updated 12/13/2004 8:40:05 PM ET 2004-12-14T01:40:05

At age 75, Marilyn Smith discovered a wealth of reasons this holiday season to switch to a digital camera.

Snapping away until she gets the right shot, without worrying about film, sounded enticing. So did packing a palm-size gadget on a baggage-laden trip to Hawaii in February. But she especially liked the idea of an image stabilizer that negates wobbles.

"Why? Because I sway very easily," the retired nurse's aide explained with a hearty laugh.

Bringing along her grandson, Brad, for technical advice, Smith spent over an hour sorting through digital cameras at a Best Buy store in suburban Rochester before settling for a $399 Canon with 3.2 megapixels and 10X optical zoom lens.

While her late husband's fancy film camera with telephoto lens will be hauled out for family portraits, Smith already expects it to begin gathering a little extra dust.

Millions of Americans who waited patiently for the quality and convenience to leap forward and the prices to roll back are now jumping on the digital-shutterbug bandwagon.

Most popular gift
A novelty item just four or five years ago, the digital camera is shaping up as the most popular electronics gift in 2004, according to the Consumer Electronics Association, a trade group in Arlington, Va. It was runner-up in 2003 to the DVD player, the No. 1 gift since 2000.

Catapulted by cutthroat competition, digital technology is transforming the $85 billion photography industry by creating many new ways of capturing, developing and storing pictures.

At least 10 million digital cameras will be sold nationwide from October to December, up 35 percent from last year's fourth quarter, analysts predict. By year's end, they will be in about 43 million American homes. By 2007, that 40 percent penetration could reach 70 percent.

Sales could jump another 25 percent next year, but the growth curve will dip to around 11 percent in 2006 and a mere 1 percent in 2007, guessed Chris Chute of research firm IDC in Framingham, Mass. "There'll be a maturing of the market where basically everything is a commodity and digital cameras are like toasters," he said.

Yet the 90 percent saturation point achieved in the 20th century by film cameras is a long way off.

"The digital camera is still more of a PC-centric device — 90-plus percent of owners have computers — so that leaves one-third of U.S. households out of the picture," Chute said.

Digital transition
Rochester-based Eastman Kodak Co. turned picture-taking into a hobby for the masses when it brought out a $1 Brownie camera in 1900. A century later, the swift shift to digital looked to have caught the world's biggest film manufacturer off-guard.

Kodak, which invented the first digital camera prototype in 1976, insists it was waiting for a mass market to clearly develop. Three years after launching its EasyShare cameras, which are priced from $99 to $499, Kodak is now poised to edge ahead of Japanese front-runner Sony Corp. in the U.S. point-and-shoot digital camera market.

The transition, however, had its price: Kodak is eliminating up to 15,000 jobs. Its work force will shrink to around 50,000 in 2007 from a peak of 145,300 in 1988.

While digital cameras only began outselling film cameras in the United States last year, Americans are making the switch far quicker than forecast.

The Photo Marketing Association in Jackson, Mich., expects 8.2 million film cameras will be sold domestically this year. A few months ago, its projection was 10.6 million.

"It's rare that we change our estimates but this time it happened," said marketing research director Dimitrios Delis. As for 2005, "we're not sure where it's going to fall to."

As the demise of film quickens, digital camera prices are tumbling. The average buyer is handing over $300 to $350 now, and that could plummet to $200 in a year, Chute said. Some single-lens reflex models aimed at amateur enthusiasts, or prosumers, have dropped below $1,000.

For manufacturers, getting their cameras into consumers' hands is key because most profits flow from there.

"It's all about the aftermarket," Chute said. "In the prosumer market, a lot of the profit is in selling the lenses. In the consumer market, it's definitely more about printing."

As many as half of this year's holiday shoppers are looking for upgrades, analysts say.

Dylan Smith, 53, an engineer who bought his first "cheapo" digital camera in 1999, likes to doctor his photos — red eye often spoils flashbulb portraits of his daughter —and was salivating over a $700 model with 7.1 megapixels of resolution.

"If you have a good, quick-focusing camera, you can improve the quality through your software," he said. "But first you've got to get the good shot."

Patricia Hughes, 27, who was shopping with her husband, Michael, pondered buying a mid-range camera she could "play and practice with ... for when we have kids."

"I want to be able to print and edit myself and have the flexibility," she said. "We have a lot of family out of town, and to be able to e-mail pictures is one big plus."

The early buyers of digital cameras "were more interested in the technology," said retailer Scott Sims of Scott's Photo. "Now we're getting people who are more interested in using them as cameras have always been used — to capture memories in your life."

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