Market Share or Profit?

The ILC market peaked in terms of unit volume back around 2012. We appear to be about to cross the "contract by half" threshold in terms of volume this year or next. The amount the camera makers received for their units has not quite fallen as much, but is also in deep contraction.

Most of the camera makers have at one point or another stated that they're going upscale. To use Sony's language: "improvement in the product mix reflecting a shift to high value-added models." 

So you see some interesting things as you peruse the financial reports that might confuse you in the short term. Again using Sony as an example, unit volume of digital cameras went down from 4.4m to 3.6m (-18%) while operating income (profit before corporate things and taxes) went up from 74.9b yen to 84b (+12%). 

Of course, you have to read closer. Buried in Sony's reporting is that their Imaging Products & Solutions group had a miserable January through March, just like Canon just reported. Traditionally that quarter is the worst performing for the camera companies, but Sony showed a 73% drop in operating profit year-to-year. 

As more and more of the companies report their calendar quarter (and for many, fiscal year end) earnings, we're going to see more and more of the same, methinks: sales pretty much tanked. And with them, profits. Despite that "shift to high value-added models." 

The thing that most of the camera makers are missing is this: what is a compelling new product? Because it's currently clear that it's not a consumer DSLR, and not appearing to be a consumer mirrorless. Meanwhile, the full frame cameras—both DSLR and mirrorless—certainly have shown appeal to the pros and practicing enthusiasts, but those folks don't exist in large numbers. 

Nikon read these tea leaves—other than for low consumer products such as Coolpix and Nikon 1, where they just completely missed the mark—quite well. They overbuilt ILC after the 2011 quake/tsunami, found themselves piling on ILC inventory to the point where they were selling three generations of cameras at the same time, and then backed way off. What they have introduced in the last three or four years is a smaller set of higher end ILC winners—D5, D500, D850, Z6, Z7—coupled with a couple of so-mild-they-can't-be-called-upgrades at the consumer DSLR end (what's the R&D cost of making virtually no parts or feature changes? ;~).

And yet when Nikon reports their results on May 9th, I expect to see the same thing for the January to March results: lower volume, lower profit. 

I've seen people writing a variety of things about market share and profit recently, often suggesting that one is better than the other. In reality, you need both. That's because it takes some level of volume to make a meaningful profit. As your volume goes down, your human, manufacturing, and parts costs all go up.

While doing some file archiving, I came across a detailed market report and estimate from 2012 from a very large investment banking firm you know the name of. Their prediction of where we'd be today? North of 20m ILC units. Even at the time that report was generated I was having an email argument with one of its authors: there was no way I could see the camera market doing that. 

When he asked me what I thought the 2020 number would be, I said "between 8m and 10m units." At that point, he pretty much dismissed me as a kook. Unfortunately, the trend lines that I was detecting turned out to be true: smartphones made image sharing too convenient and were getting better, ILC customers were aging, products were becoming better than the average need, and so on.  

I'm not trying to brag that I was right, though this is the second time I've made a correct call (the first was predicting in 2003 that the peak ILC would probably be in 2011, which wasn't off by more than a few months). 

The thing is, tech is reasonably predictable if you know what things to look for. I believe that the camera makers have fallen so far because they've spent too much time on the old iteration model and not enough on understanding and fixing the largest user problems. 

So I'll state it again. The biggest photographer user problem is this: I want to take images and share them. The "taking" part is pretty much solved. Sure, continue to iterate and improve that, but the real problem now is on the sharing side (and I'd include preserving, as well). How do any of these already-better-than-most-people-need cameras solve that problem? They don't. They punt. Or at best case give you an outdated and convoluted way to kind of do it. 

The thing that boggles my mind is that we pros have the same needs, as I've outlined many times. I need my sports images to get to my clients nearly ASAP. And no, I don't want to be tethered to an Ethernet cable. Moreover, there are things I have to do with the images—IPTC data and captioning—that are tough to do even with the D5, which includes features that help me with that. 

While I've written many times that I'll always take more pixels, or more dynamic range, or more of just about anything I already have, those aren't things that compel me or others to update our cameras very often at this point. I could probably shoot with my D850 and D5 for the rest of my career and be happy with the results. 

Obviously, the bean counters at the camera companies are looking at the two things I mention in the headline: market share and profits. Canon, Nikon, and Sony account for 85% or so of the ILC market, and they don't want that to change, particularly with the market still shrinking overall (though they might want their slice to grow). Meanwhile, despite all the negative news Canon, Nikon, and Sony are all profitable with their camera sales, and they don't want that to change, either (though this past quarter has been a real challenge for even the Triopoly). 

Still, Tokyo has to be worried. Neither market share nor profit is going to help them long-term if the market keeps contracting. Eventually, continued contraction would provoke write downs of non-performing assets and redeployment of staff, both of which would take away the profit. 

So yes, I'm still on the communicating, programmable, modular soap box. The first two are necessary to get cameras into the sharing and cloud world of imaging. The latter means you stop spending ridiculous amounts of money redesigning bodies for hands that don't change. 

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