Industry Profiles: Photographic Equipment and Supplies

Overview

The $22 billion U.S. photography industry manufactures a host of photographic technologies and supplies. Included in the industry's product line are still and motion cameras (but not video cameras), film, photographic papers and chemicals, and a variety of photography-based technologies like photocopiers and scanners. Important new product introductions in the latter half of the 1990s included digital cameras, which rely on the magnetic storage of images rather than light-sensitive film, and the Advanced Photo System (APS) format of cameras and film, which streamlined the picture-taking process for amateurs and offered more predictable results than conventional 35mm cameras and film.

However, the U.S. industry faces continued challenges from foreign manufacturers, especially those in Asian countries. Although imports historically have out-paced exports by a large margin, the value of imports was steadily decreasing in the early 2000s while the value of exports was increasing.

History of the Industry

Although photographic equipment and supplies first became available to consumers in the 1880s, it wasn't until the 1950s that the industry's sales grew rapidly toward modern proportions. Several developments during the mid-twentieth century spurred the industry's growth: a significant increase in consumers' disposable incomes; the emergence of photocopying and microfilming products as lucrative segments of the industry; and the development of still cameras that were very easy to operate.

Several key technological advances enabled the photographic market to flourish. These innovations were spearheaded by Eastman Kodak Company, the predominant force in the industry. Perhaps the most significant early contribution was George Eastman's adaptation during the 1870s of the dry-plate process in his cameras. The dry-plate process was much simpler and cleaner than the wet-process, which had been the leading process in the United States until that time. This marked an important step toward making photographic equipment available to all consumers. Eastman followed his innovation in the 1890s with the introduction of roll film, which he was the first to market.

In a bid to capture the nation's interest in photography, manufacturers of this era labored to improve the performance of cameras and the quality of film. A giant leap toward this goal was made in 1900 when Kodak introduced the first model of its popular, inexpensive, and easy-to-use Brownie line of cameras. Retailing at $1, the first Brownie signaled the beginning of affordable cameras with mass-market appeal. Having achieved its first appreciable market penetration with the Brownie, Kodak began to develop products aimed at diversifying the applications of photographic equipment. The first 8-mm picture system designed for the amateur photographer entered the market in 1932, followed by the advent of color film three years later.

Additional offerings to spark interest in amateur photography emerged before the onset of World War II, but in the immediate postwar years these were overshadowed when Edwin H. Land, founder of Polaroid Corporation, developed a process to instantly develop film. This 1947 breakthrough gave birth to a whole new genre of cameras and film, closely associated with the Polaroid name, that eliminated the need to take film in for development.

By this time photographic equipment had become very reliable and consumers had grown accustomed to taking pictures. As these two trends dovetailed in the midst of the postwar prosperity, sales of photographic equipment more than doubled during the 1950s. From a market of just $500 million in 1950, the industry's annual sales had topped $1.2 billion by 1960. This prodigious growth was partly due to the rising disposable incomes that U.S. consumers enjoyed; but it was also encouraged by demographic trends such as the period's high birth rate, which supplied ample opportunities for picture taking as parents sought to record their children's upbringing on film. In fact, in 1960 newborn babies and young children were the object of 55 percent of the 2.2 billion photos taken that year.

Kodak held a virtual monopoly on the industry from the turn of the century through the 1950s, perennially controlling about 90 percent of the film market and a similar share of the camera market. In the early 1950s the federal government began to intervene, filing an antitrust suit against Kodak that eventually resulted in a 1954 settlement decree. Part of Kodak's dominance before the settlement stemmed from its practice of charging a development fee with every roll of film it sold. By including a built-in processing fee, Kodak in effect cornered the film processing market and thus discouraged other manufacturers from competing—the dearth of independent processing facilities inhibited film sales by other companies. The 1954 decree ended this practice when Kodak agreed to sell film without charging for processing and to license other processing companies to develop its film. While Kodak retained a firm grip on most parts of the industry, the changes allowed smaller companies to coexist with Kodak's dominance more easily.

Just as competition between film manufacturers intensified, competitors began to secure a foothold in the fledgling photocopier market, which also promised to be a lucrative enterprise. Although total photocopying sales didn't exceed $100 million until 1958, sales increased rapidly when such a product was marketed for office use. Until that point photocopiers were very large and had largely been relegated to specialized facilities rather than being located near the end users. As new technology yielded smaller and more user-friendly photocopiers, a market for copiers in office settings quickly sprang up. While Kodak and a number of other firms introduced early models using a variety of processing techniques, Xerox Corporation's xerographic process proved the most commercially successful. Xerography involved electrostatic dry copying that replaced the chemicals required by other systems, allowing a cleaner process that could be run on plain paper rather than the specialized papers other processes required. Xerographic photocopiers quickly became Xerox's main business during the 1950s, and a number of competitors followed suit. By the mid-1960s the booming photocopier market was worth $500 million in its own right and included over a hundred competitors, some of which still produced the older, wet-type process copiers.

