2006 DSLR Predictions

Thom self-inflicts more wounds.

Note: I posted this as a work in progress without a link before Christmas 2005 but the link was found and publicized widely. In order to distinguish between the original not-ready-for-publishing draft and my final draft, I'll use red to indicate changes. Also, in light of today's news regarding KonicaMinolta, I've changed a couple of items and added a section at the end that speaks directly to that.

Once again, before we speak of the coming year, we must recap what happened over the past 12 months. You can get the full scoop here. Overall, I did poorly with my 2005 predictions (anywhere from 33 to 50%, depending upon how the market share guesses work out).

2006 is the real year of the DSLR wars. {As it turned out, I think this was certainly true. With Sony and Pentax introducing competitive models, Canon and Nikon continuing to push forward, and interesting development announcements from the likes of Fujifilm/Sigma/Olympus, there was a lot of DSLR noise in 2006. Indeed, the posturing for market share was intense, though in the end, it turns out that it's Canon 50% and Nikon 35-40% (depends upon whose numbers you believe--Nikon says 40% based upon overall CIPA estimates, I think it is probably 35% and the CIPA estimates are a little low for the actual year). In short, lots of rhetoric, but less actual change in market shares than anyone other than perhaps Canon and Nikon expected.}

First, let's recap where we're at. Depending upon whose numbers you believe, 2005 was a year of very solid growth in the DSLR market (>60% in unit volume) with 3.5 million or more units sold. While no one seems to agree on the actual numbers, they do seem to agree that 80-90% of the units were sold by Nikon or Canon, about in equal numbers. Olympus currently holds the majority share of the remainder of the DSLR market. That trinity has remained pretty much the same for the past three years as DSLR numbers rapidly rose from high mid-six figure sales to low middle seven.

But 2006 is the year of new entrants. Sony (piggybacking off KonicaMinolta), Panasonic (ditto with Olympus), and Samsung (ditto with Pentax) are all greedily eyeing the DSLR market growth and plan to introduce new DSLRs. I expect to see a few of those at PMA in February, with more showing up at Photokina in the fall. {True} But let me just say up front: it's going to be brutal. {Also true} Let's just take some nice round numbers for assumptions:

* 4m units in 2005
* 30% unit volume growth in 2006
* Nikon, Canon, and Olympus (NCO) account for 90% of the market in 2005

(No, it doesn't make much difference if the actual numbers are 4.5, 40%, and 85%, or 3.6, 24%, and 95%. We get the same basic results with any batch of numbers in the range of believable.)

That gives us the NCO trinity selling 3.6m units in 2005 and wanting to sell 4.7m of the 5.2m units in 2006. See the problem? Sony, Panasonic, Samsung, Pentax, KonicaMinolta, Leica, Fujifilm, and Sigma then have 500k units to share amongst them. Now KonicaMinolta, Fujifilm, Pentax, and Sigma might have welcomed sharing 500k units amongst themselves, but this year they've got three high-powered consumer brands expecting to make a splash. That splash will come mostly at the smaller brands' expense. [Essentially already at least partially true given KM's announcement.]

{CIPAs numbers for DSLRs in 2006 was 5m units, or a 25% increase. Canon claims 50-51% of the market. Nikon claims 40% of the market (though I should point out that their numbers are bit backweighted into the first quarter of 2007, probably due to the D80/D40 effects, so I don't think they actually achieved that in 2006). Olympus didn't seem to show even market-level growth. But it seems clear that NCO achieved about 4.7m units in 2006 and overall unit sales might have gone even a bit beyond 5.2m units. (I should point out that many of the companies have fiscal years that end in the first quarter of the following year, and getting exact year numbers is near impossible--you have to calculate them from quarterly estimates, which change a lot, and camera companies book sales when the item ships from the factory to a subsidiary, not when the product sells to a customer); overall, I think the actual 2006 DSLR actual sales number was between 5.1 and 5.3m units, Canon's was about 2.5m units, and Nikon's was at least 1.75m units.)}

And if it starts to come at Nikon and Canon's expense, you can expect US$499 D50's and 350DX's by Christmas. I'm pretty sure both companies are expecting to have to produce US$399 DSLRs in the not-to-distant future, so price wars aren't going to catch them by surprise or dislodge them. Neither company will sit still for market share erosion at this point--they own the market, this is a key part of their business, and they will defend it aggressively. {As the D40 and XTi proved, I think. Both will fall in price in coming months.}

