AkasaMedia

  Cover story

  Look, No Film

  Traditional rivals and high-powered newcomers

   in the photo-film industry jostle for the ride of a

   lifetime on the digitization wave.

    By Catherine Pawasarat

If you use e-mail, chances are you've received an attached digital photo from friends, colleagues or family. Though digital cameras have only been around for six years, they are spreading like wildfire nowadays: even entry-level consumers can enjoy their digital photos on-line, or printed at home without a PC. What does this spell for the future of the traditional film and camera industries?

In 1997, the global market for digital still cameras was about 2.4 million units. Sony Corp. estimates that for 2002 the entire digital still camera market is around 23.5 million units worldwide. In five years the market has grown by a factor of 10. According to some sources, domestic sales for digital cameras already outstrip those for film cameras, says Sony spokesperson Mina Naito.

Current year-on-year growth is estimated to be a robust 50% or so, says Yoshiaki Yamada at camera manufacturer Olympus Optical Co., Ltd. But what about the world economic malaise? Can digital camera sales keep up this fast and furious growth? Most seem to think so.

"If I were to make an estimation for five years from now, digital camera sales may be two to three times greater than they are now," says Tsuneji Uchida, CEO of image communications products operations at top camera-maker Canon Inc.

Digital cameras made up 21% of the global camera market in 2001.

That share is expected to triple by 2006.

Traditional film is a different story. U.S. film sales took a beating from the depressed mood following the 2001 September 11 attacks. Meanwhile, film sales in Japan decreased by 10% year-on-year from fiscal 2000 to 2001, reveals Akinori Yabata, director of corporate communications at Kodak Japan Ltd., a wholly owned subsidiary of the U.S.-based Eastman Kodak Co. "It's hard to say how much of this is the effect of growing digital camera sales. There are other factors, such as the ongoing recession and the fact that people are going abroad now for shorter periods of time [and so fewer travel photos]," he observes. "In Japan, the birthrate is down and the effect of this is big—mothers are taking fewer photos of their kids."

In today's market, consumers like innovative products and new technology, along with simplicity and enhanced functions. Digital cameras fulfill all these criteria. According to InfoTrends Research Group, Inc. (a leading market research and consulting firm for image-capture technologies and markets), though digital cameras made up 21% of the global camera market in 2001, that share is expected to triple by 2006.

That's just fine with Sony, which never invested in traditional film cameras. Now it offers a line of 15 versatile digital cameras and plans to ship five million units in fiscal 2002, aiming to capture more than a fifth of the estimated world market for the year.

So what are film and camera manufacturers doing to ride this wave without wiping out?

Diversification

There's a lot more to film than just taking photos, and film companies have by no means put all their eggs in one basket. "It's important to clarify that our consumer photo-film business is just 40% of all operations, and film comprises only 45% of this 40%," points out Yabata at Kodak Japan. Though Eastman Kodak dominates the U.S. market, its subsidiary claims about 10% of the film market here. Photographic paper makes up another 35% of consumer-related sales. Other operations include health imaging and professional-grade movie and TV film.

Fuji Photo Film Co., Ltd. is the industry behemoth based here, with 70% of the domestic color film market. Its product line is nothing if not diverse. In addition to photo-related products, Fuji Photo manufactures CD- and DVD-ROMs, audiocassettes and videotapes, offset printing machinery, liquid crystal display (LCD) materials, and has plans to commercialize its own optical fiber (for fast Internet/e-mail transmissions). Despite its huge share of Japan's film market, Fuji Photo's image solutions business (including film, cameras, photo print paper, chemicals and machinery) made up less than a third of consolidated sales in fiscal 2001.

Konica Corp. has 20% of the domestic film market, but about 90% of the world market in lenses for DVD players (which it also makes for CD players).

While industrialized nations may be shifting toward digital photos, emerging economies are discovering film. "Film sales are decreasing in Japan, the U.S. and Europe, and this may be partly because of digital cameras' popularity," says Yuko Ogiso, who heads the corporate communications department at Konica. “But in the rest of Asia and in places like Russia, film sales are still increasing, so we plan to focus our sales efforts in these markets."

Meanwhile, Eastman Kodak bought a national Chinese company and is now producing its own film, X-ray film and digital cameras (primarily for export) in China.

Through its own operations and joint ventures in China, Fuji Photo is manufacturing digital and analog (traditional) cameras, as well as printing-related products. At a World Trade Organization (WTO) meeting last June, the Japanese government asked China to reduce the high tariffs on imports of color film, which hit Fuji Photo and Konica hard.

Success is in the details

Nobody wants to miss the Big Wave. The trick, of course, is in creating a competitive product; and with Japan's numerous world-class camera and computer makers, the competition is intense.

A key advantage is ease of use, such as creating new ways for consumers to play around with their images, with minimal cerebral effort. Depending on the model, Sony Mavica digital cameras store images directly to an inserted floppy or CD-R/-RW (recordable/re-writable) disk, or memory stick—media with which many buyers are already familiar. This entire camera line is designed to interact easily with Sony Vaio computers and different makes of printers—to entertain in the home or at the office.

