Why GoPro Is Killing Sony in the Action Cam Market

Most investors know that GoPro (GPRO -1.68%) dominates the video camera market, but many don't realize that Sony (SONY 0.99%) sits in second place. In 2013, IDC reported that GoPro controlled 30.4% of the camcorder market, compared to a respectable 20.8% for Sony. In the "action camera" subcategory, however, GoPro commanded 47.5% of the market, easily shadowing Sony's 6.5% share.

Source: GoPro.

Sony, Canon, and Nikon form a triumvirate which dominated roughly 60% of the global camera market last year, according to IDC. But instead of capitalizing on that lead to launch new action cameras, the three Japanese giants mostly pumped out more digital cameras and camcorders. Meanwhile, GoPro turned the niche action camera market into a mainstream success, blurring the lines between action cams and traditional camcorders.

Last quarter, revenue at Sony's IP&S (Imaging Products & Solutions) segment, which houses its camera business, only inched up 1.8% year-over-year to $1.64 billion. By comparison, GoPro's revenue rose 45.7% year-over-year to $280 million. Why is GoPro growing so rapidly, while Sony remains an underdog in a market it should be dominating?

Better branding
In 2012, Sony introduced its first action cameras, the Sony Action Cam HDR-AS10 and HDR-AS15, to challenge GoPro's HERO 2.

Today, Sony sells four main action cameras -- the HDR-AS100V, HDR-AZIVR, HDR-AS30V, and HDR-AS20. GoPro has three current generation cameras -- the HERO, the HERO 4 Silver, and the HERO 4 Black. Unfortunately, Sony's cameras, like its Xperia smartphones, are terribly named and hard to distinguish from one another. GoPro's cameras are easy to identify -- the number indicates the generation, while the Silver/Black branding designates its tier. GoPro's simple approach turned its brand into a generic name for all action cams, and competing cameras became "GoPro knockoffs".

Three of Sony's Action Cams. Source: Sony.

Sony's failure to give its action cameras catchier names is baffling, since it skillfully branded memorable products like the Walkman and PlayStation in the past.

Media expansion
GoPro is capitalizing on the brand recognition of its cameras by encouraging users to upload their videos to the GoPro Network, which is hosted on Facebook, Instagram, Google's YouTube, Pinterest, Microsoft's Xbox Channel, and Virgin America's in-flight entertainment systems. GoPro sells ads on the Virgin, YouTube, and Xbox platforms. The Xbox Channel also lets customers buy GoPro cameras directly from the Microsoft Store, with revenue from each sale divided between GoPro and Microsoft.

GoPro has claimed that its media efforts will become a new pillar of growth, but it's not generating meaningful revenue yet. Tracking site Social Blade estimates that GoPro's 2.5 million YouTube subscribers probably only generate between $182,500 and $1.5 million in ad revenue annually. But for now, the GoPro Network isn't focused on making money, it's just a way to build GoPro's brand without spending a lot on traditional ads.

Sony, on the other hand, is already a media giant. It owns film studios and media networks through Sony Pictures. Its G&NS (Game & Network Service) division houses the best-selling current generation console, the PlayStation 4. Yet with all these resources at its disposal, Sony didn't launch a media blitz to make the public notice its Action Cams.

Sony could have equipped Peter Parker with one in The Amazing Spider-Man 2. The company could have launched an Action Cam channel on the PlayStation Network to sell its cameras. Instead, Sony simply mimicked the GoPro Network with an Action Cam channel on YouTube, which had only 24,300 subscribers at the time of this writing.

Stuck in the middle
Over the past year, "GoPro knockoffs" have flooded the market, with companies like Polaroid and HTC offering their unique takes on action cameras. The theme is the same -- to sell action cameras with specs comparable to those of GoPro devices at a lower price point.

Sony will get sandwiched between these two markets -- its cameras are cheaper than GoPro's but pricier than many of the new challengers. To make matters worse, GoPro recently closed off the lower end of the market with its $129 entry-level GoPro HERO.

As seen in the following chart, Sony's top-tier AS100V loses to the HERO 4 Black in most categories, while slightly less powerful action cameras cost much less. This doesn't leave much of a market for Sony to work with.

Source: Company and industry websites.

A missed opportunity
Shipments of action cameras are expected to rise from 5 million in 2013 to 9 million by 2018, according to Futuresource Consulting. GoPro is well-poised to capitalize on that growth, but Sony clearly is not.

If Sony puts more effort into polishing up its action cam segment, it could potentially challenge GoPro for a larger share of this growing market. Unfortunately, this is looking more and more like another missed opportunity for Sony.