Current orthodoxy in the camera market is based around the triumvirate of Sony, Nikon, and Canon. They hold the keys to the professional full frame sector, supported by wide ranging lens systems. However the last decade has taught us that change is normal, so would the best future for the sector lie in Nikon ending camera production?
No business is too big to fail, with some failing more spectacularly than others, Kodak being a case in point. However reality is often far more nuanced and Olympus' recent offloading of its camera division has shown that there are actually a myriad of ways for this to happen, which doesn't necessarily mean the loss of a product line. Just witness Minolta's transformation under Sony. Sales, bankruptcies, hostile take-overs, and closures are all on the cards when it comes to an imaging division moving on to a new future. It has been the same since the birth of photography: businesses start up and sell products before morphing in to something new. However the period of camera history we now find ourselves in is markedly different from anything else that has gone before and there are two key reasons why this is the case.
The Present Day is Unique
Firstly, it's no secret that sales of digital cameras have fallen off the edge of a cliff. We are regularly regaled with large year-on-year reductions in sales, but it pays to see what that actually looks like over the history of the digital camera (from CIPA sales data). As the graph below shows, the change has been seismic. They haven't just dropped, they've imploded. In 1999, film and digital sales had parity but since then it's all been about the digital camera. It was a success story predicated on increased consumer spending and microelectronics. Everyone wanted a digital camera and the golden years were 2007-2012, all with over 100M units sold. That's a lot of cameras.
Fable likes to point to the release of the iPhone in 2008 as the turning point when the smartphone outgunned and then outsold the compact camera market. The truth is that digital cameras were already in feature phones, starting with Sharp's J-SH04 in 2000, then outselling compact cameras by 2003. It took a few more years before consumers realized that they no longer needed a separate device. The impact was catastrophic with sales crashing from 120M to 60M in three short years, before entering free fall. In fact the last time camera sales dropped below 20M units was 1984 which gives an idea of the scale of collapse within the sector, except this time there are large companies contracting rather than small companies expanding.
The business impact has reverberated ever since. Building 120M cameras doesn't occur magically. The design, manufacturing, and sales channels needed to be spun up with profit returning to those that cornered this part of the market. Capacity expanded and cash flowed back to investors. The peak in sales coincided with the development of mirrorless which subsequently saw an unprecedented amount of research, development, and innovation. New camera systems abounded, born out of the compact camera boom; they were the perfect antidote to weening a wealthy public on to more expensive systems.
The reality was somewhat different as sales crashed, surplus stock was sold off, excess manufacturing capacity was wound down, and dwindling profits clung to. Those companies that made the right strategic choices at the start of the 2010s would reap at least some of the benefits and Sony was particularly successful in this regard when you consider that before 2006 they didn't have a camera division, yet by 2019 they were the number one seller of full frame cameras in Japan.
Secondly, digital cameras have become complex, high cost, devices which are as much about successful design as they are about supply chain sourcing and just-in-time manufacturing. Gone are the days of a small number of suppliers piecing together purely mechanical devices in a single factory. As this CNBC article about electronic suuply chains shows, in 2018 Apple worked with 43 suppliers across six continents but when you break this down in to raw materials it gets even more complicated. Apple sits at one end of the spectrum where it undertakes the design itself, but then outsources component manufacture and assembly to a global production line. Camera manufacturers tend to undertake much more manufacturing and assembly themselves, but this still relies upon a chain of third party suppliers. The complexity of design and manufacturing is at a level unseen in the past and is therefore a significant barrier to entry in to the market.
The above two unique features that are shaping the current camera industry have been exacerbated by two further factors. The first of these was the impact of mirrorless interchangeable lens cameras (MILC). Were they an inevitable outcome of digital camera development? Yes, in the sense that at least some manufacturers were always going to produce a MILC design. However more broadly no, at least not in the manner in which they have currently disrupted the market. The unique combination of timing and manufacturers has led to the current slow decline of the DSLR. Timing was important as all the seeds for mirrorless had been sown in the previous decade, in large part by Olympus starting with the Four-Thirds E1. With the peak in camera sales just about to arrive, manufacturers rushed to market with a plethora of new mirrorless systems. Foremost amongst these was Sony fresh from its 2006 purchase of Minolta with its E-mount sporting MILCs. Sony had the capacity, expertise, breadth, and vision to define the market and was also not heavily invested in DSLRs. They saw an opportunity and ran with it. Perhaps if sales had remained buoyant then the DSLR market would have persisted longer — it's difficult to know, but the knock on effect was to invest heavily in the development of top-shelf MILCs and so the balance of power shifted in this direction. Nikon and Canon rapidly followed suit as it became evident that not only was their core compact market largely gone, but that the DSLR sector was contracting.
As the graph above shows, the camera market has been gradually shrinking, with some manufacturers teetering on the edge of financial viability, as evidenced by Olympus' recent announcement. What the market didn't need was a shock to the system and this is precisely what it has got in the form of the COVID-19 pandemic. CIPAs sales figures for 2020 make pretty grim reading. January was down 20% on 2019 with 800k units, however this crashed to 370k units in May. Many businesses have been hit by the pandemic, but those that don't have a financial cushion will be severely impacted.
A Sustainable Camera Market?
The chain of events which I've outlined above has led to one key problem: the market has shrunk back to the size (in unit sales) it was at in 1984. In short there are too many companies, too many products, and too much production. The net result is excessive competition for an ever diminishing market. In order to combat this, production needs to downscale and become more efficient. The latter could in-part be addressed by following Apple's lead and focusing upon core camera expertise in terms of design and then outsourcing production in order to streamline supply chains and then manufacture in lower cost domains. Some camera manufacturers already do this, it's just that the scale of operations needs to increase.
In order to address excess production, there needs to be a net reduction in capacity. Whilst this may occur with Olympus' sale of its imaging division, this is currently a transfer of operations not a closure and, anyway, accounts for a relatively small proportion. In order for there to be a bigger market shift we would need to see one of the bigger producers — and specifically one of the big three — to pull out of the market. Canon and Sony are both too heavily invested, too diversified, and too successful to want to withdraw. That leaves Nikon as the single prime candidate for closing its production line. This would have the benefit of reducing capacity and so competition, allowing a lift in prices and so margins for the sector.
It would also benefit Nikon in terms of its focus as a company which has significantly shifted away from its Imaging Division. It is increasingly accounting for a smaller amount of income whilst incurring losses as it loses market share. Unlike all of the other main camera manufacturers who have much broader income streams, Nikon is still largely an optical company. Imaging Divisions can also be vanity projects for some corporations, persisting longer than they rightfully should given the lack of revenue.
Should Nikon cut its losses and exit the camera market? And would this result in a more balanced and better performing camera sector?