Digital Camera Boom May Be Nearing Crest

But that's a slightly worried grin on the face of the photo industry as it holds its annual convention, PMA2005, this weekend in Orlando. After several years of fast-speed growth, the Photo Marketing Association International (PMAI) trade group projects that digital camera sales will rise 13% this year.

The PMAI says 52% of households will own a digital camera by the end of the year. Many consumers are already on their second digital camera purchase, suggesting the market is maturing earlier than expected, says Chris Chute, an analyst with market research firm IDC.

As a result, manufacturers are adding features and dropping prices. "The competition will be fierce," Chute says.

That's great news for consumers.

Photofinishers, from small one-hour photo labs to the local Wal-Mart and CVS drugstore, are getting more aggressive in pushing digital printing. The average cost of a lab-produced 4-by-6 print in 2004 was 30 cents, down from 61 cents in 2000, says the PMAI.

While companies such as Kodak have struggled to remain relevant as the world switched from film cameras to digital, no sector of the industry has taken it harder than photofinishers. They're selling prints for less and making fewer of them — a projected 26 billion for 2004, from 30.3 billion in 2000. Film-developing revenue will tumble to a projected $3.9 billion for 2004 from 2000's $6.2 billion, the PMAI says.

Photofinishers see the explosion in camera phones as a potential holy grail. Some 150 million camera phones sold worldwide last year, compared with 64 million digital cameras. That's a lot of potential prints to process. But camera phones have fuzzy, low-resolution images, and pictures are hard to transfer.

For now, the jewel of the photo industry remains that small wonder, the digital camera, a pocket-size device that can record an image instantly.

At the show

While many manufacturers are slashing prices for entry-level cameras, such as Nikon's high-resolution 7-megapixel $379 Coolpix 7600, those generating preshow heat are more expensive step-up models that appeal to consumers seeking a second or third camera.

Kodak's new cameras offer extras such as expanded zoom capability and larger liquid-crystal display (LCD) preview screens, while rival Fujifilm is targeting another big concern: usability.

Fuji has played with the innards of its cameras to increase battery life to 500 pictures from 350, and start-up time to one-tenth of a second from half a second for two new models. "The biggest concern from consumers now is battery life and faster start-up," says Fuji senior product manager Darin Pepple.

Kodak, which in 1888 started offering consumers a small alternative to the huge cameras of the day, has been struggling to remake itself in the face of dramatically declining film sales. It has announced plans to lay off up to 15,000 employees over three years, shuttered factories and has been trying to shift its focus to digital.

While sales have been flat for years — 2004's $13.5 billion is a fraction above 1998's $13.4 billion — Kodak won bragging rights in 2004 as the No. 1 digital camera manufacturer. By slashing prices on entry-level models and advertising heavily, Kodak overtook longtime leader Sony, Chute says.

Kodak, Sony and Canon dominate the top end of the industry, with a combined 57.4% market share: Kodak at 21.9% to Sony's 19.4% and Canon's 16.1%.

Kodak hopes to break further away by going against the grain with a new camera that is considerably more expensive than most point-and-shoot models.

Kodak's $599 EasyShare-One, out in June, is being positioned as not just an image-capture device, but also a portable photo album. It has a 3-inch LCD screen (compared with the average 1.5-to-2-inch version) and can store up to 1,500 images in its internal memory. In turn, with an optional $100 wireless Internet card, users can upload pictures directly from the camera to Kodak's Web site, to share with friends.

Of the higher price, Kodak Vice President Nancy Carr says, "It's more than just a camera, and people are willing to spend more for the next innovation."

Consumers showed their willingness to do that over the holidays, when professional-like digital single-lens reflex (SLR) cameras were one of the most heavily advertised categories.

Digital SLRs offer faster response time, the ability to stop action, use interchangeable wide-angle, telephoto and zoom lenses, and provide more focusing and lighting choices.

Canon, which kick-started the market for digital SLRs with its $999 Digital Rebel 300D, has slashed the price to $799 effective in March. It's also introduced a replacement model, the $999 Rebel XT, which has an 8-megapixel sensor. A megapixel is a measurement of a camera's resolution. The current Rebel is 6-megapixel.

Chute thinks many second- and third-time digital buyers will end up buying the Rebel, which he predicts will be priced at $699 for the holidays. "Once you try one out, you don't want to go back to a point-and-shoot," he says.

Pent-up demand for prints

Many new digital owners feel that way about print-making. Why go to the photo store when you can zap out prints at home?

"That was one reason for buying the camera in the first place," says Reid Webber, who runs Sarasota Photo Center in Florida. "You don't have to make the extra stop during the day."

Yet, the PMAI says the picture is starting to look up for lab owners. Some 40% of digital prints will be made at retail this year, up from 32% last year.

PMAI's Gary Pageau says the expanded availability of digital printing paid off with higher sales. "Nationally, retail digital printing is now almost everywhere, and retailers are doing heavy advertising," he says. "This effort has tapped into the pent-up demand for consumer digital prints."

Kirk Sidley, who runs Picture Perfect lab in Portland, Ore., says his digital print business increased 100% in 2004. "People were coming in at Christmastime, with orders of 200 to 300 prints, like they were waiting up all year. They tried their home printer, realized we were more economical, and came in."

Webber believes a bigger industry push on behalf of photo-processed prints would take a huge chunk from home printing.

Major chains such as Wal-Mart, Ritz Camera, CVS and Costco advertise one-hour service for digital prints, at prices around 29 cents for a 4-by-6. Online, discounters such as Clark Color and Snapfish go as low as 11 to 19 cents a print.

"I'd like to see the big companies like Kodak and Fuji stand up and tell consumers that prints made on photo paper are higher quality and longer lasting than the ones you make at home," he says. "That would make a huge impact."

Because Fuji and Kodak have big businesses selling photographic paper and chemicals to lab owners — and ink-jet printer paper to consumers — that's unlikely.

While labs promote the idea that their prints last longer than ink-jet, it isn't always so.

Printing at home can be cumbersome, often result in mistakes and be more costly. But Henry Wilhelm, who studies the issue of print longevity with his Wilhelm Imaging Research, says many ink-jet prints last longer than lab prints. The key is using a newer printer and buying the brand's paper and ink. "If you bought a new Hewlett-Packard printer and non-H-P paper, the prints ... could start fading as soon as two months," he says.

Figuring out camera prints

Owners of camera phones haven't experienced print fading issues, because most haven't figured out how to get images off the phones.

Drugstore chain CVS started offering camera phone prints in 2004 but found few customers. "It's a small business right now," says CVS Vice President Judy Sansone.

Most camera phones require users to upload pictures first to the wireless carrier's Web site for a fee, transfer them to a computer hard drive, then figure out a way to get them to an online or bricks-and-mortar retailer.

Few phones have removable memory cards to store images, like those in digital cameras.

"If it ever gets to the point where the customer has options, prints from camera phones could be a very nice advantage for us," says Portland's Sidley.

Expectations for camera-phone prints at last year's PMAI show were huge, but so far are unfulfilled. What is clear is that people are snapping more pictures than ever. One big opportunity for companies this year is selling archiving materials: printing, DVD and CD backups, and extra hard drives. "Consumers have a body of memories that are accumulating, and if they don't take precautions, they could lose them all in a hard drive crash," says Kristy Holch, an analyst with research firm InfoTrends.

Holch, a regular attendee at the PMAI show, expects to find an optimistic bunch despite the projected slowdown in camera sales. "This is a market that has been quadrupling for several years," she says. "There's still extremely healthy growth for this year."