But wait a minute, you're saying, we've had three years of wild growth, why won't we have another? Simple: we're at the top of the hockey stick, as they like to say in economic circles. 2004 was the year that you should have entered the DSLR market if you were going to enter it (so why did Contax and Kodak exit it?). Even weak players then would have risen with the tide and had time to flush out costs and boost performance by the time the Big Brands appear in 2006. By 2005 the unit volume growth was already cut in half and the second sign of market tapering appeared: the dollar volume sales growth wasn't nearly as high as unit volume growth. My prediction? Almost no dollar volume sales growth in 2006 (e.g. <10%), and a modest 30% unit volume growth. {Close enough to declare victory on this, I think.} By 2007, the DSLR market will start to look like the consumer digicam market: too many players, not enough dollars, not enough growth, and much talk of who will go away permanently (KonicaMinolta, Pentax, Panasonic, Samsung, and Fujifilm are my choices, in order of likelihood [One month after writing that, KM has essentially gone away. Ouch.] ). Olympus will be in a major battle with Sony over third place (and their 4/3 and KM mounts will be battling for third place in mounts, too). Nikon and Canon will be selling their lowest end at little or no margin to retain share. Like I said: brutal.

But you want to know about 2006. I'm going to do things a little different and only predict the DSLR market (it's where all the action is, anyway). Here goes:

