Dead Versus Zombie

I’ve written about this before in passing, but it seems with all the recent talk about “dead” companies, mounts, and cameras in the photography press—and yes, including from me—we need to present some elaboration to be clear about what we’re talking about.

Pretty much every camera company is now reporting volume declines, except for perhaps Fujifilm where they’re proliferating models to fill out lines and are still so small that any new model equals some growth. 

It’s clear that we’re in a world where the number of dedicated camera sales still hasn’t found a bottom. 

This year, my projection is that ILC units will finish right around the 11m mark shipped (CIPA numbers), but overall we’re down ~5% again. That’s despite what’s a record number of new significant camera models entering the market (with more right around the corner). 

Everyone is reporting weakness in their 2018 numbers, some more than others, but still the problem is universal enough that we can’t say that we’ve reached bottom with camera sales yet. 

Which is one of the things that is generating “X is dead” talk. We have too much diversity (cameras, mounts, companies) for the market size. Something's got to give.

This is not the first time this has happened with cameras. The tail end of the film SLR era looked a lot like we’re seeing today. Indeed, everyone jumped into digital from film because they all saw the market completely resetting and they all wanted a share of that predicted-to-be-rapidly-expanding growth. For awhile, all was well, as the growth was strong and dramatic for over a decade.

No such thing is on the horizon at the moment. We have no true reinvention of cameras visible that would re-trigger rapid market growth. The areas where I’ve long felt that could be achieved (e.g. modern communication, user/app programmable, workflow) just don’t seem to be happening.

And so people look at those declining numbers and the long line of disappointing quarterly financial statements—Nikon’s lost almost two thirds their volume and half their profit in a bit over five years—and start speculating.

So let’s attempt some definitions:

  • Dead — The company completely self destructs into Chapter 7 type bankruptcy. This won’t happen for any of the camera players for a variety of reasons. First, most have other businesses, often significantly bigger than cameras and strongly profitable (e.g. Olympus). Nikon is perhaps the most vulnerable of the bunch, but even it has enough other business and has done enough restructuring of everything to be substantively profitable despite all that decline. Nope, no dead camera companies.
  • Euthanized — The companies where cameras aren’t adding significantly to the overall corporate bottom line while chewing up internal investment dollars—Fujifilm, Olympus, Panasonic, and Ricoh/Pentax—could if they wanted simply close up shop and that would likely create a small positive impact on the company financials long-term. Note the word “small.” Also note that we’re talking about Japanese companies here. Culturally (and due to business law in Japan) it’s difficult for them to just close up a unit’s operations as we often see here in Western companies. In many cases, that can actually cost more than just continuing to operate a group at modest losses. I don’t think anyone’s going to close down their camera group. The one most likely to—Ricoh—appears to have no interest in doing so. (We have seen this in the past, for example HP and Samsung both shut down their dedicated camera divisions.)
  • Exiled — Pentax and Minolta have gone through this, both twice. This is typically the most common solution in Japan when a unit’s operations turn south: get a bigger player to acquire the unit and merge it with an existing one, and also do some pruning as you do. One problem here is that the market has declined so much that there aren’t a lot of possibilities left. I suppose Panasonic could gobble up Olympus cameras. Fujifilm could potentially gobble up Nikon cameras (though that would mean someone else would have to gobble up the rest of Nikon, as the remainder wouldn’t self sustain). Canon wouldn’t attempt this, and Sony would have a great deal of difficult swallowing something as large and directly competitive as Nikon. But realistically, there’s not enough market and not enough players for much additional consolidation to happen. It would only happen because Japanese financial institutions in the background forced it to happen, and there’s no longer any sign that this is in progress anywhere. 
  • Zombie — This is is what happened to some of the players before in the late film era. In Silicon Valley we call this “walking dead syndrome.” Basically, the company can sustain operations on cashflow (walk)—perhaps while continuing to downsize and constantly restructure—but it’s not really investable (dead). With care, you can keep the sales running to support some new product development (but you’d better not have a complete dud). Thus, the process of slow contraction just continues in these companies. You may have noticed that some camera companies have just increased their shareholder dividend recently (e.g. Nikon). Since the company’s stock can no longer be seen as a “growth investment” based on sales increases, increasing the dividend is a way the Japanese companies keep their banks and other financial institutions holding onto their stocks. If they didn’t do this, there would be potential for investors outside of Japan to put the company in play, which isn’t culturally acceptable. 
  • Healthy — To me, this category requires not only a strong customer base and large market share, but also market growth. It’s that last bit that’s the problem for camera companies: there’s no market growth, and continued market decline. You might be able to grow within the market by taking someone else’s market share, but that’s a costly endeavor and it might not win you a lot long run. There’s also a risk that everyone tries to play this game and no one wins. During the DSLR run up (1999 to 2011), we had several healthy players, most notably Canon and Nikon. Post 2013, those healthy players have been dropping out of health one by one. Canon was the last and the most recent to start showing true weakness and inability to maintain volume. 

Technically, the big three—who together own between 85-90% of the ILC market share and thus are the bulk of the interchangeable lens camera choices people are considering—are somewhere between Zombie and Healthy. Two of them were healthy, one had been a bit of a Zombie until they completely changed strategy. Now, however, they each exhibit some common traits: strength in the new strategy products (mostly full frame, and now mirrorless), weakness in the old strategy products that comprise the bulk of their unit volume (mostly crop sensor and DSLR). 

And to me, that’s both the problem and the opportunity: in the US$500-1500 price point you need to create a compelling product that would stop smartphone users from just shooting with their phone. To put it in plain terms: a well done post-to-Instragram button/automation on a small, light, travel-worthy, and highly competent US$800 ILC might very well change volume from decline to growth. 

Of course, that’s not really electronics, which is what the camera companies are good at. Instead, that’s mostly workflow (software). Which means that every one of the camera companies needs to acquire, develop, or license new core competencies. They needed to do that 10 years ago (when I first started writing about this). They needed to do it five years ago (when growth was peaking). They need to do it today. 

As I look around, no one is really doing it. So Zombie it is for the time being. 

You can apply the same labeling to individual product categories and individual products instead of companies. There, things get very interesting. 

For example, in terms of product categories compacts are dying off, DSLRs are going zombie, and only full frame mirrorless is healthy. The Nikon DL series was euthanized at birth.

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