To take an example, hook Sony CyberShot or Mavica digital camera to a PlayStation console and convert one of your photos into a game character/player. Or connect the camera to a cellular phone and download a photo as the keitai's screen wallpaper.

Olympus, on the other hand, targets an image connoisseur who is less playful. One of the special draws for its digital (and 35mm analog) cameras is superior lens performance. (The company started out in 1919 as Japan's first microscope maker.)

Fuji Photo boasts about its charged-coupled devices (CCDs), a key component for cellular-phone-dedicated cameras. The company claims that its CCD provides as much clarity as a comparable product needing almost twice as many pixels. Having commenced production , Fuji Photo aims to ship a million CCDs to mobile phone makers in the first year.

Canon appeals to photographers with a technical bent, relying on its original patented technology to offer superior function and efficiency in both its digital and 35mm models. Canon's advanced auto-focus sensors take readings from 45 points of reference simultaneously, its anti-fogging technology is excellent and its automatic focus follows the photographer's line of vision.

Professional digital

Until recently, digital cameras were primarily for the hobbyist, with only a few single-lens reflex (SLR) models available at exorbitant prices. However, early this year, major makers Nikon Corp. and Canon began releasing sophisticated "pro-sumer" SLR digitals in a compact camera body, priced in the $2,500 range.

Olympus is breaking from the pack by working for a standard size for digital image sensors and common designs for SLR digital camera key parts, such as the mount, where lenses attach to the camera body. This would allow the lenses of various makers to fit bodies from other makers. This is a dramatic departure from the current lack of compatibility that plagues the SLR market. Revolutionizing the technology in this way could enable Olympus to create digital SLR cameras that are smaller and lighter than the current weighty models.

Though total digital-camera shipments (including exports) jumped 42.7% in 2001, to nearly 15 million units, digital SLR shipments stayed below 200,000 units, indicating high growth potential in this market niche.

Until now, press and commercial use of a digital SLR has been limited, and high prices deterred the general consumer. But now that more-affordable models have been introduced, the market is expanding. Uchida says Canon is keen to pioneer the consumer retail market.

There's a lot more to film than just taking photos, and film companies

have by no means put all their eggs in one basket.

Tip of the iceberg

As any teenager or technophile knows, there's much more to the digital imaging revolution than cameras. For starters, there is a range of dedicated digital-photo printers. In addition to a desktop model, Olympus offers a portable version for those times when you need to print on the trot. Both can print directly from removable SmartMedia flash memory cards, eliminating

the need for cables. Olympus printers (along with dedicated print paper and ink ribbon) use dye-sublimation processing, which the company claims can produce lab-quality, dot-free prints.

Sony also has a lineup of desktop models and mobile digital photo printers. Some of these have a small LCD monitor to view, edit and enlarge images, totally eliminating the need to connect to a PC. To take your images out into the world, Sony also offers on-line services with its ImageStation. At this Web site (www.imagestation.com), consumers can share their photos via the Internet and order prints in any format: on paper, film, or as an album.

Canon plans to expand its printer and related lines. "Besides the printer itself, this market relies greatly on sales of paper and ink," remarks Uchida. "And these contribute considerably to Canon's overall business." For the film industry, however, these handy digital photo printers are a bête noire.

"Of this phenomenon of digital cameras spreading, the biggest problem is that consumers are not printing their photos," says Yabata at Kodak Japan, which derives a considerable amount of its profit from photographic paper. "They just look at them on the computer or send them by e-mail—or print them on their inkjet printer."

He argues, "People can print out their own at home, but it's really difficult to get the same quality compared to having it done professionally. We're putting our efforts into improving the ways people can get prints and convincing them to get prints made."

The film industry has another ploy to get back the digital consumer. They are encouraged to take their camera's memory media to photo-development shops to have prints made, or order prints from labs through the Internet or have photos printed at a growing network of service portals for cellular phones (e.g., Japan Telecom J-Phone, NTT DoCoMo i-Mode or KDDI au handsets with a built-in camera).

To drive the message home, Kodak Japan and Fuji Photo cooperated on a massive digital photo print campaign last spring. The effort bore fruit: from April to June, the number of orders for digital prints jumped 50%.

Once more, though, Fuji Photo has its bases covered. In addition to paper for inkjet printers, it markets its own digital photo-dedicated printer. Equipped with a color monitor and Fuji Photo's original print technology, it allows consumers to make lab-like prints at home.

On the silver screen

The talk of the year in the movie business is how George Lucas shot all of Star Wars Episode 2 (Attack of the Clones) on CineAlta, a digital Sony camcorder. This was a radical move for the conservative movie film industry. German filmmaker Wim Wenders shot the opening scene for The Million Dollar Hotel the same way.

If this starts a trend it will bite into Kodak Motion Picture Imaging business, but the company is creating its own movie system for digital cinema. "We're planning to launch it next spring. It's called the Kodak Digital Cinema System," comments Yabata at Kodak Japan. "We transmit the image from a satellite."

No question about it, the photo industry is in the throes of a digital revolution. While many other industries seem to have nothing but bad news, photo-related companies who are quick to learn how to ride this wave of change are taking home good earnings.