What Will Happen in 2004?

Nikon and Canon are now digital photography companies. Get used to it.

[If your'e interested in how I did with last year's predictions, click here. Some of those predictions didn't quite happen in 2003, but are enough in progress that they'll happen in 2004; I won't repeat them here.]

Before we talk about next year, we must talk about what happened in the last 12 months.

2003 turned out to be a crux year for the photography industry. As noted in the sub-head, Nikon and Canon are now predominately digital photography companies, as more than 80% of their unit and sales volume for cameras is being generated by digital bodies, both compact and DSLR. Any company that thinks of itself as in the film business at the end of 2004 better be prepared for rapid shrinkage. And there's no Viagra-like product coming to get back market size. Nikon's 35mm SLR sales shrunk by 25% in 2003, and the pace is accelerating. Amazingly, despite that big drop in 35mm SLR sales, Nikon's market share for 35mm camera bodies increased significantly in 2003. What's that say about Minolta, Pentax, and other 35mm SLR producers? You guessed it: no unit volume to speak of--the things sit on shelves and in warehouses around the world.

Film sales also dropped significantly in 2003. Depending upon the country and the type of film, raw film sales dropped anywhere from about 5% to 20%. Slide film sales dropped the most, with print film showing a smaller drop. Film sales in some third world countries actually went up slightly, but in the industrialized countries--especially Japan, Europe, and the US--film sales dropped significantly. Counter to that trend, film-based disposable cameras showed double-digit gains in almost every country where they're sold, including the G7 countries.

So, it should be easy to see that film will continue downwards while the impact of digital continues to increase. With that basic premise out of the way, here are my specific predictions for 2004:

