X-ray film makers shift focus to equipment, accessories

Greg Borzo

Many major manufacturers of imaging film are evolving from film companies that also sell equipment into equipment companies that also sell film.

Intense competition has forced them to bundle more and more equipment with film sales in an effort to maintain market share. In many cases, the bundling amounts to manufacturers giving customers significant amounts of equipment in exchange for a guranteed amount of film business.

Competition also has resulted in deep discounts off list prices for some types of film. Lower prices, in turn, have forced most companies to reduce their marketing, promotional and advertising expenditures, according to manufacturers. Most manufacturers lament that imaging film is an

Imaging film market

Worldwide market shares, 1990

Eastman Kodak 40%

DuPont 20

Fuji 15

Agfa 12

Konica 8

Others 5

Source: Market Intelligence Research Co., Mountain View, Calif., 1991

increasingly difficult business to be in.

“This is a tough business now because margins are squeezed so tight,” said Joseph M. Wojtowicz, vice president of marketing at Konica Medical Corp., Wayne, N.J.” It comes down to who has the most equipment to give away and who has the deepest pockets.”

Eastman Kodak Co., Rochester, N.Y., far and away the market leader, may be the one with the deepest pockets. It said it plans to continue emphasizing film in its marketing strategy and is enthusiastic about the imaging film industry. This sets Kodak aside from other market participants, many of whom question whether film will continue to play the central role that it has for decades in their manufacturing and marketing efforts.

Kodak, with an estimated 40% share of the worldwide imaging film market, has the most to gain from a continued emphasis on and strength of film, especially considering its dominant position in other film markets besides imaging film.

Digital modalities threaten film

Besides intense competition, film manufacturers also worry about the growth of digital imaging modalities, including ultrasound, computed tomography, digital substraction angiography, digital fluoroscopy and magnetic resonance.

Most digital imaging modalities continue to rely on film for both diagnosing illness and storing hard copies of images for future reference. Their rapid growth has generated new film market segments, at least for now. But the growing popularity of digital modalities keeps people talking about a filmless world. If and when that day arrives, diagnostic images will be diagnosed from monitors, transmitted over fiber optical phone lines and stored on laser optical discs.

Thus, digital imaging has apparently boosted film sales in the short term, but it threatens the whole medical film industry–especially for double-emulsion X-ray film–in the long term.

Here again, Kodak stands out from the crowd. Although it offers optical disc storage and transmission devices to give its customers the choice of the newer digital technologies, Kodak insists that film will never go away.

“We’ve heard all about the checkless society and the paperless office, but neither of those has come to pass,” said John Norman, marketing manager for diagnostic imaging systems at Kodak. “Film will be needed for both diagnosing and storage into the foreseeable future.”

Estimates on the size of the U.S. imaging film market range from $1.3 billion to $1.9 billion per year. About 40% of total sales are in the United States. Most major manufacturers are large international companies.

Hospitals comprise 70% of the market with the remainder split between private physicians and alternate sites, including clinics, imaging centers and mammography centers. “Since everyone is getting discounts, more manufacturers are delving down into the low end in search of niche opportunities,” Wojtowicz said.

The market is split between double-emulsion film, typically used for X-ray imaging, and single-emulsion film, typically used in conjunction with digital imaging modalities. All major manufacturers make both types and most say demand for double-emulsion X-ray film in the United States is flat (except for mammographies). The growth of digital modalities, on the other hand, is driving single-emulsion film revenues at growth rates of 5% to 20%, according to manufacturers.

Kodak dominates the market

Kodak has been strong in the hospital market for years, especially among large institutions. Recently, however, the U.S. and worldwide market leader added a large, separate sales force to go after business from smaller hospitals, clinics, imaging centers and physician offices.

In the United States, the company sells predominantly through its network of 250 dealerships. “We are working to strengthen the partnership with our dealers,” Norman said.

Only major pieces of equipment are sold direct, he added. National accounts comprise a growing segment of Kodak’s sales and the company negotiates those contracts directly with the groups.

Kodak’s view of the film imaging market differs from the other major manufacturers’ views in two ways. For one thing, it says that demand for X-ray film is not flat and that sales will not peak for at least another 10 to 15 years. “Despite the tremendous growth of digital modalities, we will continue to see X-ray procedures grow as the population ages and as healthcare is extended to the uninsured,” Norman said.

Secondly, while Kodak sells more and more equipment, it expects film to continue to be its mainstay.

Kodak’s laser print film sales have doubled in each of the last severl years, indicating a strong shift away from traditional direct-acquisition film to film for secondary printing of images and digital imaging. Sales of electronics-related (or secondary) film now represent 15% of the company’s worldwide imaging film sales.

In general, list prices of most types of film have been rising 3% to 5% annually for the last three years, Norman said.

“We position ourselves as a premium-priced product, and differentiate ourselves through the overall quality and breadth of our products,” he said.

Industry sources say Kodak has indeed set the standard for film, film handling and film storage systems. “They don’t just sell film” said one analyst. “They take a systems approach and offer many value-added services, such as quality management, education, training and distribution services.”

Konica focuses on hospitals

Until recently, Konica concentrated its film sales and marketing on the low end of the market. Eighty percent of its sales were to private practices a few years ago. Today, most of its sales are to hospitals, according to Wojtowicz.

