Is there really anything ‘wrong’ with digital camera sales volumes?

There’s been some interesting debate lately about what’s ‘wrong’ with the camera market as people try to understand the rather dramatic decline in unit sales that has been happening over the past 4 or 5 years with volumes down by more than half from their peak. I’ve been letting my old, porous brain muse on this for a bit and have some perspectives to share.

One way to look at this situation is to simply accept that there is nothing fundamentally ‘wrong’ with the camera market at all in terms of sales volumes. From a macro-economic perspective we could view the digital camera market as functioning exactly as every other market has done when a breakthrough technology burst onto its stage. If we look at the history of various product markets the basic rise and fall of market volumes are predictable when they have been impacted by fundamental technological shifts – in the case of cameras it was of seismic proportions going from film to digital. When any kind of ‘game changing’ technology takes hold in any market there are initial and dramatic volume surges as consumers leave their current technology and adopt the new one. That huge upward spike in initial demand then declines quickly as soon as the initial ‘change-over’ market demand for the new technology has been met. Product life-cycle planning is based on these fundamentals.

cipa data

If we look at CIPA chart that was in the Mayflower report we see that camera sales were trending up at a reasonable rate (albeit with a few bumps along the way) until 1998 and remained reasonably flat when digital cameras were introduced in 1999. We then see a very fast uptake rate of the new technology that resulted in a complete market change over to digital cameras by 2005. This was really driven by the sales of compact digital cameras. This indicates to me that the new technology opened up digital photography to a huge new audience. The market kept growing strongly and reached its peak in 2010 and has been in sharp decline since. It now is only slightly higher than the market was back in 1998. This indicates to me that the pent up demand represented by the ownership of film cameras is completely used up and the camera market is now in a mature state. This type of demand curve is very typical of industries that have been impacted by a ‘break-through’ technology that fundamentally changed the market.

We can look at other markets to see these identical macro-economic impacts in play. Most recently the exact same thing happened with flat screen television sales. As more and more consumers adopted the new technology sales of flat screen TV’s went through the roof. That gave birth to ‘electronic superstores’ as additional distribution was needed to meet surging demand. Now, a decade after the big switch to flat screen televisions began, the switch-over has been completed by most consumers. The result is that the demand for flat screen TVs has plummeted and some manufacturers have either reduced their product offerings or left the market entirely. In essence the TV market transitioned quickly from ‘new high growth’ to ‘mature’. In Canada stores like FutureShop have been mothballed since there is no longer sufficient demand in the high ticket flat screen TV product category to sustain them. So, this phenomenon is nothing new, and is nothing that wasn’t predictable. It’s my view we are witnessing the same thing with digital cameras.

In high growth markets impacted by game-changing technology, companies fight furiously with one another by cranking out new product types and models so they can capture as much of the increasing market volume as they can. When timed correctly this is good business strategy since consumers are excited by the new technology and a lot of purchases are fueled by consumers buying willingly and often. Margins tend to be high under these market conditions and companies can ramp up R&D and bring out streams of new products with a good level of confidence that those R&D investments will be rewarded with good margins in what seems to be a continually growing market. If we look at the CIPA sales curve data we can see strong growth pretty much straight through to 2010. This growth helped to fuel the prolific increase in the number of camera models in the market.

There is a risk of course that if a company does not see the warning signs that the ‘switch-over’ market is peaking then they may make a mistake and keep investing in new products rather than changing from a growth strategy to one based on retrenching around core ‘winner’ products to prepare for the inevitable decline in market sales volume. I think we saw that with Nikon’s timing of the Nikon 1 product line and its introduction in the fall of 2011. The company arrived late to the party as the camera market’s ‘change over’ demand was already softening. The result was a less than stellar market reception and subsequent fire-sale prices to move over-produced units. One could argue of course that the specs of the camera, its value proposition, and marketing were weak and that’s what caused the luke warm market reception. I would agree that those factors had an effect. I would also suggest that if the camera market had still been in a frenzied ‘change over’ growth stage there would have still been plenty of pent up demand to absorb those new Nikon 1 products on a more profitable basis for Nikon. With the camera market starting its sharp decline in 2012 Nikon’s offerings would have been under price pressure right out of the gate.