• Three new DSLRs from Nikon. We have the D70 and probably the D2x coming in March at PMA (shipment in June). And we have another interesting beast coming in time for the Olympics (see below). Nikon has already announced that they're working on the D70. The D70 will be an N75 body that has been digitized, much like the D100 is a digitized N80. The price point is likely to be under US$999, and we'll see at least two consumer DX lenses introduced with it: something like a 20-60mm f/3.5-4.5 and a 60-180m f/4-5.6. At the high end the D2x will be 8mp and 4 fps in a D2h-like body, though it's price point will be well under the current D1x.
• The D100 will remain in the lineup, though it might get some modest updates announced at PMA (the flash system ought to be upgraded to i-TTL, at the least). I'll call that the D100s, but I don't count it as a new DSLR.
• The third new Nikon DSLR will shake up the industry. Last year I predicted the appearance of parts of the F6 (the autofocus system ended up in the D2h). Well, this year I'm going further, saying it will appear fully. Essentially, the F6 will be like a medium format camera in 35mm size. The main component will simply be a light-proof box with lens mount, shutter, and mirror mechanism. Perhaps that part will also have a power supply in it. But everything else (and perhaps the power supply) will be modular. You'll have your choice of bolt-on film or digital backs and your choice of viewfinders. Backs and viewfinders can be interchanged mid-roll/mid-card. I'll go further and point out that Nikon will use the Olympics in Greece to launch this hybrid. If I had to guess at price, I'd guess US$2000 for the base, US$1000 for the viewfinder/metering; US$500 for a film back, and US$2500 for a digital back. The interesting thing will be whether Fujifilm also provides a digital back for this camera, as they have a full-frame 11mp sensor that would be perfect for it (and, of course, interpolated up to 22mp in finished images). Even more interesting will be that at least one digital back choice down the road (probably not 2004, though) will be a dedicated high ISO back. And, the whole thing will do 8 fps on film and whatever the digital sensor can handle (up to 8 fps). Medium format camera makers, such as Mamiya, will be cringing when they see this product. Kodak will, too, as it means that they'll have to consider making a back for it, but with a much lower price point than their current MF backs to stay competitive.
• Canon makes a new trio of DSLRs, too. The 1D being replaced is the easy guess. Another new body slotted between the 10D and the 1Ds is a tougher guess. But what's the third? I'm guessing something that slots between the Digital Rebel and the 10D, which would give Canon a five-body range of DSLRs. How they get there is troublesome for the rest of the market: by Christmas 2004 the Digital Rebel drops in price to US$699, the new body slots in at US$999, and the 10D drops to US$1299. Of course, given Canon's track record, the 10D is due to be replaced at PMA in 2004! I'm guessing that they won't replace it outright, but do only a slight updating, thus I'll continue to call it the 10D.
• Fujifilm launches two new DSLRs at PMA. The S3 Pro is a full frame replacement for the S2 Pro, either using the same N80 base or a slightly upgraded base body. Resolution is 11mp (22mp with interpolation). Price is announced at US$3999, but wanders around a bit before shipment due to pricing changes by others. The second DSLR will be a 4/3 body and mount, have 5mp (10mp with interpolation), and be in the US$1500 range by the time it ships. Neither camera will ship before June 2004.
• Despite flagging sales, both Nikon and Canon will introduce at least one new 35mm SLR. In Nikon's case, that's besides the F6 mentioned above. For Nikon, the most likely candidate would be an N85--the N80 body needs an autofocus and shutter upgrade, and at least one 35mm body should have i-TTL support. Note that this may coincide with a modest update to the D100 (see above), which would get the same changes.
• Even more exotic lenses appear. We still haven't seen Canon's or Nikon's 200-400mm offerings in shipping versions, but those will look somewhat normal in comparison to some of the unusual stuff that gets announced in 2004. Someone will go for the "X" record, as in a 13x 24-300mm "compact travel lens." (Avoid it; it'll be mediocre.) We'll see new Canon and Nikon macro and shift lenses. Nikon will introduce a Vibration Reduction teleconverter lineup, the TC-14VR and TC-20VR (and maybe a TC-10VR that just adds VR and no focal length/aperture change). The 70-300mm f/4-5.6 gets AF-S treatment (and maybe VR), but will end up being delivered late and in short supply, ala the 24-120mm VR. (By the way, where is the new 28-200mm Nikon announced? It still hasn't appeared as I write this.) Canon goes DX and introduces lenses for the 1.6x sensor size. At least one f/2 telephoto optic gets introduced (best guess: Canon 200mm f/2 IS). Ah heck, let's go out on a limb and see if we can break the acronym bank: how about a surprise Nikkor 85mm f/1.4G ED-IF AF-S VR DC (sorry, no PC though). Holy bokeh, batman! A third party (probably Sigma) will try for a 10-28mm lens or maybe a 9-24mm. Nikon may counter with a 14-35mm f/2.8 for full-frame cameras. And here's my biggest reach: Nikon will have a "special lens" that is loaned to a few photographers at the Olympics. It won't be the focal length that's the special thing, it'll be that the focus controls can be programmed on the lens (follow left to right, right to left, only rack focus forward [or backward], and other such mechanisms. For example, you set up at one end of the 100-meter dash and tell the lens that the action is going to be coming at you (or going away from you). Fire away at 8 fps on your D2h (or F6) and every shot is perfectly in focus. Yes, current lenses can follow runners without help like that, but there can be slight hesitations so that you don't perfectly timed exposures (i.e., they're not perfectly 1/8 second apart), and the focus may only be "close enough," not exact. Maybe you'll even be able to program in the only focus distances to consider (i.e., 110m and 10m if you're standing 10m behind the finish line of that foot race). Now imagine covering the bike races (or a NASCAR race) with that lens. SWEEEEEET.
• Leica's digital back for their SLR doesn't make it to customers in 2004. It'll show up in prototype form at Photokina and be much talked about, but it'll appear to be too little and potentially even later...That won't stop Leica from producing it or their existing customers from buying it. But Leica will be hurting big time financially by the time it appears. And exactly how they're going to attract new customers moving forward will be suspect, as they're behind in the digital image quality race.