The 1960s saw another introduction by Kodak intended to further popularize amateur photography through ease of use. Kodak's Instamatic, released in 1963 and foreshadowing similar endeavors that would continue through the 1990s, featured an integrated film cartridge and camera system that eliminated the need to thread film manually. This and other features made the inexpensive Instamatic a popular and reliable tool for taking simple snapshots. The model's marketing was particularly successful, as Kodak had concealed its development until the point of release, when it took the industry by surprise. Within its first two years, approximately 7.5 million units were sold, and a corresponding surge was experienced in film sales. In fact, according to figures gathered by Kodak at the time, the Instamatic's convenience led to higher film consumption rates among the camera's users. Kodak reported that consumers with ordinary cameras used an average of four rolls of film per year, but those who owned Instamatics splurged for an average of eight rolls each year.

At the same time the consumer and general office uses of photographic equipment were burgeoning, important new industrial applications were being pioneered as well. High-speed camera equipment was used on production lines as a quality control measure to identify product inconsistencies. Similar high-tech uses of photography were found in military and space exploration applications, such that by 1964 industrial uses accounted for nearly half of the industry's $1.4 billion in annual sales.

Microfilm and micropublishing proved to be an important growth market during the 1970s. In that period there were fewer options for storing large amounts of information, and microfilm and microfiche grew as popular media for archiving documents such as newspapers, periodicals, and corporate and government documents. In the early 1970s microfilm equipment sales were rising at an annual clip of 18 percent, and the microfilm segment soon became a $500 million component of the broader photographic equipment industry.

By the 1980s there were signs that the U.S. market was maturing, and many of the leading companies were forced to restructure their businesses in order to remain profitable as demand for conventional products slackened. One major development was the debut of video camcorders in the consumer market. While many tended to be high-end devices, sales of video cameras and video tape—which encode images as data on magnetic tape instead of on light-sensitive film—began to sap some of the market for film-based photographic equipment. Some leading manufacturers of video cameras also had ties to the conventional photography industry, but for the most part these devices functioned as part of the home audio and video equipment industry. The rise of camcorders was a direct offshoot of the popularity of VCRs, which were rapidly penetrating the home entertainment market at the time.

Significant Events Affecting the Industry

Digital cameras—those that record still images using semiconductor sensors and save the information as binary data—were launched as an important new consumer technology in the mid-1990s, buoyed in large part by the widespread use of personal computers and the Internet. An earlier related technology on the processing side of the business was that of photo collections on CDROMs, which can hold images from several rolls of film and usually come with a browsing program for computers. Digital cameras enabled images to be captured on computer disks or memory sticks, which could then be loaded directly into image-processing software and manipulated. These photos could also be readily published on web pages. Although resolution and performance of the entry-level models was still far beneath the quality of conventional 35-mm film technology, the speed and convenience of these cameras attracted 500,000 unit sales in 1995, considered the first year of digital cameras' commercial viability in the consumer market, and 1.2 million unit sales the following year. By 2001, monthly unit sales alone exceeded 250,000. As digital cameras increased in popularity, household penetration levels climbed from about four percent in 1999 to more than nine percent in 2000, according to the Photo Marketing Association (PMA).

Convenience was also the predominant factor driving sales of disposable cameras, sometimes called single-use cameras. These low-tech devices essentially are a roll of film built into an inexpensive camera body made of cardboard and light plastics. They include simple versions of all the basic elements of a standard camera: a winding mechanism and frame counter, a viewfinder, a lens, and sometimes a battery and flash unit. But these inexpensive cameras, which typically cost little more than a conventional roll of film, can only be used to expose the film that comes in them. Their convenience made them one of the fastest-growing segments of the photography industry into the early 2000s.

Another major new product initiative of the 1990s was the introduction of Advanced Photo System (APS) cameras and film. The APS standard came about through a collaboration between five of the global industry's top manufacturers—Canon, Fuji, Kodak, Minolta, and Nikon—with Kodak being the lone representative from the United States. A successor to the convenience formats of the past, which included Kodak's Instamatic and disk cameras, APS involves a proprietary camera and film cartridge system that is easy to load and operate. The highly automated cameras advance and rewind the film for the users, who only have to insert and remove the cartridge. More importantly, APS self-adjusts for lighting conditions, records images for three different printing options, and has a magnetic strip for recording digital information about each frame. Unveiled in 1996, U.S. retailers initially reported mixed interest in the product. One early drawback was that processing labs required expensive special technology in order to accommodate APS film, and thus not all photo-finishing services could accept it. According to figures from the PMA, by early 2002 APS cameras accounted for approximately 11 percent of the market, in terms of unit sales.

