THE REVOLUTION IN PHOTO MARKETING, PART II
The Darker View

In our editorial last month, we looked at how digital was having profound impact on photo marketing. We painted an optimistic scenario about how the new technologies were enabling millions of former point-and-shoot amateurs to replicate the formerly challenging process of learning how to develop and print their own pictures. The new DV video cameras, when combined with computers and software programs such as Adobe Premier, I-movie and Final Cut Pro were creating scores of would be Steven Spielberg's. A leading camera company executive wrote me after reading the editorial. He said, "Interesting, but the picture is not quite as rosy as you depict. Just ask any of the executives at Pentax, Minolta, Hasselblad, Mamiya, etc. Or the owners of mom & pop photo stores around the country. The paradigm shift is coming in who is selling imaging products, and who is likely to survive in the future."

We started to contact some of these executives, and also camera storeowners, who were not hesitant about commenting on some of the problems facing this industry.

We pointed last month to Canon, which had its most profitable year in its history. The company is certainly positioned to remain a leader, with its extensive development of both still and video products. However, on closer inspection of those profits it turns out that much of it is due to the USA and Europe being cash cows, as the Yen is weak, and the Dollar is strong. With lots of cameras being exported, huge flows of cash roll into the country, but the Japanese economy is still poised on the brink of disaster, and even the strongest companies could be affected. Big companies are selling digital cameras at very low margins in order to capture market share. A distributor admits, "they know the kid who is there first is likely to win all the marbles. Its long been a Japanese market share grabbing strategy.  Get the share now, earn the profits later." Further, after 9/11, Canon, like many other distributors ordered a reduction of 20% in manufacture. Once those lines were taken out of action, it is very difficult to get them started again The result is new products like the Canon EOS D60 (reviewed in this issue) are seriously back ordered.

Pentax and Minolta are on life support. Olympus, although strong now is relying on other manufacturers to produce their products and has little of their own technology or engineering in their cameras, although it is rumored that they will have a new camera with dedicated lenses on the market in the fall. Surprisingly, Sony is the leader in still digital cameras. The other big guy, Nikon, is still battling it out with Canon, but with no video division, its future staying power could be in question. Camera manufacturers meanwhile are racing to get new digital products into the market. This causes serious problems on the retail end as camera stores need to train their salesmen on these short-life products.

Mom & pop camera stores, which for years were the mainstay of photographic retailing are dropping like flies. What has emerged in their place are the huge Ritz / Wolf and B&H superstores, to say nothing of the electronics stores like Good Guys and Best Buy that have invaded the field.. The problem that poses for the average camera buyer ,is that the friendly salesman at the local store who actually knew how the product worked, had experience and was viewed as the expert when it came to recommending and supporting the products isn't there any more. Loading a camera into a virtual "in basket" on a web site just isn't the same.

Many of these local camera stores were partially supported by either processing or repair businesses as sidelines. According to one Washington DC camera store owner, "processing has always been the money maker. It accounted for 25% of our gross revenue. In the last year we have seen that decline 20%." With customers moving to digital, the only way that these stores can hold onto those customers is to make huge investments in digital processing machines such as the Fuji Frontier. " I have to do it, even though it's going to cost me a couple of hundred thousand dollars," said George Stoklas, owner of Embassy Camera in Washington  "There is an enormous opportunity here for a photo manufacturer who can produce a "kiosk" that will go into camera stores and generate revenue for printing from digital memory cards. Both Olympus and Fuji are already addressing this market."

Another camera store owner of one of the best-established stores in Washington, broke down his revenue flow for us. "We do camera repairs, and with a substantial professional clientele, our repairs generated 10% of our cash flow, but that was 100% percent profit to us. Now with digital, since the cameras are all new, and covered by warranties, that business has dropped off substantially. Processing used to account for 30%, and that is also way down. Merchandise accounts for 60%, but with distributors cutting back on shipments, I have to play a juggling act. Our professional customers are not carrying as many cameras as they used to, and with film sales down, we don't see those people as much as we used to. With digital, the equipment prices are high, and people delay purchases waiting for the next wave."

And it's not just cameras. Small items such as filters used to be high-profit sales. With digital, you don't need filters any more. You can do it all in photo shop.Meanwhile film prices for those that still use old-fashioned non-digital cameras are swinging erratically. According to Dick Bagdassarian the owner of Pro Photo in Washington, "professional" films sell at twice the price of "amateur" films. For example Kodak's Ektachrome E100S used for outdoor lighting sells for $7.55 per roll, while a roll of Kodak 320, used for indoor lighting sells for $12.00, and a roll of high speed 400 film sells for $14.46. Fuji has similar pricing differences.

The new digital video cameras are selling well. But what about the dream of a hybrid still/video camera? Sigma is still working the bugs out of their new camera which features the Foveon chip, and that camera will probably not make it to market before August. However, Sigma has taken virtually no interest in using the video capabilities of that technology, and has designed the camera in the standard still model. Why are manufacturers having so much trouble marrying the two technologies of still and video?  According to a recent New York Times article, the problem lies within the sensor inside the camcorder. Even though a higher resolution CCD in the camera would produce much better still photos, it would wreak havoc with the video, which doesn't need that much visual information. So, it would have to discard excess picture data 30 times per second.Until this problem is solved, the best we can expect is the low-resolution stills we now have on these cameras.

The consensus among camera store owners that we talked to is that there is a real question of whether the photo industry can survive the way it now is. Said one,"I'm glad that I'm not 15 years younger. I don't hold out much hope for the industry. The customer who used to come back to us for processing, now goes to Kinko's."

Many of these retailers see a gradual move in the future back to film. According to one, "most people don't know what the hell they are doing with those digital images. A lot of people got into it as a fad."

Dick Bagdassarian, says," I have 3 children. The first child has the most pictures. The last child has the least. 20 years later you look at the photos and see the value of them. You don't want to forget the big picture. Enthusiasm with digital can be very rewarding, but it may not have the information you will want years from now. You can't go back."