Magazine Article


Full Recovery for Ailing Economy Not Expected Until 2003

Full Recovery for Ailing Economy
Not Expected Until 2003

Photo Industry Gets Examined by a Trio of Financial Analysts

By Diane Berkenfeld

Ben Reitzes of UBS Warburg
—photo by Diane Berkenfeld

With most companies putting a hold on tech and capital spending in order to focus on maintaining cash flows, analysts cautioned that while the economy should begin to pick up at the end of the year, a full recovery won't be underway until early 2003. That was the consensus reached by a group of industry financial analysts during a panel discussion at last month's meeting of the PhotoImaging Manufacturers and Distributors Association (PMDA) in New York City.
Speaking specifically about the photographic industry, Carol Sabbagha of Lehman Brothers noted, "I don't think the industry as a whole is in crisis." She explained how a few companies ran into trouble, Polaroid and Xerox for example, by assuming their cash cows would last forever. Solin Cho from Morgan Stanley and UBS Warburg's Ben Reitzes, also panel members, echoed Sabbagha's statement, explaining that only a few companies had run into serious problems, not the industry as a whole.

Processing: "Get Digi With It"
The analysts agreed that the industry's economic future rests on how photo companies respond to the transition to digital. Morgan Stanley's Cho feels that these are "Interesting timesTrying to manage as an industry-legacy business and new technology." The biggest question to be answered in the future, she said, is "How to create a market demand for technology that will affect the legacy business [of photography]."
The analysts warned that this is something Kodak and Fuji need to work out without cannibalizing one part of their businesses and hurting the other. As Sabbagha explained, "Consumers aren't willing to pay 50 cents for a print [from digital] when a print from film costs only 25 cents."
The general feeling among all three analysts was that retailers who are incorporating digital photofinishing into their businesses now are the ones who are going to prosper in the future. As Reitzes put it, "Output is growth."
"Those ready for the output binge will benefit from the cannibalization of film," he said, adding that retailers are beginning to realize that the most profitable asset they have is photofinishing and digital minilabs.
Cho said she believed digital hasn't yet reached the point it needs to be with consumers. "Digital needs to be more intuitive, easier, and more cost effective than it is now," she noted. With regards to printing digital images, the panel agreed that solutions need to be integrated on the back end to make it simpler for consumers. "Standards are enablers for digital imaging and digital imaging needs standardization," Reitzes noted.

Film vs. Digital
When asked when they felt film would peak, Sabbagha predicted, "Somewhere between 2006-2008." "Digital has made inroads but film hasn't yet been affected," she said.
Sabbagha added that she feels 2003 will bring a cyclical upturn in the economy and after that, film will see a slow rate of decline in use. She warned, "Companies need to make sure profits don't decline sharply." This, she said, can be accomplished by shifting markets from film and silver halide-based papers and chemicals elsewhere, such as producing inkjet papers, etc.
According to the panel, while film sales may be flat now, they are no where near what people expected when digital came along. The panel also predicted that film pricing should get more competitive later this year when the economy begins to pick up.
Although more and more people are making the switch to digital from traditional photography, a major digital crossover amongst the general public will probably not occur until the next three to five years, panel members said. However, it is unclear whether it will occur first in developed countries or emerging nations. Reitzes added, "Transitions are tough to call—there are a whole lot of enablers to factor, including wealth, digital infrastructure, computers, broadband and wireless to name a few."