Guessing at Statistics

I don't really want to paraphrase Donald Rumsfeld, but one thought generally (incorrectly) attributed to him is something we need to discuss here in the camera world: there are known knowns, known unknowns, and unknown unknowns. 

More and more we've had an Internet pile on of articles about "sales" and "market share" in the camera world that are marketed as "knowns," but are really simply made up conclusions to support a world view. One article late last year had the conclusive headline of "Why Nikon is Failing..."

In that article there was not one sales statistic given to support the headline, let alone the article's general premise. Then there was an additional thought in that article that wouldn't pass muster in the MBA program I went through: market cap solely denotes ability to compete. 

If anything, companies with larger market caps tend to not be the ones to move quickly when markets change. There's great risk to the cash cow if you abandon it too quickly. 

I see the sentiments of those articles in many articles and forum discussions now. Consider this forum post: "Nikon made a terrible mistake on the Z6 and Z7 that has had a devastating effect on sales, and even the best discounts in the world will not help them." 

So where is the statistic that says that Z6 and Z7 sales have been devastating? Funny thing is, I sell a book on those cameras. I have a pretty good idea of how well the Z6 and Z7 are selling into the serious photographer market because I can compare my current Z book sales to previous similar DSLR books. No devastation is happening. My sales were up last year. 

What we're seeing is lots of people guessing at statistics. And worse, guessing at gross profit margins. Nikon is currently in a stretch of their strategy where they're willing to sell fewer items, but is transitioning to ones with higher prices that cost them less to make. That kind of strategy doesn't work forever, but it's been proven effective during market transitions many, many times. 

It's not just with Nikon that this is happening, and it's not just with downward numbers that I see statistical guessing (and flawed logic).

Sony tends to see the opposite kind of commentary. If you were to take the Sony camera sales headlines at face value you'd think that they came from nowhere to wipe out all the other camera companies. The most quoted "Sony is #1" source is Amazon.

Try doing this: go to the Amazon site, type in "best selling camera" in the search box. Guess what you end up with? The first Sony ILC that appears in that search when I did it recently is listed as "sponsored." Meaning that it was an ad placement. Okay, try pulling up the "Best Sellers in Digital Cameras" list. Today as I did this one would believe that the Nikon D3500 and D5600 easily outsell the Sony A7m3. But you'll notice something else in that list: the A7m3 also appears to outsell the D3500 and D5600 according to Amazon. What gives? 

Amazon no longer seems to publish the methodology for how they generate "best seller" lists, but two things stand out: (1) the items in that list are individual kits, meaning that a body only, body+kit lens, and body+extended kit all show up as different items; and (2) a quick perusal showed me that "sponsored" items in the normal listings are showing up similarly in the best seller list, suggesting that Amazon's best seller list can be gamed. 

Sony themselves are very careful to almost always make their claims about how well they're doing using overall dollars taken in (as in "#1 in value of full frame sales"). Even that can be misleading, because in the US they're using NPD data to make that claim, which is based upon what the customer paid the dealer, not what Sony received. If you don't know what a spiff is, you might want to look it up. For as long as I can remember manufacturers have been gaming sales and market share numbers using unseen-to-the-consumer promotions. (Disclosure: spiffs are used far less frequently in camera sales these days than they used to be, but they're still present.)

When I did some work not to long ago for a well-known investment firm that was trying to get a handle on the camera market, we spent a lot of time cross-referencing statistical sources. We found a lot of anomalies we had to account for (e.g. gray market). What we also found was that Canon's and Nikon's statement of unit volume in their quarterly financial statements was as far as we could tell correct. Of the other camera makers, only Olympus discloses ILC volume the same way. Sony only discloses overall DSC (all digital cameras) volume, which turned out impossible to verify. 

The other thing that happens is timing related. One reason why I always use trailing year numbers in my evaluations is that I'm trying to mitigate temporary bumps from new product introductions and short-term discounting. Indeed, that was what that investment firm and I eventually agreed upon: matching up trailing year numbers from NPD, CIPA, and the camera makers (as well as a couple of other private sources). Where we ended up in some disagreement was how to estimate future sales (e.g.  projecting forward-year numbers). 

Thing is, the camera companies are doing the same thing. They're trying to take trailing information and predicting forward potential. The camera makers have better data than the rest of us. At the moment, the camera makers are all talking about further large contraction of the overall market (volume). A few are talking about a small expansion of their own sales in some way (e.g. generally higher average product prices or margins, though sometimes small gains in market share).