One way of looking at this is that the number of film cameras in the hands of consumers represented the total ‘pent-up’ demand for the change over to digital cameras. As with any market, as the initial demand to move from old technology to the new replacement technology was increasingly met, overall market demand would naturally slow. There is a tipping point when the replacement of film cameras with digital slows down to the point at which companies serving that market need to retrench to align their operations with the reality of lower ‘mature market’ sales volumes. I think the camera market has already passed that tipping point and there is no going back. It’s my view that the peak market volumes experienced between 2008 and 2011 are never coming back because the pent up demand of film cameras that drove those markets is now gone. The switch from film to digital cameras is basically over.

I don’t see the decline in unit sales in the digital camera market as having anything to do with product complexity. There are plenty of compact, automatic cameras that can meet the needs of consumers who want simplicity. To me we are simply witnessing the classic macro economic demand pattern that is associated with the uptake rate of new technology.

Is the decline in camera sales volumes over? I don’t think so. I believe it will continue to decline, albeit at a much slower rate for many years to come. Why? The under 30 crowd is just not interested in traditional cameras in the same way that we ‘old geezers’ are. Many of these consumers don’t even think about the existence of a ‘camera market’ at all. Their lives revolve around social networking, checking the FaceBook status of friends and living their lives centred around digital communications.

I may be viewed as a bit of a lunatic for saying this but I don’t think smartphones compete directly in the camera market at all. I think they represent a completely different market of ‘digital communication devices’ which just happen to include digital imaging capability. The evidence of this stems from the fundamental motivation that consumers have when they make a purchase. When you or I buy a camera we do so with the specific and primary intent of taking pictures. I would find it hard to believe that anyone buying a smartphone does so with that same, primary intent. I think they buy a smartphone because they want to connect to the world around them and communicate digitally. This is a very different motivation and need than that of a camera buyer, and as such they represent a different market. That’s not to say that a lot of people that bought compact digital cameras in the past haven’t ditched them and now take all of the images they need with their phones. They have and do. What I am suggesting is that their initial need for a compact digital camera to fulfill their imaging requirements has been supplanted by a need for the much more powerful and broad-based digital communication capabilities of their smartphones. I believe that unless companies like Canon, Nikon, Olympus and others re-define themselves as manufacturers of ‘digital communication devices’ rather than camera companies or digital imaging companies they will never develop the integrated digital communication devices that those consumers want and need. This leads me to think that smartphone owners do not represent a meaningful marketing target for camera companies.

All these young consumers want, or need, are images that are of high enough quality to look good on their FaceBook pages and other social media. They live in ‘now snapshots’ that are quickly uploaded, then deleted from their social networking sites and updated with other more recent information. They are operating in a market that is defined in a completely different way. This isn’t good or bad. It simply is what it is. These new consumers don’t want or need cameras, they want digital communication devices that are also capable of producing digital images. They don’t want multiple devices. They want one that does it all. Cameras will never do that for them.

To survive and remain profitable camera and lens companies need to understand that they are in a mature camera market. The proof of that is in the CIPA data. It is time for camera companies to retrench and focus on core, profitable products as they wait for the next truly ‘breakthrough’ technology to hit the photography market and drive up demand again. How long could that take? Who knows – this most current breakthrough took quite a few decades to arrive.

What can we expect in the future?

Companies will need to change their marketing strategy and look for niche market opportunities in which to differentiate themselves. We have already seen some of that happening with companies like Nikon targeting the landscape and studio markets with high density full frame cameras like the 36MP D800 and its updates. Other companies like Sony are going in the opposite direction by reducing pixel density to improve low light performance. Companies like Fuji are developing proprietary sensor technology to try and differentiate themselves. Panasonic has been focusing on meeting the needs of hybrid shooters who need a camera that is equally adept at still photography as well as video – thus the continued development of the GH4. Panasonic is also focusing on high end bridge cameras like the FZ-200 with its unique f/2.8 constant aperture long telephoto zoom capability.

These signs are good as it shows that there are some glimmers of hope that manufacturers are making the strategic switches they need to make.

Much more has to happen though. Manufacturers need to stop introducing new model after new model that offer only slight, incremental changes to previous ones. This is simply wasteful and ultimately costs consumers money in terms of R&D and marketing dollars spent to market almost meaningless differences in new models.

