Over the last few years, the digital camera has revitalized the imaging industry. CEA says almost 19 million digital cameras were shipped in 2004, generating $4.7 billion in revenue. Unit shipments were a 28 percent increase over 2003.

Eastman Kodak Co. certainly saw the handwriting—and the statistics—on the wall. The company has been gradually shifting its focus from film to digital—and with great results. For instance, in Kodak’s 2005 third quarter, overall sales totaled $3.5 billion, of which more than half ($1.8 billion) came from digital. In addition, digital sales jumped 47 percent from Kodak’s previous year’s third quarter, and IDC Corp estimates that the company now is the top seller of digital cameras in the United States. (It was third in 2002.)

“Our digital revenue exceeded our traditional (film) revenue for the first time on a quarterly basis, representing another milestone in our digital transformation,” said Antonio M. Perez, Kodak’s chief executive officer and president.

“At present, our digital camera shipment forecast shows unit growth beginning to plateau in 2006,” said Steve Koenig, senior manager of Industry Analysis at CEA.

Hearing the call, Kodak reduced its production of cameras and home printers in the 2005 fourth quarter. “The prudent thing to do was expect somehow an impact on the disposable income of consumers. We don’t want to end up with a large inventory of products that, as you know, lose value very quickly,” Perez told investors in a conference call.

Room to Grow

But as the industry matures companies still can expand their profits by providing services that enhance the use of the existing product. In this case, the photography industry is targeting a new category born from the explosion of digital camera sales called “content creation.”

Thanks to digital technology, consumers now can make their own movies, photo slide shows and scrapbooks—and easily save them on hard drives, media cards and discs. The practice is spawning a new explosion in content creation hardware and software and supporting services.

“Camera retailers will likely experience a slow down in digital camera sales over the coming years, and will need to stay diversified in related products and services. Customers will continue to need larger memory cards, camera accessories, batteries and imaging services that help them utilize their digital photos,” according to the Photo Marketing Association (PMA).

Jon Peddie Research estimates that sales of professional digital content creation software, including film editing, 3D modeling and animation, reached $3.2 billion in 2005. Here’s a look at the three major areas where content creation could generate more industry profits in 2006:

Kiosks: Unlike film, digital cameras allow photographers to immediately see the image after snapping, an instant gratification that encourages more picture-taking. Digital cameras also have more storage capacity than film. As a result, consumers now take an average of 75 images a month, up from 50 per month in 2004, according to research firm IDC.

However, many shutterbugs never print their images, deciding instead to display them on their computers or other devices. The reasons include simplicity, cost and convenience.

However, consumers, particularly amateur photographers, want lasting memories of their pictures. This has led to the rise of the photo kiosk in retail stores.

Target, Wal-Mart, CVS and Costco are among the dozens of retailers who have set up printing kiosks in their stores—and photo services on their websites. Consumers can send their digital images online to the store’s website and then pick up the finished prints the same day at the store. Retailers believe that the same-day convenience and relatively low cost of the prints will encourage more consumers to print their photos on paper.

The average print order at the Wal-Mart kiosk is approximately 68 and a few customers have ordered thousands of photos. 
And it seems to be working. Nielsen’s NetRatings says that half of the people who visit Wal-Mart’s website use the photo service. And PMA says that only 50 percent of digital camera prints are now done at home; it was 65 percent in 2004. Industry officials say that consumers like both the convenience and flexibility of the store kiosk. They can order prints in different sizes and display their photos on novelty items such as greeting cards. For retailers and their partners, the creative printing can generate significant revenue because of its high margins.

Fuji Photo recently struck a deal with Wal-Mart to installlow-cost print kiosks in 3,400 stores. Customers can copy digital images from a portable memory card or compact disc and pick up the 4-inch by 6-inch photos two days later for just 15 cents a print.

“We have reached a (price point) that is encouraging consumers to make more digital prints,” John Bond, a Fuji executive told Reuter. “We already know that they are taking many more times the images than they were shooting on film. This will give them the opportunity to have them printed affordably.”

The trend appears to be growing, too, with new Starbucks-like kiosks springing up across the nation. For instance, Elm Street Photo in Maine has developed the “Café Click” concept. The store offers comfortable furniture, a child’s play area, soft music and coffee while you make your prints.