Overall, the camera market has been getting weaker and weaker since 2012. We still have the same number of manufacturers, so over time everyone has suffered in some way. Much of their response has gone a bit under the radar. For instance, both Canon and Nikon have significantly upped their use of automation in manufacturing as volume decreased, which means that they've been reigning in their production costs even as volume went down. 

But there's more going on than that. In Nikon-land, we saw 16 new cameras in 2015, 11 in 2016, 3 in 2017, 4 in 2018, and 4 in 2019 (I don’t count the D6 pre-announcement). In Sony-land the numbers from 2014 to present go 17, 8, 9, 4, 5, and 7. Product lines are being cancelled, iteration has slowed, completely new models are now more rare. 

The headline that should be written is quite different than the one you're probably seeing these days. Something like this: "Camera Makers Doing Everything In Their Power to Keep From Failing.” 

And so far, they’re mostly succeeding. Canon and Sony are still profitable in the camera market despite the severe market contraction, and they account for well over half of the entire camera market.  

This is not to say things are all rosy in the world of camera production. They're not. Nikon just had to take a write-down that made their numbers look unprofitable (though on a cash basis, they were positive). The entire industry is under high stress, and you see the results of that in many different ways. But failing? Nope. Not yet. 

I'll got out on a limb here. If Nikon "fails," so will everyone else making cameras. Nikon’s the canary in the coal mine, because so much of their overall business is based on cameras and lenses. A Nikon failure would mean that the market contracted so much that there's no clear profitable proposition for anyone. 

Personally, I don't think we hit that space until we get below 4m ILC units sold a year. 2018 was 10.7m units according to CIPA—though that's shipments, not sales—and 2019 is looking like it will be somewhere around the 8m unit mark. So we have a ways to go before we can start talking about failure.

Still, it’s been a rough time. You probably noticed all those clearance sales over the holidays. Canon was particularly aggressive at trying to move boxes out of their inventory and into your hands. I suspect Canon and Nikon will remain aggressive in moving older boxes this quarter, too.

The problem, of course, is that if you bought one of those deeply discounted cameras at the end of 2019, you’re not really in the market for anything in 2020. Which means that we’re not yet through with market contraction and you’re likely going to see even more articles about how terrible the camera makers are doing.

But are they really doing terrible? Let's see, the latest offerings from the Big Three are the 1DX Mark III, the D780, and the A9 Mark II. All really strong updates of really good existing cameras. Features aren't being cut. Performance is not being dropped. Build quality is not going down. 

We'll know when the camera makers are in trouble when (a) updates de-content the product to save the maker money; (b) they struggle to find performance and feature gains; and (c) we stop getting updates at all. 

I'll say this: if you can't find a really good camera that serves basically all your photographic needs well on your dealer's shelves today, I'm not sure why you're reading this. We live in a land of plenty, basically. That, of course, makes the camera makers' jobs even tougher, as they have to come up with things that will compel us to update our existing products. Fortunately, that's still happening, though at a slower pace and with less compellingness, which means we buy less frequently, too. 

So I'll end with this: a friend with a set of top-notch current gear recently told me he was going to buy a just announced US$9500 lens. How much better that new lens is versus what he currently has is an unknown thing at the moment, but my question to him was this: was that the best use of US$9500 for your photography? 

We all chase dreams, but sometimes we should focus a little more closely on reality. With that much money on the line, you'd also have to consider:

  • Buying a new lens that doesn't duplicate what you can already do well.
  • Enrolling in a workshop or seminar that benefits your skill set.
  • Making sure you have proper backups.
  • Updating your computer gear to handle the big new files and heavy processing needs.
  • Traveling to someplace new and perhaps exotic to actually use your existing gear.

We're going to get a lot of tempting new mirrorless product this year (and early next year). Some of it will be easy to justify. For instance any new Z mount lens extends/improves what we can do with the Nikon cameras almost by definition. Ditto for some still missing Sony E mount lenses. Ditto for any high-end Canon mirrorless camera. 

Let's reset the rhetoric to the good side of what's happening: as the camera companies recompose themselves to survive in a smaller market, the products they make are getting better. The only way they'd fail is if they don't do that. That's a known known ;~).

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