Manufacturers need to listen to their customers more and stop introducing half-baked features in their cameras like the 4K video in the Nikon 1 J5 that can only shoot at 15fps. This is nonsense as the video is choppy looking if there is any movement with the main subject or if background elements like water have wind ripples on them. Manufacturers need to learn to stop putting new features on cameras that don’t really add any value for buyers. And, if nothing else they need to make sure those features actually work up to the expectations of customers.

Marketing decisions need to be much more carefully planned and executed. If we look at the CIPA data it looks like the ‘new normal’ will likely be demand levels that were common back in 2001 and 2002. Given these lower market demand levels, companies will need to be very concerned about the production volumes of individual models so they can sell a sufficient number of them to cover their fixed costs and generate some margin. I find it hard to believe that given where the camera market volumes are now that every camera model out there today is profitable. My guess is probably less than half of the models out in the market today generate a profit for the manufacturer. I have a feeling that ABC (activity based cost) accounting is sorely needed by many camera and lens manufacturers so they could intelligently cull their bloated product lines and get rid of money-losing products.

Camera companies need to make the switch to a niche market differentiation strategy and look for specific opportunities to target the needs of small, specific market segments and then try to own those segments. This means the manufacturers will need to listen to their customers more and be very strategic with their new product development.

There will be an increase in ‘behind the scenes’ manufacturing cooperation between various manufacturers. Even now many buyers of ‘big name’ lenses would be shocked to learn what company actually built the lens they paid ‘premium dollars’ to own. Of course in the bigger scheme of things it doesn’t matter anyway – as long as buyers get the performance they seek, the point of manufacture is a moot point. This is the essence of branding and premium pricing.

I think one of two things will happen – individual camera companies will reduce the number of camera models that are currently offering (which is the prudent and strategically sound thing to do), or some of the companies out there will eventually fail and disappear or be merged with other companies. Some analysts have been predicting that only Canon, Nikon and Sony have the volumes needed to survive. I think this is a bit simplistic. It will come down to which companies can manufacture niche market products in sufficient volume to cover their fixed costs, generate healthy margins and a profitable bottom line. If they’re smart some of the smaller competitors may be able to do this as well, or better, than the big boys.

I think we’ll see a lot more joint initiatives in terms of product development. We see this happening now with companies like Nikon and Tamron filing a joint patent on a new 200-500 lens. This makes sense to me as the cost to bring new products to market will keep escalating and companies will need to forge these kinds of alliances to be able to compete effectively. This phenomenon isn’t new. The automotive manufacturers have been doing joint ventures and alliances for decades. The size of the camera market simply cannot sustain the current number of makes and models. The key to survival will be focusing on building production volumes of fewer, more profitable models and walking away from unprofitable products. Shared production facilities could be a future reality.

Some companies like Nikon will need to assess whether it makes economic sense for them to continue to develop and market 3 major formats in terms of CX, DX and FX sensor models. As overall camera volumes decline I personally can’t see this being sustainable. Obviously no one knows the outcome. My best guess is that 5 or 10 years from now the DX line of bodies and lenses will likely disappear. I know this sounds bizarre, but from a marketing strategy perspective I think it could make sense.

As market volumes fall so does the purchasing power of the manufacturers vis-a-vis their component suppliers. At some point Nikon will need to decide where its best margin opportunities lie. As the baby boomers age they are looking for smaller and lighter gear so my take on it is that there is a lot more upstream potential for CX based product than DX. As a result I think Nikon will put the bulk of its R&D dollars into its CX and FX product lines and do two fundamental things that will allow them to exit the DX market. First, they will work hard to improve the image quality performance of the Nikon 1 product line so it can encroach on the bottom end of the DX market. Second, they will focus their energies on reducing the production cost of their FX cameras and bring their costs lower and lower. One way they can accomplish this is by ramping up sales of FX models, buy more full frame sensors and drive their manufacturing costs down. If they can get an entry level FX body (albeit with stripped down features) down to the $700 to $800 range over the next 5 to 10 years, and improve the image quality of the Nikon 1 line, they can make the DX product line redundant. Nikon has already been demonstrating its willingness to design and produce good quality FX lenses at much more market sensitive pricing with lenses like the 85mm f/1.8G, 50 f/1.8G, 28 f/1.8G etc. I see this pattern of lens development as a good sign that Nikon will be focusing on the FX product line a lot more in the future.

