"Hobby business" is a term that derives from the U.S. Small Business Administration, which distinguishes between hobbies and businesses for tax requirements (says one site, "If the IRS decides that you are indulging a hobby rather than trying to earn a profit, it won't allow you to deduct your business losses.")
(There's one other kind of Hobby business [sic] that photographers probably know about. But this isn't about that.)
"Hobby business" has come to mean, more generally (and as a put-down), a business that's subsidized by other profits or by exogenous wealth and doesn't necessarily have to pay its own way in the normal fashion.
Thom Hogan has just posted a typically trenchant analysis of Olympus Corporation's fiscal year-end report over at his site Sans Mirror.
He says the company keeps making optimistic predictions...and not really coming anywhere close. "Olympus has been repeating the same chant for years now: 'yes, we did poorly, but we’ll hit breakeven soon, maybe even next year.' This year is no different. They did poorly, they expect to manage break even during the year. The problem is that there's nothing in the actual financial information they’ve posted that would give that any credibility."
On the other hand, this situation, dire on the surface, might not be as bad as it sounds...because Olympus's camera division might essentially be a hobby business, in the derogatory sense of the term. "...The bottom line" writes Thom, "is still that the main medical business is subsidizing the imaging business at Olympus, as it has for all of this decade."
The situation isn't unknown. At Brunswick Corporation, for instance, now mainly a maker of recreational watercraft and fitness equipment, the pool table business (a single-digit percentage of the company's business) is kept alive because it's the "legacy" business. Billiards was company's core historical product, the product most closely associated with the famous name. Like cameras are at Olympus. Brunswick tables are made in China now, and the division might or might not return a profit. But it's kept going for global image...
...For pride, in a word. Which might not be the worst reason to keep going...even in a business sense.
(Thanks to Michael J. Perini)
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Ned Bunnell: "No comment on Thom's typical authoritative opinion. His implication that 'hobby businesses' should be viewed negatively might drive traffic to his site, but it's a fairly common practice for many companies.
"For example, Ricoh ran their camera business as a hobby for many years. This allowed the group to act as an incubator for new ideas in cameras and optics without pressure to meet any hard and fast sales goals. It's very similar to an R&D lab whose funding is measured by development goals for a range of projects each year.
"Being a hobby business allowed Ricoh's camera group to develop some critically acclaimed products that were never intended for mass distribution, such as the original GR film camera series and special lenses like the stellar 21mm lens designed for Leica thread mount cameras. Sales of these products in limited quantities helped offset some of the development costs, and gave them time to evolve and refine their concepts.
"Another benefit of a hobby business is applying expertise that you've gained in the lab to enter new emerging markets. Not widely known, but I'm sure some of the optics knowledge developed by the Ricoh camera group has been leveraged in the new automobile visual navigation systems that Ricoh quietly OEM's to major car companies in Europe.
"By purchasing Pentax, it's evident Ricoh has started to shift their camera business from a hobby to a profit center as they assimilate all of Pentax's products and future cameras into a more typical business model.
"Another positive example of a company using a hobby business model is how Apple is handling their work in both the TV space as well as automotive design.
"While Thom intended his comment that Olympus' main medical business was subsidizing the imaging business as criticism, I'm sure there are benefits to this structure that he, in his infinite wisdom, can't see. Smart companies will always invest profits from their core business to fund research in technologies that spawn products we can't even contemplate today."
[Ned was formerly President of Pentax USA. —Ed.]
sneye: "Thom Hogan insists on looking at business from the American point of view, where long-term losses are not sustainable. Japanese business culture is quite different though. It values tradition, good engineering and innovation at the same level it values profit. Olympus justifies the existence of the imaging branch by stressing its role in medical R&D, but I suspect that it's pride and brand recognition that fuel it. Oly's Japanese shareholders would hate it if the company stopped making cameras even though this business erodes the overall profitability by 10–15%. Olympus has been known to the public as a camera manufacturer, not as a producer of endoscopes.
"As for myself, I like buying stuff made by hobby businesses. Feels like a larger proportion of my money is invested in innovation and a smaller one in corporate administration."
