Traditionally, North America wouldn't have been quite as sensitive, but looking at the success of certain products over last holiday, it would appear that if you have the products, people will spend the money and that obviously creates opportunities.
Andy Nelkin, Panasonic: This market is segmenting itself based on the end user. Today's end user is not one digital camera user. There is an end user who wants to share photos via the Internet. For that person there are camera phones, there is what we call D-Snap, which is a fun multimedia type device. There is an entry-level buyer who wants to take pictures and maybe make a 4 by 6. There is a digital SLR user, a step-up user who wants a camera that feels like a camera, that performs like a camera.
I think last year was the first year that we can clearly say there were different areas and different competitions that occurred. I think the other part of the segmentation that happens in products happens at retail, with each channel of distribution addressing a different niche. Very few people are carrying cameras that will address every one of those markets, or they will have 150 cameras on their floor.
TWICE:Is there trouble getting shelf space?
Lee: I wonder if anyone here would disagree that there are too many digital cameras on the marketplace. Think about it. Major retailers in the United States probably carry about 35 SKUs. They are confronted with about 150 digital cameras.
Ultimately what ends up happening is all those digital cameras that are on the marketplace get out there somewhere. Manufacturers build the product, they have product, and someone is going to dump the price. That product starts to sell. Everyone starts in. It is kind of a waterfall effect. There is too much product on the marketplace.
Peck: One of the other problems we face with the amount of products available is the short life cycle of products. As we said before, from a manufacturer's point of view, it is very difficult for us to pinpoint exactly what size the market will be, what the hot price points will be, and then how much do we make. You want to be right.
Young: I don't know. We have eight different cameras that are 5-megapixel. Each one is successful because they each fit a different lifestyle. A 5-megapixel camera may range from something as small and stylish as the T1, up to something that is much larger and more of an enthusiast's camera. Yes, there is a lot of variety, but that's because consumers are demanding specific designs to meet their lifestyles.
Not everything is going to succeed, but the market is large enough that as long as we work with channels of distribution to have the right retailers who have those specific consumers walking in the doors, there is room for all that variety. There is a lot of sifting that has to happen in the next couple of years.
A $129 price point will probably not do well at a photo specialist. On the other hand, seeing a large CE dealer try to stock 15 different lenses for an SLR and successfully serve that consumer would be a challenge.
Peck: From the retail point of view you are 100 percent right, but the Internet changes a lot of that. Where a retailer can normally only stock 30 or 35 SKUs maximum [in store], they can stock 150 on their Web site.
Ryan: In the past we looked at distribution by megapixel. Now, some retailers have started asking consumers about what type of attribute they are looking for in a camera. That is going to be one of the challenges facing retailers: Can they make that model work, given that it is more space intensive to sell?
Sienkiewicz: The fact remains that all these things we are talking about are things we can get away with as long as the market continues to explode. Once it starts to compress, you are going to see camera models, retailers and manufacturers dropping like flies.
Nelkin: I would argue that 150 models might be the right number if everybody understood where their products were being sold and the segment that it was filling, and each one had innovation and some kind of reason to be there. Oversupply and lack of defined innovation in the product will lead to a problem. The amount of models in the industry is not necessarily a problem.
Young: We are far more segmented than the film industry ever was. I really think that 200 models may not be too much.
Scott: There is a certain amount of consumer confusion that you introduce, though, when you have that many variations of cameras out there. As manufacturers we have to make sure we are communicating, educating consumers to make the decision process a little bit simpler.
Young: I agree. We started to try to simplify our messaging into concise buckets of information. It's interesting is to watch the second-time consumer as opposed to the first-time consumer. The first-time consumer is measuring megapixels and lens. They know that much. Second-time consumer is thinking 'I know all that. I am thinking about battery life. I am thinking about responsiveness.'
We need to be very clear about communicating those issues because those are the ones that make a difference in having a good experience and having that consumer then come back with great satisfaction and buy their second or third camera two or three years down the road.
This TWICE webinar, hosted by senior editor Alan Wolf, will take a look at what may be the hottest CE products at retail that will be sold during the all-important fourth quarter. Top technologies, market strategies and industry trends will be discussed with industry analysts and executives.