Rumor Versus Speculation

So here’s the “rumor” now trying to go viral on the Internets: Sony will buy Nikon. 

Sorry, but it’s not a rumor. A rumor is something that you hear supporting material for that has some level of credibility. You can often get some verification of the rumor by due diligence. Now I will say that this “rumor” seems to have first appeared on a “rumor site” (sonyalpharumors.com),  but that’s not the same thing as it being a rumor (see my Further Update at bottom).

What we really have here is speculation based on hearsay. Or wishful thinking of someone turned into hearsay. The exact quote behind this “rumor”  is “...Sony are circling around Nikon’s camera division like a shark in the water smelling blood.”  That quote is from a former Nikon Ambassador (sponsored pro photographer).

Hmm. Former. Nikon. In Norway. Exactly how he’s tied into Sony’s executive decision making in Japan—which would be necessary for this “rumor” to have any validity at all—is totally unclear. Yet the “rumor” quickly propagated across the net.

Now let’s get one thing clear: as industries shrink—heck, even if they just lose growth prospects—consolidation almost always takes place. A bit less so in Japan than in the Western countries due to the way investment and the still-present keiretsu tendencies play out in Tokyo. But yes, consolidation is something that has happened in the camera industry before (Ricoh buying Pentax, Sony buying KonicaMinolta), and will likely happen again in the future. 

So instead of working on the “rumor," let’s speculate instead. Speculation is examination of facts to form ideas about what could happen.

Two primary reasons exist to consolidate: (1) absorb useful assets from a weaker player that is going to die, and (2) to build a stronger competitor against a leading player. 

#1 isn’t going to happen to Sony or Nikon. Both are highly vulnerable to continued shrinkage of the camera market. Sony because they’re spinning imaging off into a separate subsidiary company; Nikon because 60% of their sales and virtually all of their profit come from the image group. But neither would die if camera sales continue to decline. Instead, they’d get smaller and less profitable. 

Which brings us to #2: Sony+Nikon (or Nikon+Sony if you want to think that way) would make a formidable and equal competitor to industry leader Canon. 

The current ILC market shares are something close to this: Canon 47%, Nikon 29%, Sony 14%. Note what happens if you added Nikon and Sony together: Canon 47%, Nikony 43%. Huge dominance of the market by two remaining players, and a hedge against the declining size of the market.

Moreover, it really would probably work out to at least 43% market share: Nikon’s ILC market share comes almost entirely from DSLR, while Sony’s is almost entirely from mirrorless. So you could easily make a case that a Sony/Nikon merger would produce a very strong lineup:

  • DSLRs: Nikon DX and FX (drop Sony SLT)
  • mirrorless: Sony E and FE (drop Nikon 1)
  • high-end compacts: RX + DL would need a little rejiggering, but some from both lines would survive
  • action cameras: Sony Action plus Nikon KeyMission are like high-end compacts: some rejiggering, but some from both lines survive
  • Coolpix and CyberShot: need a lot of rethinking and rejiggering, but given huge declines in this category, both companies need to do that rethinking whether together or apart

One could argue that this combined lineup is actually stronger than Canon’s. It certainly is no less than near-equal overall. 

Could either Sony or Nikon afford to make the acquisition (merger)? Probably, though it would be very painful to the financial aspects of either company. Update: several people correctly pointed out to me that there are other alternatives to acquisition, such as stock swapping to form a joint partnership. I still think that would be financially painful to both, though not nearly as bad as getting the cash for an outright acquisition would be.

And this is where reality steps in. While we can make the argument that the combination would be strong and powerful, does it actually fix the real problem either company has? No. Combining operations would not grow camera sales, which is the primary thing they need to happen. The combined Sony/Nikon also would be unlikely to steal much, if any, market share as there’s almost none left to steal. 

So taking on debt or even partnering to make such a combination doesn’t have a clear payoff in growth, which is what you’d want. It might have some short term monetary benefits in consolidating things like admin, finance, sales, marketing, etc., though this would come at the cost of one-time write-offs. But if I were a bank/investor contemplating lending money for such a merger, I’d be suspicious of it. I’d need some real careful analysis and explanation of how the debt truly gets paid back. The risk level is too high, in other words.

Now camera market growth isn’t out of the realm of possibility. I know a number of you disagree with my contention that cameras have to be reinvented and that image sharing/workflow is central to that. But here’s the thing: for the camera market to grow again, the camera makers are going to have to get a huge population of camera owners to feel that something significant changed that makes photography better with a new ILC instead of their existing and highly competent one. As I’ve noted, this is the same exact problem the camera industry has faced twice before (autofocus reignited SLR sales, digital reignited camera sales). 

The things that are being pursued—more pixels, faster fps, etc.—aren’t truly making photography  better for most people, but these things are making the workflow increasingly problematic. Why would I want a 54mp camera? Or 108mp camera? Only two reasons now: (1) bragging rights, or (2) professional need with buying customers ready for it. #2 ain’t really happening. So how many folk do you think are on the “bragging rights” upgrade path?

Do I think Sony is about to buy Nikon Imaging? No.

Do I think Nikon is about to buy Sony Imaging? No.

Do I think Sony and Nikon will form a joint partnership? No.

Do I think a Sony/Nikon merger would be good? For customers potentially yes, for investors probably no.

Will it happen? Too many “no’s” in the above summary. No. 

Update: the Nikon Ambassador quoted in the “rumor” contacted me and says that what he meant by his shark quote is that Sony believes that they can take market share away from Nikon while Nikon is floundering (to keep the fish metaphor alive ;~). Still, that just illustrates my point: the “rumor” wasn’t a rumor: it was errant interpretation of a statement by someone. 

Further update: to be completely fair to sonyalpharumors, they didn’t originally tag their article on this as a rumor. However, as the original reference started to spread to other sites and fora around the net, people almost universally referred to it as the Sony acquiring Nikon “rumor.” I’m not blaming sonyalpharumors here. 

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