  • Nikon introduces only one new DSLR. The questions are, which one and when? The when is relatively easy to predict, I think: late in 2006, perhaps around Photokina. The which is tougher. The FM3D rumors persist, and I really love the idea of that camera. With all the new entrants and price wars that break out, something under the D50 needs to appear at some point. The full-framers and Canon-wannabees think a full frame D3 is coming. I used to, too. But personally, I'm betting on an 10mp APS framed D3h. It makes the most sense in terms of line weakness, timing, and historical trends. Given the market competition, it won't be over US$3000. The D50 and D70s will continue to drop in price as Nikon pushes efficiencies in manufacturing and attempts to keep market share. Both need refreshing in light of new entrants, but it won't happen in 2006, so only their prices will drop. {Well, I was wrong. Yes, the D50 and D70s continued to drop in price, but they were replaced late in the year (what's with this "ship in December" trend Nikon has gotten into?). The D3 hasn't yet appeared, though the rumblings have increased as prototypes continue to wander around. So, Nikon introduced two DSLRs, and not the one I expected.
  • Finally, some expected Nikkors. The 70-300mm AF-S. The 105mm AF-S Micro-Nikkor[Yes]. A fixed focal length wide angle DX. The 400mm VR appears at the Winter Olympics [No]. I suspect all will be announced at PMA [No]. There really should be more, but there won't be. {Close on that last bit. We did get an 18-135mm and an update to the 18-55mm. Overall, a disappointing year for lenses.}
  • Canon revises the 20D and conforms the 1D line. The 20D now has a wicked serious competitor in the D200, and Canon won't sit still long [They didn't, we now have the 30D, which is a tweaked 20D at a lower price]. At the top end, Canon will up the 1Ds to a faster FPS and essentially make it the one-camera solution to both the 1DsII and 1DIIN. That means a price drop (US$5995), but probably not many more pixels, mainly just more speed. I also suspect we'll see another mid-range body; basically better specified than the 5D, less specified than the 1D, so call it the 3D (at US$3995). This pushes the 5D price down significantly under US$2500 [Even without the 3D the current street price with rebate is US$2600]. Like Nikon, Canon is going to be less focused on the Nikon/Canon battle, but more on keeping the new entrants from eroding any position already established. {Ironically, I was slightly more right about Canon than Nikon. The 1D update(s) hasn't appeared, but the 30D did and the 5D is under the price I predicted.}
  • Fujifilm gets back in the game. Announced at PMA [No] but not shipped until late in the year, at best, will be an S4 Pro. Probably not 12mp as everyone predicts, but certainly at least a high dynamic range 9 or 10mp in a D200-like body. US$2995 puts it squarely up against the 5D, and it'll hold its own just on image quality alone. Expect mind-boggling JPEGs out this body. My only question is will they goof on the rest of the camera performance again as they did with the S3? Speaking of which, the S3 Pro will stay in the game with a bigger buffer and perhaps another tweak or two, but at a lower-than-D200 price. The S2 Pro disappears from the lineup. {I was off in my timing by about six months, but the D200-like body and not a real 12mp was dead on. I'm a little surprised that there was no increase. The S3 Pro didn't stay in the game and the price on the S5 was wrong. The S2 did disappear.}
  • Olympus goes pro. Again. The E1 replacement rolls out at PMA [No], probably at 10mp. It's possible we'll hear of another pro body come Photokina (think small, light, basic, but pro). We already know Olympus's lens plans for 2006 since they've talked about them publicly, but I think they'll continue the pre-announcement game with a couple more pro-caliber lenses announced at Photokina that round out the 4/3 lineup. Like Nikon and Canon, watch for falling prices as they try to hold market share. [Olympus seems to have reversed their announcements, adding another lower end DSLR at PMA and hinting at an E1 replacement at Photokina] {The E2 got a development announcement at Photokina, but a pretty vague one.}
  • Sony gets it wrong. I see four likely possibilities, all of which would be the wrong camera. (1) An R1 like entry but with a KonicaMinolta mount [They've now admitted they considered that, but decided against it]. (2) Something specified and priced lower than the KM D5. (3) A rebadged D5. (4) A completely new homebrewed consumer design, but with a KM mount. #1 is wrong because either it or the R1 loses. #3 is wrong because it essentially kills KM, which kills Sony's future in DSLRs (unless they buy KM's camera division). [Well look at that. It was #3. I'll have more to say about this later in the article.] #4 is wrong because it's a first time DSLR design and it'll miss key features and/or performance. Thus, I'll go with #2, which will still prove to be wrong, because it'll hurt the R1 and KM and not be low enough priced to keep Nikon and Canon from lowering prices and defending territory. What Sony should do is aim at the 20D/D200 level, I think. I don't think you can sneak into the DSLR market from the bottom; you won't get the true prosumers, who really do care about systems they can grow with. So 12mp, 3-5 fps, well-appointed design (PC Sync, wired remotes, etc.), and a state-of-the-art autofocus system. Show that you're serious by putting out a 24-105mm lens for the mount that's as good or better than what's on the R1. Find a whistle you ring bells over (wireless flash, etc.). The R1 will hold the low end for now. KM will love it that you're not killing them quickly, and the true consumer Sony DSLR then comes in 2007. {#3 it was, and that was about it for 2006 for Sony. The R1 remains for the time being. Sony needs to execute a full line in 2007 if it wants to gain share.}