Thom Hogan replies to Ned and sneye: "Actually, I insist on looking at business from an economic perspective. In Olympus' case, we have 72b yen in just the last five years that have left the building. That's a lot of money for which the rest of the company must get a significant benefit for in order to justify. Ned says we can't see what that benefit is, and he's right, we can't. Olympus has been asked many times about what the benefit is, and their answer is extremely vague, at best.
"Large companies often mislead themselves on this 'cross benefit' thing, too. To admit that there isn't much of a cross benefit means they'd have to admit that they are making mistakes and bleeding money intentionally.
"Which brings me to the 'Japan is different' thing. Well, yes and no. Japan as a country is far more in debt than any other G10 entity, and their demographics make it nearly impossible to get out of that problem. The consumer electronics business in Japan is somewhat of a mirror of that. A lot of the money that is sustaining the remaining CE industry in Japan is coming from low-interest debt. Nikon is even using low-interest debt to try to get into a new business (medical), which wouldn't be necessary if their CE side were entirely healthy.
"Implied in sneye's comment is that 'Japanese business culture' is the correct one. I, and I suspect a lot of economics professors as well, would disagree with that. Yes, it is what it is and shows no real sign of changing any time soon, but that doesn't make it right. Nor is it sustainable. ROI is ROI.
"I should also point out that negative ROI is what Olympus tried to hide when they committed their US$1.5b fraud against shareholders. Again, just because things are 'done that way in Japan' doesn't mean it is the right way to do it."
Ned replies to Thom: "Valid points on the Japanese business culture supporting somewhat non-transparent hobby businesses. Fortunately, I'm retired and don't have to worry about the business anymore, and am simply enjoying photography. My only observation is that the way things are going, the entire photo industry is starting to look like a hobby business :-) ."
Christian Beck: "Ah, so on what other site would you read an informed comment on an informed article, discussed by informed people, the former President of Pentax USA and the author himself?
"(Homer Simpson voice) Must...buy...something...on Amazon.
"(Well, actually, Amazon.de, as I'm from Germany ;-) ."
Eamon Hickey: "As this thread shows, issues like this have a lot of nuances—and every company and situation is unique. That said, if you're heavily invested in one camera brand's future (I am not), I think it's worth being careful not to overestimate how 'different' Japanese companies really are, or how impervious to market forces a particular company or management team can afford to be. (Note that I am talking here about how the world is, not how it should be.)
"So, first, several Japanese companies have pulled the plug on legendary camera divisions that were consistently losing money. Here's a random assortment:
- Konica (Now a copier company, this was Japan's oldest camera maker, in the business since 1902, decades before the other Japanese brands we know)
- Yashica/Contax (closed by Kyocera after 50+ years of camera-making)
- Topcon (now strictly an opthalmic and surveying company)
- (Perhaps Minolta [now the copier company, Konica/Minolta], depending on how you count—the Maxxum/A-mount lives on at Sony but for how long, now that Sony is clearly concentrating on the FE/E-mount?)
- Even Olympus themselves recently dropped its money-losing regular 4/3rds mount E system, to much gnashing of teeth among dedicated users.
"In other words, yes, the Japanese often close money-losing businesses, too, just like the rest of the world.
"Then secondly, the forces of capitalism—for better or worse—are what they are. In other words, Thom Hogan is not a voice in the wilderness—Olympus management has been under pressure from factions among its own shareholders to fix or drop the camera division for many years. This is why they are at pains to offer so many rationales for continuing it. Olympus management doesn't have to listen to Thom, but large shareholders are a different matter.
"Also, while I don't have a dog in this fight (and generally really like Olympus cameras, past and present), I share what I think is Thom's concern about (scorn for?) the repeated significant inaccuracies, to use a carefully chosen neutral word, of Olympus's projections for the camera division over the past few years. If I owned Olympus shares (as opposed to cameras), that would give me great pause."
[A former Nikon rep, Eamon has written for The British Journal of Photography among other publications. —Ed.]