• Nikon drops compact 35mm development, then sales. It was already rumored and denied by Nikon, but I think it's only a matter of time, and it'll happen in 2004. Nikon won't be developing any new compact 35mm bodies, and when the existing sales drop below some pre-set point (I'll guess 300k units), Nikon will simply drop that whole product lineup to free up dollars and production capacity. Likewise, there will be no new film scanners developed. In other words, other than one last gasp of 35mm SLR development, by the end of the year Nikon will be solely a digital imaging company. This is also likely true of Canon, too, though I suspect they'll be more quiet about the move from film to digital. Canon has more mass market retailers selling their low-end 35mm product, so they're not going to rock the boat, just simply drill a hole in the bottom and scuttle it without telling anyone.
• $299 is the new digital compact camera price point. 5mp or more, a long high-quality lens, a deep feature list, better performance (shutter lag, et.al.), and more, all at US$299 or less (as I write this, Gateway is already at US$399 with a 5mp camera, so this isn't much of a stretch). The more exotic DSLR-like compacts (the Minolta A1, the new Sony 8mp, etc.), will find that their price point drops to US$599 or perhaps even US$499 (the Nikon 5700, which sort of fits in this category, already has dropped below US$799). Companies that hit those price points will have 100% unit growth in 2004 and sell everything they can produce. Companies that don't hit those price points will have <50% unit growth in 2004 and eventually have to resort to rebates and other tricks to move product off the shelves. This kind of bruttle pricing will eventually result in market consolidation in 2006.
• The top 5 remain the top 5, though Sony will be vulnerable by the end of the year. The top five digital camera producers are Sony, Olympus, Canon, Fujifilm, and Nikon (though some say that Kodak is off and on in that group). Of these, Olympus and Canon will gain market share. Fujifilm and Nikon will hold market share. Sony will lose market share in 2004, and possibly even the #1 position. Why? See the previous point. Sony isn't prepared to get there, while Olympus and Canon are. Fujifilm and Nikon will get there begrudgingly. No other producer other than Kodak has a realistic shot at breaking into the top five in 2004. There's a saying that a high tide floats all boats, and that's what's happening right now in digital camera sales. With the leaders production constrained in 2003 and market demand showing double or triple digit growth, even companies that took a 1% market share thought they had successful years. Good luck with that. Any company that ends 2004 with less of a market share than Nikon, the weakest of the big 5, is likely to have a smaller market share in 2005, and even smaller one in 2006, and possibly be out of the business by 2007. The only way out of that would be to produce something that no one else can. The market growth rates for digital cameras won't hold for much longer, and thus market share is about to become very, very important. (Note to all those companies out of the top 5: invent a different market now, own it, and protect it at all costs. Make a B&W digital. Make an interchangeable lens compact. Make a stereo digital. Make an infrared digital. Do something that's DIFFERENT. What you don't want is .5% of the market for US$299 compact cameras with 50 other competitors (I actually count 46 companies in the digital compact market at the moment, but I'm not counting a few that are just brand name plates on OEM cameras). Put another way, the top five companies will hold at least 70% of the digital camera market in 2004, and possibly more (if they can manage to get past production restraints and price correctly). That leaves over 40 companies scrambling for the remaining 30% of the market. Ouch!
• At least two traditional camera companies fold (perhaps they get acquired instead). Will it be Mamiya, Pentax, Minolta/Konica, Leica, Hasselblad (though the name might live on via their Japanese partner), Rollei, Bronica, or Horseman? I'll go further and suggest that Sigma ends up getting out of the camera business (but remains in the lens business).
• Agfa (and perhaps Konica) closes or sells their film plants. Markets with negative growth aren't the ones you want to be in. Perhaps the Icahn-produced Kodak film spinout will buy them ;~). Oh, didn't I mention that? If Kodak doesn't produce the results that Wall Street wants to see in the next six months (and they won't), Carl Icahn and company, who've been buying up Kodak stock, will move to split Kodak into chemical, film, digital, and medical businesses and/or sell portions of the business.
• High profile camera dealers/labs start folding. Digital camera sales have had a modest effect on camera stores (increased sales of equipment, decreased sales of supplies and used equipment) and a dramatic effect on labs. Stores that relied upon film sales and processing as their primary profit source will disappear unless they get the digital religion quickly. Even the ones that did (do) are going to struggle a bit against online discounting and at-home printing. Camera stores that have large used departments are sitting on film equipment that devalues itself daily. I know of one store that counts on 100% mark-up in the used department to get their profits into a respectable range; they won't last 18 months without a major change in practice or an influx of capital. Many stores are living off cash flow at the moment, not profit, and thus are vulnerable to sales fluctuations. Labs are even more affected. Those that are located in high-traffic areas and tout the transition from one-hour processing to one-minute printing (see below) have a good shot with the proper marketing and pricing. Those out-of-the-way labs that relied upon pros and advanced amateurs shooting film have a bigger barrier to break, though they have a chance with custom and event work; likewise, those labs that catered to other parties (grocery stores, drugstores, etc.) are going to find the going gets rough, as all they'll eventually have left is disposable camera development.
