Digital moves to top-tier cameras

But the reasons for his commitment have as much to do with practical matters as emotional pull. The 10 Konica Minolta digital and film cameras owned by Marek, a 35-year-old quality-control engineer who is also the president of a Chicago camera club, work only with lenses designed for that brand. Similarly, Marek's collection of about 33 Minolta lenses--he's lost count--will not fit any other make of camera.

So Marek was more than a little concerned when Konica Minolta said last month that it was abandoning the photo business--both digital and film--and selling some of its camera technology to Sony.

"Minolta had a great name in photography--they were No. 3 in the market when I bought my first camera," Marek said. "I can't imagine being without it now."

Not all of the traditional leading camera makers have taken Konica Minolta's drastic step. Faced with brutal competition in the consumer market for compact digital cameras, several have turned to high-margin, digital single-lens reflex, or SLR, cameras, which feature interchangeable lenses, to maintain their profits.

Those high margins have not escaped the notice of relative newcomers like Sony, Panasonic and Samsung. At the annual Photo Marketing Association International show next week in Orlando, Fla., all three are expected to further outline their plans to move into photography's top tier. When that occurs, the challenge for some of photography's most venerable brands may be simply to survive.

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"Life used to be stable in the camera business," said Ned Bunnell, director of marketing at Pentax Imaging. "But if you look at what happened to the personal computer industry, I think it's logical to think that the same sort of consolidation would take place in the camera industry."

Sony has already risen to the No. 3 spot in digital camera sales in the United States, with 15.8 percent of the market, just behind Canon, at 17.2 percent, and Kodak, at 16.9 percent, according to Current Analysis, a research firm in Sterling, Va.

And as the competition gets keener, life becomes fundamentally different for camera companies, which used to operate at a stately pace with new product cycles measured in years. Nikon's top-of-the-line F-series of cameras, for example, has been revamped only six times over nearly five decades.

"In the past, as a camera maker we were able to take it easy, watch what was happening," said Makoto Kimura, the president of Nikon Imaging and a senior managing director of Nikon, its parent. "Now we've had to revitalize ourselves."

In 1988, Sony introduced what is generally regarded as the first successful digital camera for consumers, the Mavica, which stored its photos on a standard diskette. While not breathtaking technology, the disks meant that the Mavica was the first camera that offered an easy way to transfer photos to computers.

"That was when we started to think that other players were beginning to look at the possibilities of digital photography," Kimura said.

With digital photography, Sony and other electronics makers immediately boasted advantages that offset their lack of optical experience. From its video camera business, Sony knew how to design and manufacture charge-coupled devices, or CCDs, the light-sensing chips that became film's most common digital replacement. Making the chips is beyond the financial or technical reach of most camera makers, several of which rely on Sony and other electronics companies as suppliers.

The electronics companies' main advantage, however, was far less technical. The shift to digital photography meant that even relatively expensive cameras were increasingly purchased at electronics chains rather than specialty shops. The traditional camera makers were, by and large, left learning how to elbow their way onto shelves at Best Buy, Staples and Circuit City as well as adjusting their systems to meet the inventory and logistics demands of the national chains.

"I was with Sony for a number of years," said Jeff R. Clark, the senior digital photography analyst at Current Analysis. "Supply chain management was probably more important to that company than the products it made."

Eastman Kodak and Fuji Photo Film also have a good understanding of mass merchandisers from their film businesses. That helped Kodak, at least in the United States, become a major vendor of digital cameras and sometimes the market leader. But its sales are weighted toward lower-priced cameras, a factor somewhat offset by the cameras' ability to connect easily to home snapshot printers that use only profitable Kodak supplies.

Perhaps inevitably, the number of competitors offset the higher-than-anticipated demand for digital cameras, pushing down prices and margins. New models with additional features appeared every few months rather than years apart.

Canon, which is unique among camera companies in that it has extensive in-house chipmaking ability through its office machine division, found a route to salvation. In 2003, it introduced the Digital Rebel, the first digital SLR priced under $1,000 with a lens.

The move was well timed. Many early digital camera buyers were returning for their second camera, and digital SLRs offered higher image quality, partly because of larger imaging chips.

Digital SLRs were equally appealing to their makers and retailers. The incompatibility of lenses between brands and a lack of similar products from electronics makers has, so far at least, minimized price-cutting. Further adding to profits are the sales of even higher-margin accessory lenses and other add-ons that digital SLRs generate.

Although Pentax cut the price of one digital SLR this month to $600, from $800, the category has generally avoided the price free-fall that has plagued the compact camera market. According to Current Analysis, the average price of a Canon PowerShot S410 compact camera fell to $244 last month, from $346 a year earlier. But the successor to the Digital Rebel SLR, the Digital Rebel XT, still retails for just under $1,000. Nikon has similarly been able to maintain prices on its two SLR cameras aimed mainly at consumers.

Nikon said this month that its success with high-margin digital SLR cameras helped account for a 26 percent increase in third-quarter sales, tripling its profits. And Canon ended 2005 with sales up 8.3 percent and a net revenue increase of 11.9 percent, performance it attributed largely to its digital SLR cameras and photo printers.

But Steve Hoffenberg, the director of consumer imaging research at Lyra Research in Newton, Mass., said that it was not just the high margins of SLRs that had drawn manufacturers' interest in the segment. The compact camera market, he said, is likely to be squeezed further as high-quality cameras are introduced into mobile phones and handheld devices.

He also expects the electronics companies to match their earlier digital imaging successes in the SLR market.

"A new wave of technology has given the newcomers the upper hand," Hoffenberg said. "For the consumer electronics companies, digital photography has been all upside, while the photo industry was stuck in a slow evolution stage."

Some smaller camera makers appear to be looking for a truce. While neither Pentax nor Olympus has followed Konica Minolta's lead and retrenched to more profitable lines of business like medical imaging, both have allied themselves with electronics companies. Pentax is producing a Samsung-branded digital SLR and supplying the Korean maker with its lenses. Olympus and Panasonic's parent company, Matsushita Electric, have similarly joined forces, although they have yet to unveil specific products.

Those alliances, like Sony's deal with Konica Minolta, give electronics companies access to a full range of established lens systems and other accessories. James Neal, director of digital imaging products at Sony Electronics, said his company expected interchangeable lens cameras to maintain a strong position in the market.

"It is key for Sony to be in this market at this time," Neal said. "Consumers are really interested in moving up the ladder in terms of quality and performance to digital SLRs. If we just stopped at point-and-shoots, we would not have met all the needs of consumers."

Neal said Sony was counting on sales to owners of Minolta lenses. (Konica, a maker of film, photocopiers and mini photo labs, merged with Minolta about two years ago.)

For customers like Marek, it may be a tough sell. While Sony has been skilled at making its cameras easy to use, particularly for newcomers, it has sometimes omitted features like optical viewfinders and tripod sockets, which serious photographers often view as essential. Similarly, Sony cameras use proprietary memory cards that are generally more expensive than industry standards such as Compact Flash.

Marek is eager to see what Sony offers, but he is also wary.

"They're going to get my first look next time I buy a camera because of my investment in my current equipment," Marek said. "But if they don't meet my needs, I'll go elsewhere."

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