Other companies will face their own sets of tough decisions as they contract their production to focus on their most profitable products. Eventually I can see the day coming when only a couple of manufacturers may be offering a specific type of camera and are recognized in the market as the best for that specific application. Panasonic, for example, may end up positioning itself as the hybrid camera specialists with their GH4 product, and have a secondary focus on high end bridge cameras that feature constant aperture zooms. Fuji may eventually become recognized as the best small size format camera for landscape photography because of their proprietary sensor design. Once this type of specialization begins to happen I think the price of cameras will begin to rise and consumer choices will be more limited than they are today. These are just my musings of course and not based on any specific information.

So what can we do as consumers to take advantage of the fundamental change that is happening in the camera market, or at least not be burned by them? The first thing is to really be brutal with ourselves and question whether we really need that ‘new’ camera body. What does it really do that is so much better than what we already own? And, even if we can identify that – do we actually NEED that difference and are we really willing to pay for it? When we ask ourselves a tough question like that and when we’re honest with ourselves we’ll likely come to the decision that we don’t really need to spend the money. During periods of macro market decline like the one currently being experienced by the digital camera market we can expect a period of rapid model changes as companies scramble to try to achieve an advantage over their competitors, regardless of how small and how short-lived that advantage may be. Their near term goals will simply be to meet their sales and margin targets as best they can. Consumers need to be on guard against hastily conceived and produced products during these turbulent times.

If we do decide that it does make sense to buy that new camera body we should just wait and keep our powder dry for a while. That new body will be available a bit down the road at a discount, plus all of the ‘new model’ bugs should also be worked out. And, the reality is there will likely be yet another minor model tweak just around the corner anyway.

Make no mistake, many folks out there suffer from GAS (gear acquisition syndrome) and they’ll want to continually update their gear. That means that there will always be a lot of good, used gear on the market at decent prices that may help us upgrade affordably.

At the end of the day we need to remember a simple truth…it is the photographer behind the camera that creates the image. The camera is simply a tool to capture it. Having the latest and greatest camera won’t make you a better photographer – only your dedication to your craft and honing your skills will do that for you.

Perhaps you’re a novice or amateur photographer wanting to improve your skills and understanding of photography and looking for a customized solution. Give us a call or pop us an email to learn about our photography coaching programs.

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13 thoughts on “Is there really anything ‘wrong’ with digital camera sales volumes?”

  1. Tom, Greatly appreciated the article. When looking at the overall market and seeing the trends I think you have done a fantastic job of presenting it in an understandable way. We are fast approaching the point that iPhones or the like can produce acceptable 11×14 prints so what will that mean for the industry. The next small trend for some is afortable medium format cameras to keep margins high. I’m looking forward to what hasenblad will be coming out with. Other than some specialized situations I don’t see dslrs surviving. Are we fast approaching a time when we have enough mp to zoom digitally as well as we do optically now? I think manufactures are looking to the high end to continue making product that appeals over lower image quality. As a person that values this quality I hope this is a successful trend. Fun times to be a photographer but not so sure it’s fun to be a manufacturer.

    1. Hi Bill,
      Thanks for the comment – glad you enjoyed the article! I’ve written a few pieces over the past year or so about where I think the camera market may be headed. I agree with you that for the camera manufacturers to survive they will need to focus on higher content and better image quality products. Some of the new products from Nikon like the DL series and their new action cam are good examples of that approach in terms of launching products that offer some unique features and capabilities vis-a-vis cell phones. I also agree that DSLRs will be relegated to specialized niche markets in the future. I know my DSLR days are behind me, having sold my D800 and collection of FX lenses last summer. It’s coming up on a year and I have no regrets whatsoever.
      Tom

  2. Phones don’t compete against cameras? Suuure. Fujifilm used to sell over ten million cameras each year. That was before the rise of the smart phone. Today Fujifilm sells barely one million digital cameras, if that. The smart phones showed up and knocked the snot out of the camera manufacturers.