  • Panasonic gets it mostly right. Panasonic will simply mimic the low end Evolts, but with their own sensors. While that at first doesn't seem to be a good idea to some, the looks of the two cameras will be enough different that it becomes a "do you like A or B" game, much like the D100 and S2 Pro were [Bingo. And Panasonic's version of the E330 is a sweet looking camera, especially with that Lecia lens and VR]. That doesn't mean that Panasonic blasts into the market with any significant market share. But it also doesn't mean that Panasonic kills Olympus. Instead, they get their toe in without hurting themselves or anyone else too much. Thus, the question with Panasonic isn't their first entry, but what happens next. Like I said earlier, I don't think you can sneak into the DSLR market from the bottom, so either Panasonic turns out to be a one-shot, short-term wonder or they have to have something big coming soon to show commitment. {Toe is indeed in. Now what?}
  • KonicaMinolta was just slow. I'll just push back my 2005 9D prediction to 2006. KM's 2006 is pretty much dictated on Sony's 2006. If Sony duplicates the 5D or undercuts it, KM is in trouble, I think. The 5D and 7D are already price-pressured, so any Sony onslaught stiffens that wind. (The one piece of maneuvering room: if KM didn't license the antishake technology to Sony and Sony doesn't provide one of their own. That would be more in the vein of "Sony gets it wrong," though.) Moreover, the D200 and eventual Canon 20D replacement are going to set a tough bar for the 9D--it'll have to perform and stay under US$1995 to find much market, I think. As good as the 5D is, I just don't see it holding its own against all the entrants at the low end--KM doesn't have the margin to play price games. [Note that the KM announcement says that they will still produce the existing bodies for the Sony brand badging. Thus, this prediction is really about a Sony 9D. This also means KM needs to get some margin, which gives Sony less margin to play with in pricing their low-end DLSRs against Nikon and Canon. Like I said earlier, Sony strategy #3 didn't seem like a win-win to me. It seems more like a holding pattern.] [It's more clear now what's happening with the KM/Sony mix. We'll get 6mp/10mp pairings similar to what Nikon has done to date. The Anti-Shake technology is a plus for Sony over Nikon. But there are still lots of questions to be answered: price, quality, availability.]
  • Kodak stays silent. No new DSLR from Rochester. By Photokina, we might hear rumblings of one from Japan, but it won't be announced or available in 2006. (Which brings up a side prediction: by 2007 it will become obvious that Kodak is no longer an American company. Lots of empty buildings in Rochester will attest to that.) That places a really high bar for anything in 2007: at the pro end iany entry would have to be 20mp, at the consumer end it would have to be 10mp for under US$899. I don't think they can do it. And whose mount are they going to use? 4/3? That competes with the company they sell sensors to, Olympus. Nikon? Well, full frame is still open, but they can't compete at the low end with Nikon. Sigma? Aha. Sigma. But let's first wait and see what Sigma does in 2006 (see below).
  • Pentax gets lost. Even if they have another DSLR up their sleeve for 2006, which I think is doubtful at PMA [True] (and they seem to just keep making the same one with slightly different variants, anyway; where is the MX-specified DSLR?), the 645 market is where they need to play in 2006 if they want to remain a viable company, I think. It's the old Big Fish in a Small Pond or Small Fish in a Big Pond conundrum. But you can't sit on the land between the ponds for very long before making your choice. Samsung is more likely to acquire the *IST assets, name them better, and sell more of them than Pentax is likely to succeed at getting out of the bottom rung in DSLRs. Pick the Big Fish in Small Pond, Pentax. [Another update already: Samsung's first DSLR is a rebadged *ist. It's named better, though not nearly good enough for the consumer market, IMHO. I think it'll sell more of them than Pentax. So that only leaves the "acquire" part in question, in my mind. Given the KM/Sony play, can a similar Pentax/Samsung play be far behind?] [During their year-end financial wrap-up Pentax admitted that they sold 120,000 DSLRs in 2005 and wants to double that in 2006. That's not really very many bodies. Like Sony, Pentax's short term body lineup is becoming clearer, and it's the same 6mp/10mp thing as their primary competitors. Like Sony, Pentax has Anti-Shake, though. Is that enough? Yes to sell 240,000 DSLRs. I'm still skeptical that gets them out of the intensive care ward.] {If I botched any prediction, it has been with Pentax. They've done the Japanese thing full on: if it didn't work the first time, iterate it and try again. We finally have a *IST worthy of the market (though it's called the K100D now; even the name was iterated). The K10D seems like a very nice high-end amateur camera, though the image quality is very slightly behind the D80 IMHO. This gets them back to their historical position as the second-tier leader. Job well done, Pentax, I didn't think you had it in you. Now comes the hard part: stay there and protect or try to move up to the first tier? Neither is all that easy to do, actually.}
  • Bit players. Leica limps through the year (DRangefinder comes next at Photokina). {Indeed it did. Leica would have done better than limp through the year if they hadn't fumbled the M8 launch. Overall, they've positioned themselves for survival, though.} Contax remains unseen though rumblings of the resurrection of the brand start at Photokina (hint: Kodak, buy it for pennies now). For the Sigma freaks who say I never give them credit: the SD-2006, a FF Foveon in what's basically the former Pro SLR/c body. Or a nice Kodak sensor in the SD-10 body, probably FF. Note the FF. I think Sigma's position is to differentiate itself into a high-end amateur niche, and the only way I think they can stay there with their current sensor choices is FF. Of course, they've been producing lots of APS lenses lately, so there's a disconnect there. Will we get some new FF lenses, too? {Not full frame, and not in 2006, as the delivery of the SD-14 slipped to 2007.}
  • Market Share Leaders. Canon, Nikon, and Olympus, in that order, with a big drop from Nikon to Olympus. {Correct.} Olympus is closely followed by Sony, Fujifilm, and Samsung, in that order. {Incorrect: Sony is hot on Olympus heals, as is Pentax.} Pentax, Panasonic, and Sigma pick the scraps. Note that the Canon and Nikon mounts thus stay the primary winners. The Olympus and Sony/KM mounts fight it out for the third, and last, viable system. {And I should add Pentax to that list, otherwise correct.}

