Digital Cameras' Second Wind

Consumers have started replacing their older models and buying second and third cameras for their households

by Arik Hesseldahl

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As recently as the first quarter of this year, the market for digital cameras looked as if it were heading for a decline in overall demand. It seemed most of the people who wanted a digital camera to replace their old film cameras had bought one. According to market research firm IDC, digital camera sales in 2006 grew 15%, down from 20% in prior years, and were forecast to grow only 8% in 2007 (see BusinessWeek.com, 4/27/07, "Quick! Take a Picture!").

Then something happened. Digital camera sales starting ticking up again, and the forecasts had to be revised. On Aug. 15, IDC changed its tune, nearly doubling its growth forecast, to 15%.

What changed? Consumers started replacing their older digital cameras and in many cases buying second and third cameras for their households. "No one ever expected the replacement market to be this strong," says Chris Crotty, an analyst with market researcher iSuppli.

Smarter Cameras, Lower Prices

What is good news for vendors like Canon (CAJ), the market leader, and Sony (SNE), Eastman Kodak (EK), Olympus, and Nikon also is turning out to be good news for unexpectedly eager consumers.

Like previous generations of personal computers and DVD players, digital cameras are experiencing decreases in the cost of components, leading to lower price tags and a change in consumer buying patterns. Households that previously would have owned just one digital camera now have several per family. Consumers are much more likely to replace an aging camera that's probably still working fine with a more sophisticated one that probably costs less than the first one did years ago, Crotty says (see BusinessWeek.com, 4/27/07, Slide Show: "Cameras Anyone Can Use").

That has led to a reassessment of the state of the market. Crotty estimates that consumers will buy 115 million digital cameras worldwide this year and that the market will grow to 142 million units by 2011.

High-End Health

The replacement market is particularly strong in North America, where market research firm InfoTrends says sales will grow 12% this year. The main reason, says analyst David Haueter, is that inexpensive cameras are taking on ever more powerful features like face recognition and shake control. "Consumers are getting more value for their money," he says. "The price point for a 'good' digital camera is now $200 or less, [and it's] less complex than it was when they were selling for $500." The average price on all digital cameras sold this year is $307, vs. $352 last year, according to IDC.

The action isn't only in the low end of the business, Haueter says. Sales of high-end consumer-grade digital single-lens reflex (DSLR) cameras are showing surprising health, he says. As with the lower-end cameras, the main reason is that prices are dropping while features are increasing. Some 2.2 million consumer-level DSLR cameras priced at $1,500 or less will be sold in North America this year, representing market growth of 35% over 2006. DSLR cameras are an important item for camera makers: They account for only 5% of volume but provide 17% of revenue, Haueter says (see BusinessWeek.com, 4/10/07, "Japan's Digital Camera Picture Still Bright").

"We're starting to see lower prices on cameras like the Nikon D40 and the Canon Digital Rebel series," he says. "The DSLR market has been really hot." There are even some new players: Sony, long a player in compact consumer-grade point-and-shoot cameras, launched its first DSLR camera only last year.