  3. Hi Tom,

    I think that you have made a rather pertinent analysis here; it makes perfect sense. I have enjoyed taking pictures since the Instamatic years when I was 6-7 years old. Around 17 years old I inherited my father old Olympus OM2; this was a genuine and serious camera to me, I took it everywhere around the world until I switched to digital in 2001 and bought a Canon IXUS-V, a 2.1MP camera. I was asked permission to use some of my pictures for two corporate magazine covers and insert pictures for a major oil & gas company I was working for. At that time, the larger digital cameras were too expensive to my liking. In 2008 I took a Canon S90 keeping up with the small form factor. This provided good pictures until the NEX-5 was released. With the NEX-5 I got back to the OM2 size and that was purely fantastic given that in the digital era SLRs had morphed into huge, heavy and ugly black bricks I would never buy. Quickly this lead me to the NEX-6, A7r and the A7r mk2. I did many pictures with the A7r during 6 months traveling through Vietnam and Cambodia. During that time I saw people with all sorts of mobile phones, tablets, point & shoots, small and large DSLRs but deep inside I was happy knowing that I would have great image quality pictures from a small and rather light camera package I was not struggling to carry up the Angkorian temples ! I very much doubt that I’d ever buy a DSLR in my life; I simply do not like the huge, heavy, brick like form factor. So yes indeed, your idea of niches is correct. In fact it is the niche which Sony developed which got me back into full frame photography !

    1. Hi Patrick,
      I’m glad you enjoyed the article…and thanks for sharing your experiences with various cameras! It is always interesting to learn of other people’s photographic journeys!
      Tom

  4. Interesting article, and one I agree with 100%, or nearly 100%!

    Seems I am following the trend, moving away from DX 2012, and concentrating on CX, and FX!

    My DX days are not totally over, as I still use a Ricoh GR, but I do think you’re right: We all know that DX was the de facto standard for the DSLR, originally, and now technology has moved on!

    Fuji are brave, continuing to develop a DX based system, but if this is a side-track, or not, only time will tell.

    Sony have changed their focus to FX, and so it seems, is Pentax/Ricoh, if the mumblings from Ricoh are true.

    Panasonic and Olympus have found their niche, but will they survive, that’s the question!

    1. Hi Tord,

      Thanks for adding to the discussion – always appreciated! It certainly will be interesting to see what happens to the digital camera market. Like you, I find the FX/CX combination really meets my needs well. If Nikon can improve the image quality of their CX sensors I think the Nikon 1 product line will do much better.

      I found it interesting that when a Nikon executive was interviewed recently that he kept avoiding making any kind of a commitment to the DX product format.

      Tom

  5. Great article Tom. I wish I could get into the head of the Nikon and Canon product and then Exec teams. I don’t fully understand the more megapixel, more SLR mentality they seem to have. Nikon’s product line baffles me. They have so many FX options, 600, 610, 750, 800, 810 then the DX line that has many choices too.

    They try to cover the price points and have decent stuff but they seem to ignore their market. They don’t update camera firmware much if at all. They just hope we have GAS and do new model after new model.

    Both of them seem to be thinking SLR’s are the future, but I am sure not thinking that. I don’t think any 25 year old will buy any SLR camera they use their phone, and will continue to do that. That is very understandable too. The iPhone shoots amazing photos. Many others do as well. And you always have your phone with you.

    I don’t think DX will go – Nikon has too much invested there. FX won’t either, but they sure need to clean up the line, there are just too many similar choices. But that low end DSLR market is likely one of the best places to play. Although margins are likely slim.

    CX line is awesome, but few people know that. Sad and while I am encouraged by the J5 feature set I still think they are missing the mark on the “V” line. V4 really needs to attract folks quickly to the segment. It feels very “niche” at this stage.

    Again would love to see sales numbers on CX lines especially.

    And at least Nikon, unlike Canon was wise on lens mounts. I love that you can use your 1980 Nikkor on your D810 if you want. And in fact some of those older lenses are still magic just like the day they were released.

    I want Nikon and Canon to survive. I love that Sony is making them think. Olympus – not sure – the m4/3 is fine but they just bleed money from the imaging line. At least they have high end optics to keep them going.

    My 19 year old has and loves his D3200 SLR. He does great work. He is a HUGE exception to the rule. All of his friends look at him like – what do you carry that HUGE beast around for? Just whip out your phone dude. My 26 and 23 year old will NEVER own/touch or consider any SLR, let alone FX or for that matter a CX model. Again all phone…

    It will be an interesting 5 years, but I don’t think we will see all of the current “gang” around. Lets see…

    Mike

    1. Hi Mike,

      I’m glad you liked it!