This shift demonstrates the growing importance of national accounts, he explained. Also, companies like Konica may be moving away from the low end because small-volume purchasers are less profitable than they used to be. They are getting discounts that were once reserved for big customers.

“The way to maintain or increase your market share is to lower your prices, offer value-added services and bundle,” he said. “The range of equipment that is being bundled with film sales has gone up tremendously in the past few years. It used to just be cassettes and screens, but now it can include film processors and daylight film handling equipment, for example. Bundling is a very expensive proposition.”

Konica says its film sales are growing 5% to 10% annually and that it is gaining market share at the expense of Kodak and/or DuPont Co.

Konica sees tremendous growth potential in two areas. Mammography is growing rapidly because of increased awareness of the importance of mammograms in fighting breast cancer and Medicare’s recent decision to extend reimbursements significantly for the procedure. Video laser imaging, driven by the growth of MR and CT imaging, presents vast marketing opportunities, too.

Industrywide, imaging film sales will peak and start to decline by 2000, Wojtowicz believes. That time could be delayed, however, if the Health Care Financing Administration succeeds in its plans to reimburse hospitals’ capital expenditures on a prospective payment basis rather than the current cost-pass-through basis. Such a plan would discourage some hospitals from making large capital expenditures. Picture archiving and communication systems and teleradiology are extremely capital intensive, he noted.

“Inadvertently, HCFA could prolong the life of medical imaging film,” he said.

Just in case it doesn’t, Konica and other manufacturers have formed divisions for making, marketing and selling digital imaging and film equipment, such as laser imaging cameras, scanners and film digitizers.

“You don’t want to accelerate the filmless technology, but you don’t want to get too far behind, either,” he said.

Fuji pushes computed radiography

Fuji Medical Systems U.S.A. Inc., Stamford, Conn., differentiates itself from the competition by aggressively marketing its computed radiography technology, which converts conventional X-ray imaging into a digital form, in part, by replacing double-emulsion film with a reusable imaging plate.

(Cr should not be confused with computed tomography, a distinct imaging modality in which the X-ray source rotates rapidly around the patient making hundreds of individual pictures. The pictures are electronically recorded and stored by a computer, which reassembles the data into thin cross-sectional slices.)

Most of Fuji’s advertising expenditures and marketing efforts are devoted to CR, which is marketed and distributed through a separate division, according to Robert Neary, national marketing manager at Fuji. “Computed radiography is one of the key aspects of our marketing plan and more than half of our booth at RSNA (Radiological Society of North America) is devoted to it,” he said.

By betting on a digitized future, even for X-rays, Fuji is moving away from a reliance on revenues from film sales faster than most other film companies. Neary acknowledges that CR will undercut film sales and predicts that Fuji’s revenues from equipment sales will surpass those from film sales within the next few years.

“Demand for double-emulsion film is flat, may even declining,” he said. “And while single-emulsion film sales are growing 20% per year, they, too, will peak and decline, probably in the 2010s.”

One consequence of this shift is a gradual move away from using distributors to selling direct. Fuji sells CR on a direct basis only. Otherwide it sells primarily through distributors. “We will go more towards direct sales as we sell more equipment and

Imaging film market, U.S.

Year Revenues Growth rate

(in millions)

1987 $1,164.8 —

1988 1,306.1 12.6%

1989 1,471.7 12.7

1990 1,662.5 12.7

1991 1,888.5 13.0

1992 2,151.8 13.3

1993 2,471.3 13.8

1994 2,859.9 14.5

1995 3,337.3 15.4

1996 3,931.9 16.3

1997 4,663.2 17.0

Note: Growth rates are for total film and accessories market,

of which

film comprises 88% to 92%.

Source: Market Intelligence Research Co., Mountain View,

Calif., 1991

less film,” Neary said.

But a growing reliance on equipment sales, especially high cost systems like CR, is not without pitfalls. HCFA’s prospective payment plan for capital expenditures could stymie sales. “HCFA’s proposal will affect the way we market CR, but won’t have negative impact,” according to Neary. “We’ll have to be creative in how we package, price, sell and distribute.”

Agfa sells film direct

Agfa Corp., Ridgefield Park, N.J., is the only major film manufacturer that sells exclusively through its direct sales force (except for a few dealers that sell to clinics), according to the company. The other manufacturers sell film through distributors and typically use direct salespeople only for high cost equipment.

“We sell film on a direct basis because we believe this is a very one-to-one selling environment where personal contact is what counts the most,” a spokesperson said.

Another difference is that, until recently, Agfa did not go head-to-head with Kodak and DuPont for hospital business.

Now Agfa has begun to increase its sales and marketing efforts to large hospitals and says it is garnering a share of the contract business from hospital groups.

“Customers are demanding more than just film,” a spokesperson said. “They want system solutions to film handling and processing: easy ways to print, transmit and store images. They also want digital capabilities.”

Another change in the market involves the increasingly important purchasing role played by administrators and purchasing agents.

“Three to five years ago the radiologist was king,” he said. “Now he can’t buy equipment without cost-justifying it and he may not have the final say in film.”

Agfa claims to be maintaining its market share, with single-emulsion film sales growing 20% per year. It promised significant changes in its sales and marketing strategies nex month.

COPYRIGHT 1991 J.B. Lippincott Company

COPYRIGHT 2004 Gale Group

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