Check back in early 2007 and see how badly I did.

On 1/19/06 KonicaMinolta made a number of statements about their photography business. The English press releases seem a bit hastily done and have caused some confusion. I think what KM said is that they're going to withdraw from the film and compact digital business completely (by the end of the first quarter) and withdraw their DSLR brand from stores. That latter point means that they will continue to design and manufacturer DSLRs, but these will appear only under Sony's brand. How long that agreement stays in place is unknown (i.e. it's unclear if Sony will eventually take over the KM DSLR assets, or if KM may some day choose to re-enter the market with their own brand, or if this is just a temporary arrangement until Sony's own DSLR design and manufacturing teams get up to speed). Also somewhat unclear is the lens and accessory situation; if KM has no store presence, where the heck do the lenses and accessories Sony needs for their DSLR come from? Will KM lenses suddenly sport Sony badges?

The good news for KM users is that Sony is likely to better advertise, market, and distribute the KM products. Thus, the mount and the cameras live under better stewardship. Now that it's clear who the main player is in this arrangement, Sony's muscle is likely to make the very same products more successful in the very same chaotic marketplace, thus I've adjusted a few of the things I predicted slightly in the main text (also done in red to show changes). The net is that Olympus is under more pressure, even though the D5 is more like a Nikon D50 than any Oly DSLR. Increases in Sony market share come at Olympus' expense, I think.

Meanwhile, Samsung has announced a rebadged Pentax, which seems on the face of it like it has the potential to be the same sort of deal (though Pentax hasn't announced any withdrawal from any of their current camera markets). Samsung and Sony are going to be going at each other in DSLRs pretty much head to head. Samsung sees themselves as the "new" Sony. Sony sees Samsung as a pesky competitor. Look for the two rebadged low-end DSLRs to be marketed directly at each other. Look for distribution fights between the two (can both fit into big boxes with limited shelf space, like Best Buy and Circuit City? Certainly this keeps Olympus from getting that space, which is one of the reasons why I say that the announcements predict an erosion from Olympus' market share).

While it's not a 2006 prediction, the KM announcement also brings up a good question: what sensors will Nikon use in the future? For 2006, the only new Nikon DSLR I predict will use a Nikon LBCAST sensor. But if Sony is now competing absolutely directly against Nikon with a full line of DSLRs, will Nikon continue to use Sony sensors for models introduced in 2007? Nikon would be right in the midst of finalizing that decision right now. I see four possibilities: (1) yes, they continue on as before; (2) they get some sort of term exclusivity or Nikon-engineered improvement in all future Sony sensors they use; (3) LBCAST finally becomes their future; or (4) Fujifilm slides in and replaces Sony as their main low-end supplier. But I don't have to predict 2007 sensor use until the end of 2006, so I'll just leave you hanging on that for now...

Here in mid-2006 things seem a little clearer, yet still pretty muddy in the DSLR scene. It's obvious that nearly everyone held back at PMA (the Olympus and 4/3 contingent being the primary exception). Here in late Spring, suddenly the information gates are opening up a bit, with the Nikon (D2xs), Pentax (K100/K110), and Sony (Alpha) providing some fresh meat for the market. By Photokina, it seems somewhat clear that we'll have even more announcements (something new from Nikon, the Pentax K200, the top end of the Sony Alpha lineup, the Fujifilm S4 Pro, the Sigma SD-Next, and whatever Canon's next big thing is) plus finally some delayed shipments (the Panasonic, for example). Christmas selling season is looking like its going to be a pressure cooker. {Man was I right about that! Alpha 100, XTi, D80, and K10D fighting it out in one tier, D40/D50, Pentax K100D, Olympus fighting it out in another.}

12/16/05: initial post
1/19/06: KM update
5/26/06: midterm update
12/1/06: year end update

What I'd do If I were suddently the head of a new DSLR maker

1. Buy the Contax SLR assets lock stock and barrel.
2. Get the best FF Kodak sensor I can and stick it in those bodies.
3. Hire the Kodak SLR/n programming team to do the firmware and software.
4. Make the camera use DNG as the raw format.
5. Make the firmware and software Open Source. Make the workflow sing.
6. Build a real pro-oriented sales and support team.
7. Sell direct only (see #6).

8. Ignore mass market sales (e.g. US$499 DLSRs). The product position: only the best for the best.

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