“We’ve totally differentiated ourselves from the big-box retailers and created something unique and inviting for our customers,” says Elm Street Photo President John Goodine. “We’ve used the digital revolution to fashion a whole new service and environment for our customers and a new profit center for us.”

Lucidiom, the Northern Virginia maker of digital photo kiosks says the number of kiosk prints per order has jumped 25 percent over the last year, from 38 to 48. Rich Tranchida, a spokesman for Ritz Camera, which uses Lucidiom’s kiosks, explains why: “Customers love the comfort and convenience of being able to grab a seat and not feel rushed as they select what photos to print, how many to print and which to order as enlargements.”

Hardware: For many digital enthusiasts, it’s not enough to make prints. They are interested in new products that let them display or organize their photos in a unique way.

For instance, Wellex has introduced the Digital Photo Frame 1040, a 10.4-inch LCD display that weighs just 1.6 pounds. The device can store up to 250 JPEG format pictures and it can display photos directly from your camera’s flash memory card without first downloading them into a PC. With the Digital Photo Frame’s internal speakers and audio jack, the shutterbug could create a photo slide show on the spot, complete with a sound track.

Westinghouse and Digital Foci have launched similar portable photo displays. Digital Foci’s permits you to instantly save digital photos and video on a hard drive so you never have to worry about running out of memory card space. And Kodak has created a combination camera/display device. Called EasyShare One, the camera has a viewing screen that measures three inches diagonally—twice the size of most digital camera screens. The device can store up to 1,000 pictures for viewing on the screen. It also features a wireless communications feature so you can connect with a wireless network and e-mail your photos to a friend or an online service for printing.

But the PC industry arguably has done more than anyone in developing products for the growing content creation audience. New desktops are loaded with extra memory, bigger screens and more flexible software. Sometimes called “Media Centers,” the new devices offer both PC and TV-like features. They also can turn an amateur photographer into a professional producer.

For instance, Sony has introduced the VAIO VA TV-PC, which combines a full-featured computer with a 20-inch LCD TV screen. With Sony’s “Click to DVD” software, included with the device, you can create your own DVD of a home movie or photo slide show. The device’s A/V and S-Video ports connect directly to a VCR or analog camcorder to help convert those home movies to disc.

Finally, late last year, Apple launched a new iPod that plays downloaded video as well as iTunes. Some believe that amateur content creators soon will download their favorite home videos from their PCs to the iPod for portable display.

Software: Companies also are making better software to make content creation easier. “Update Rollup 2 for Windows XP Media Center Edition 2005” enables consumers to stream digital videos and photos from Media Center PCs to any TV in the home. Apple, Corel, Google Picasa and Adobe also are selling updated editions of their content creation software.

Adobe’s Adobe Photoshop Elements 4.0 includes features like Auto Red Eye Removal to make shots look more professional. Adobe also launched Adobe Premiere® Elements 2.0, a home video-editing solution. The digital camera revolution is sparking an increased interest in more sophisticated home editing features.

“Our software unlocks the potential for people to get more enjoyment out of their digital photos, whether they took them on a cell phone, a point-and shoot or advanced Digital SLR camera,” says Bryan Lamkin, an Adobe senior vice president.

The industry also is catering to small businesses that are looking for less expensive ways to produce marketing materials. Hewlett-Packard has teamed with Corel to create a website (www.hp.com/go/inhouse) that offers seminars and tutorials on how to use Corel’s Graphics Suite 12 software.

“Businesses need to look professional to make a big impact on their customers. And as all entrepreneurs know, just because your business is small, it doesn’t mean your image should be,” says Nick Davies, Corel’s general manager of graphics. “CorelDRAW Graphics Suite simplifies the design process and makes it easy to create their own professional-looking materials in house.”

HP says its research shows that nearly half of small to mid-sized businesses now are doing their marketing in-house.

So, even if the economy were to slow in 2006, along with camera sales, the industry should be able to keep profits rolling with services and products designed for content creators. And, if the economy improves, the content creation craze could drive yet another boon in camera sales. V