      These sure are interesting times and so many outcomes are possible. The only thing that is certain…is uncertainty! Ultimately it will be consumer behavior that is going to be the driving force as companies scramble to develop an appropriate strategy to attain, and then sustain, profitability.

      A big factor will be how long the parent companies of some of the camera companies are willing to keep losing money from their camera operations. Some companies like Canon and Panasonic have quite a bit of diversification, while others like Nikon are very dependent on the camera market. So, the risk is not shared equally either.

      Fun times ahead for sure!

      Tom

  6. Thomas, as I read your assessment and gauge it against another similar thread and discussion at another photography site, I find the difference between both are theory and practice. Your experience in business and photography gives you, and us the reader, a better outlook as to the camera market than just theorizing based upon graphs and charts. Practical experience is the best.

    I recall being part of that change over shift from analog film to digital when a publisher for one of the medical schools I made pictures for would no longer work in film. It truly was a panic for me as I didn’t understand the digital camera or experience. Fortunately for me, I had a friend, a great wedding and portrait photographer teach me the differences. Basically, the fundamentals were the same but the user interface was different. Plus, an entire new set of gear was needed as the optimization of the camera lens was totally geared to the difference between film and digital.

    Having said all this I still think the current technology savvy crowd, wanting instant gratification and a smooth method of posting digital images to a social media, will drive the market as you indicate. Manufactures will have to accommodate that market if they want to grow or just survive.

    Here is a little anecdote from my own family. My oldest step daughter, with two children of her own, is a constant poster of smart phone photos to her social media accounts. Every day there are new pictures coming on line. However, recently she tried to have on of her best captures made into an 8×10 at the local Walgreens. Not happening. The print was distorted and blurry. She called me and wanted to know why and I explained that the little sensor in her phone was great for social media and internet display but too small for large prints. Had she made 3×5 or 4×6 she would have obtained better results. I offered help the next time I came up to see her and we went to a store where they had some Nikon Coolpix on sale. I bought one for here that offered 20MP and zoom capabilities for $90. She can now make prints up to 11×14 if she wants. However, she still doesn’t understand why her pictures don’t come out like the ones I make for her. Don’t ask, there is no amount of explanation that will suffice. I’ve tired.

    Although I agree with your assessment of the camera market, I still think there is a major “convenience” factor that needs to be addresses. As easy as most of the point and shoot cameras are to use, one still needs to read the manual to learn that there is an AUTO mode that will do everything. The 20-40 crowd wants not to have to know anything and so the manual is the first thing to go and the box is kept for storage.

    1. Hi Mike
      Thanks for adding to the topic! I agree with you that there is a major convenience factor when it comes to addressing the ‘instant gratification’ of the 20-40 crowd. Although they can be tech savvy they are in a rush to ‘just do it’ as the Nike slogan goes. Thanks for the positive comment about my business perspective. I did spend a lot of years in corporate life with most of it dealing with marketing and strategy issues and when I look at anything business related the first thing that tends to happen is that I put my strategy hat on and try to figure out why certain decisions were made.
      Tom

  7. Tom: Fantastic article and very much needed to bring some “common sense” to the enigmatic marketing strategy of the manufacturers of camera equipment. Prior to this year I would have argued that the “baby boomer” generation who are now retiring in large numbers would be a major target market for expensive DSLR cameras and lenses and perhaps they are to a certain extent. However, my observation from visiting popular tourist populated photographic sites in the Niagara area is that people from all age groups carry a very mixed array of cameras. I see far more tablets, phones, point and shoot cameras, bridge cameras, and smaller/lighter DSLRs being used than the bulkier and heavier DSLR that I bring with me. The “retired” generation is no different and I am more likely to be standing next to someone closer to my age who is taking the same shot as I am but holding a much different camera/lens configuration. I agree that we are in a period of transition and I will certainly take your advice to wait for the photography equipment market to settle down before determining which direction to take for any “new” gear acquisitions.

    1. Hi Ray,
      Thanks for the positive feedback – I’m glad you found the article of interest. I had the same experience as you with regards to observing the kinds of gear people were using to take photographs when I was in Greece. It amazed me how few DSLRs I saw in a two week period. On average is was less than a dozen a day…and that was while visiting some of the most popular tourist sights in the country.
      Tom

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