Key Competitors

Eastman Kodak Company has been at the forefront of the U.S. photographic equipment industry for more than a century. Incorporated in 1889, its founder George Eastman had been active in the business for over a decade before establishing the company. Despite its predominance in the U.S. industry, Kodak faced mounting troubles in the 1980s and 1990s as its domestic market share was eroded by foreign competition and its products failed to keep pace with buyers' changing expectations. One of Kodak's sore spots was in the photocopier business, into which it poured significant sums of money toward developing a digital color copier. But overall, its copiers lagged technologically behind those of its competitors, and Kodak finally divested itself of its copier unit in 1996. While Kodak still supplies the vast majority of the United States' film and photographic paper, executives at the company charged that the import market of Japan—home to most of its rivals—was unfairly closed to its products. Kodak's allegations led to ongoing trade disputes in the 1990s. In 2001, Kodak acquired Ofoto Inc. in order to bolster its strength in the area of online imaging products and services. Additionally, the company also acquired the imaging services business of Bell & Howell Co. With $13.2 billion in 2001, Kodak's worldwide sales equal more than half of the U.S. industry's annual sales.

Industry Projections

The industry will continue to find its best growth markets outside the United States in the early 2000s, but imports will continue to represent a very large share of domestic photographic equipment and supplies purchases, maintaining the wide U.S. trade deficit for the category. Through 2004, according to U.S. Department of Commerce figures, industry shipments will rise at a compound average rate of less than one percent. The shift from analog to digital photography will continue in the early 2000s. According to PMA, in 2002 25 percent of professional photo labs and 30 percent of retail photo stores were expected to buy digital processing equipment. This largely was in response to the growing popularity of digital photography amongst both amateur and professional audiences. The PMA also indicated that from March 2001 to March 2002, overall unit sales of analog cameras decreased 31 percent while digital camera unit sales increased 28 percent. During the same time period, unit sales of single-use cameras increased 10 percent, indicating the popularity of these convenient and affordable cameras with consumers.

Global Presence

Kodak's dispute with Japan aside, the company has a very strong international business. It manufactures products in a number of countries including Asia, Australia, Europe, and North and South America. In 2001, non-U.S. sales made up approximately 51 percent of Kodak's total revenues. As of that year, Kodak was expanding in emerging markets like Asia, where it operated some 14,000 Kodak Express stores. Some of these stores were in China, where Kodak has purchased a number of established film companies to capitalize on that nation's flourishing economic growth. Kodak also has expanded into India, where it has more than 4,000 retail locations. However, the company faces formidable challenges in many places from its nemesis, Fuji Photo Film, and leading Japanese camera makers like Canon, Minolta, and Nikon.

Employment in the Industry

Employment in the photographic equipment industry receded quickly during the 1990s in response to growing pressures on corporate profitability caused by stagnant domestic sales. From nearly 110,000 workers in 1988, the industry's payroll dropped to just 84,400 people in 1997. By 2000 this number had decreased to 68,450. On average, though, industry wages have remained fairly strong, reaching $21.71 per hour in 2000.

Sources for Further Study

1996-97 pma industry trends report. photo marketing association international, 1997.

"all the film in china." u.s. news & world report, 6 july 1998.

heller, laura. "digital adoption grows, but use is still limited." dsn retailing today, 20 august 2001.

"new pma report looks at changing equipment needs. photo marketing association international, 1 may 2002. available at http://www.pmai.org.

"occupational employment statistics." bureau of labor statistics: u.s. department of labor, 26 may 2002. available at http://www.bls.gov.

"photographic equipment and supplies." u.s. industry and trade outlook. new york: mcgraw-hill and u.s. department of commerce, 1998.

"photographic equipment and supplies." u.s. industry and trade outlook. new york: mcgraw-hill and u.s. department of commerce, 2000.

"pma processing survey. highlights and overview through march 2002." photo marketing association international, 20 may 2002. available at http://www.pmai.org.

seymour, jim. "digital cameras: reality vs. hype." pc magazine, 21 april 1998.

u.s. department of commerce, economics and statistics administration, u.s. census bureau. annual survey of manufacturers. washington, 2002.