Digital Cameras' Second Wind

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

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

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.

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 cameras reviews (DSLR) 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.

"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.

Mad for Megapixels

High-end DSLRs are also a good barometer of features that will often migrate down into less expensive cameras. Case in point: Wi-Fi access on cameras. Several high-end professional-grade DSLR cameras allow users to connect to wireless home networks in order to quickly upload their pictures to computers. And while the feature has appeared in a limited way in some mid- to high-end consumer models, it's far from popular. "Wi-Fi is really not going anywhere yet," Haueter says. "But there's still a future for it."

One feature that's still popular with consumers is megapixels. Rightly or wrongly—and opinions vary on that—consumers are still equating higher numbers of pixels on a camera's imaging sensor with higher-quality pictures. Vendors, sensing opportunity and the ability to charge more, are happy to oblige. This year has seen the onset of compact consumer-grade cameras that can shoot pictures at resolutions of 12 megapixels. Sony, Casio, Panasonic, and Kodak have all launched 12-megapixel cameras aimed at consumers. But there are pitfalls.

First there's the extra cost. The 12.1-megapixel Sony Cyber-shot W200 lists for $400; the W90, which is rated at 8.1 megapixels and has similar features, costs $300. The same goes for Casio's $400, 12.1-megapixel Exilim Zoom and its $300, 10.1-megapixel cousin.

Picture-Taking Frenzy

Is it worth the extra $100 for an extra 4 million pixels? Probably not, experts say. "Most people don't need more than 6 or 8 megapixels, and manufacturers are doing them a disservice by telling them that they need more," says Katrin Eismann, chair of the digital photography department at New York's School of Visual Arts.

There are other trade-offs. The more pixels, the bigger the file size of the picture. In turn, the bigger the file size, the faster your memory card fills up. It also takes longer for the camera to save the file to the card, meaning a longer lag time between shots. Finally, the pictures will take up more space on your PC's hard drive.

However, professionals are certainly just as eager as consumers to get all the pixels they can. On Aug. 19, Canon unveiled its latest high-end DSLR camera, the EOS 1Ds-Mark III, a 21.1-megapixel monster that will set its owners back a cool $8,000. See additional reviews of DSLR cameras at DSLR camera review.

One thing is certain: All these digital cameras are being used a lot. InfoTrends reckons that 45 billion pictures will be taken in the U.S. this year. But of those, only 15.2 million, or about one-third of one percent, will ever be printed. Such is the state of photography in the Digital Age.

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