• Phones kill the low-end digital compact camera. It's already happening in Japan; it'll happen worldwide soon. Anything 3mp or under just won't compete against the built-into cameras in phones and PDAs by year end. Why would you carry a second camera of this caliber? You wouldn't. And since phone costs get subsidized by wireless carriers, guess what? Not only are you competing against phones, but you're at a price disadvantage. Think about it: CellularWorld offers you a 2mp camera phone for US$100 (less a rebate) for signing up for a year's service, while Best Buy will sell you a 2mp camera only for US$100. Which one would you buy? I don't know about the rest of the world, but Americans are suckers for rebates, even if they have to sign away their soul to Ms Bell for a year. And those same Americans are too lazy to carry two cameras.
• It isn't just cellular phones. I don't know why, but someone will produce a wireless phone for the home that has a camera in it. Heck, I'll even stick my neck out and say that Cisco will at least show a variant of their IP phone system that has a camera option by the end of the year. Heck, it might even become the "new fax." You're talking on the phone with a business customer and they say, "fax that too me, will you?" "Hey, I'll do better than that, I just captured it with my CamPhone and sent it to you via email." You know, if the software was done right, it would simply be a button press (i.e., look at phone number being called, look in database for that phone number, find the associated email address, send a message with the picture as an attachment). Oops, there went that patent ;~).
• Someone will figure out that travelers no longer need or want one-hour developing. I don't know where it will be, but in some third-world country I travel to in the next year I'm going to find someone who's figured out that they can go into the one-minute photo business for travelers. That's right, the way I measure whether I got this right is if I see a One Minute Photo sign in a window of a store outside the US. While Kodak and Fujifilm and HP and others all try to peddle huge, expensive kiosk replacements to the one-hour developing businesses, think about the potential that a small, rugged US$2000 PictBridge/CF Card standalone unit would have at travel locations. Heck, every boat in the Galapagos Islands would need one to remain competitive (believe it or not, most boats in the Galapagos had mobile fax technology as early as the 1980's, so this isn't anywhere near as far-fetched as you think). Think you could make money off a standalone unit in, say, a Patagonia hotel? A Yosemite hotel? As a mobile vendor set up at the Statue of Liberty? On cruise ships, even small ones? Heck, airlines are looking for revenue sources, I bet you that an on-board printer station would make more money than the on-board telephones do. Convenience printing is not taking your CompactFlash card to Wal-Mart or the local photo store. And why don't grocery stores have kiosk machines instead of film drop-off stations? After all, some drug stores have made the switch.
• At least one virus or trojan horse will be dispensed in a freeware digital photography software product. Malicious hackers go where the crowd is. Hey, if everyone's got digital cameras, how many would want a free utility that "magically improves every picture using NSA technology?" Why, quite a few, I imagine. And won't they be surprised when the software eventually improves every picture by erasing it from their hard drive? Be careful out there, folks, malware is coming.
• For 95% of you, your digital camera will be made in China. Okay, many of them already are, but with some DSLRs now being made in China, the only Japan-based production will be at the very high end (1Ds, D2h, F6, S3 Pro, etc.). Everything else will be outsourced to Taiwan, Malaysia, and China, with China getting the bulk of the new action. Note that China's reluctance to float their currency means that producing in China becomes an easy way to hedge against dollar/yen fluctuations. Indeed, the Japanese digital camera companies would have had an even more successful year in 2003 had the dollar not slid from (about) 125 yen to 100 yen, cutting significantly into their margins for at least the US market.
• Buy 'em while you can #1; stock up on these films if you want them: Fujifilm Velvia (likely replaced by Velvia F), Astia 100 (currently only available in rolls since replacement by Astia F). Kodak Ektachromes 160T, 320T, 100S, maybe 64T (though they'd need at least one Tungsten balanced slide film in the lineup), Kodachromes (mostly gone as it is, but support fully withdrawn), at least three of Ilford's B&W films (Pan F+, Delta Pro 3200, HP5?), and Agfa Scala. I'm sure many of the color print films will be replaced this year, too, but I don't follow those well enough to make a solid prediction as to which ones get replaced in the upcoming cycle. Note that I'm not predicting you can't get some of these developed. For example, Kodachrome and Agfa Scala require special processing; there will still be at least one lab in the US doing development in 2005 for every discontinued 2004 film stock.
• Buy 'em while you can #2. Some comments on forums have prompted me to post the following, a prediction of which camera bodies will not be available by the end of 2004. Nikon F5, Nikon FM-10, Nikon FM-2, Nikon N65, all Nikon 35mm rangefinder/compact cameras, Coolpix 4500, Coolpix 5700 (new model replaces), Nikon D1x (new model), Canon 1D (new model), Canon 10D (though see above), at least half of Canon's 35mm SLR lineup (not being as familiar with it as the Nikon lineup, I can't predict which models will go, and which might get replaced), Canon G5 (new model), Minolta 35mm SLRs (all), Sigma SD-9 and SD-10, at least one Contax 35mm SLR, the entire Olympus C-# lineup (replaced with new models). If I was more in tune with the MF world, I'd be making some predictions there, too. There's been evident shifts in market share in MF bodies due to the influence of digital backs. I'd guess that the MF rangefinder (e.g., Mamiya 7) is not long for the world, and that the bodies that don't have a solid connection with digital backs (the low-end Bronicas, for example), are not far behind them. On the flip side, the volume in the MF world is very low to start with and most of the modular bodies do support some form of digital back, so it's difficult to predict just how close to the edge these companies are to pulling the plug on particular lines. Still, other than perhaps the Contax 645AF, the Mamiya 645 lineup, and the Hasselblad H1, I don't see any of the MF bodies gaining sales. That can't bode well for cash flow at the MF companies.

Well, there you have it. Check back in early 2005 and see how I did.