Dave Etchells: In the subframe SLR space, Nikon's been slower to increase megapixel counts than have some of its competitors. The D7000 took a noticeable resolution jump from its predecessors, though. How do you see SLR resolutions driven by actual end-user needs versus just market competition, and where do you think we'll be resolution-wise, five or ten years from now?

David Lee: I think that when you look at the DX format for us, we really try to take an approach where it's a balance. For us it's about the end image quality, so over the years as the technology has grown, and as megapixels have gone up, we've found that our customers are really looking for the end image performance from Nikon. I mean, our image quality has been the cornerstone of our brand for... really, forever. So we haven't really chased the megapixel, if you will, but we've tried to balance that with the technology that's available, and what the end image quality is, and all of the components that bring that end image quality. So as we're able to take the technology and move it forward, we've done that. With regards to the market, what we've seen is that the market in the DSLR space, much more than the compact digital camera space, they get the idea of total image quality more than the average point-and-shoot customer. So we really try to make it a balance of the end-result image quality, giving the most resolution to be competitive in the marketplace, yet still always keeping in mind that total end picture quality.

DE: That's interesting; to paraphrase a little bit, it sounds like the Nikon customer and their sensibilities let you relax a little from the megapixel race, and focus more on image quality, and your customers understand that tradeoff, as opposed to just reacting to the number of megapixels.

Lee: Absolutely.

DE: This is a little bit about megapixels again: In the full-frame space, the D3X has delivered best-in-class resolution for some years now, even relative to other cameras with similar megapixel counts. We don't know what their plans are, but at Canon Expo, Canon showed some 50 megapixel CMOS sensors -- they seemed to be littered all around the show. It seems likely that we're going to see cameras using that sensor at some point in the not too distant future. When can we expect to see an update to the D3X?

Lee: Well, we really never talk about future products before they're announced, but Nikon... one of the things that we pride ourself on is that we're constantly talking to not only our dealer base, but to consumers to try to understand what they're looking for, what they're driving towards. So for us, in that high-end flagship model, we really try to take the technologies that are available at the market, at the time, and again it kind of goes back to that... like the first question, it's about the image quality. It's about the performance in a high-end camera, but it's also about that end image quality. So we continue to listen to the market, react to the market. The D3X really has been a great flagship for us, but we'll continue to monitor the market.

DE: (laughs) Well put. So while we're talking about the full-frame cameras: As the market's matured, how have you seen the sales of full-frame cameras evolving? Do you see those moving further down the price curve? Will they develop more mass-market appeal? Or will they continue to be a small niche in the overall market?

Lee: Again, I think that it's interesting in that aspect. I mean obviously the D3 came out in 2007, and that really kind of changed the marketplace. We captured a lot of market share; a lot of pros that were maybe shooting another brand had come to Nikon. So that was what really started our full-frame line, and then we followed that obviously with the D700, and then the D3X. I think that there's a definite place in the market for both formats (DX and FX). I think as technology goes forward, we have seen a decline in full-frame pricing, from the first full-frame cameras that came out. I think in technology, we can expect that to continue to happen. As to when it happens, and the pace that it happens, it's always very difficult to forecast, but I think what's important is that we see a very distinct consumer market for both full-frame and for DX-format, because both offer kind of a unique set of propositions. With the DX format you can have a little more compact lens. Affordability is... right now, it's still a little more affordable than a full-frame, but we still think full-frame has a lot of future development to it, and in that future development, if it keeps the same track as other technologies, I think we can expect to see the price point starting to come down.

DE: So just as a natural evolution of the technology, that will start coming down more within a consumer's reach.

Lee: I think so, but you know, it's always that balance, because there are certain uniquenesses of a DX format, and uniquenesses of our FX format, because a full-frame gives you different depth of field, it gives you different lens selections, it gives you different things like that. Both have, I think, an important role in the DSLR community, so from that standpoint I really believe that there will be a strong presence for both.

DE: Also talking about camera formats, when we spoke at PMA last year, we briefly discussed mirrorless, interchangeable-lens cameras. You noted then that, while popular in other countries, their US market share was very small. Have you seen that changing at all, as we've gone through 2010, and are now proceeding into 2011?

Lee: Two years ago, mirrorless was about 1% in the US, when in other marketplaces it was maybe 10-20%. It's continued to grow at a much, much more rapid pace in other parts of the world. In the US, the typical DSLR is still probably almost 94-95% of the marketplace, which means that mirrorless would be in that 5-6% range. While it's an increase, relative to the scope of the marketplace, it's still a very, very small part of it. At Nikon, again, we really pride ourselves on listening to consumers, watching what's happening in the marketplace. So we continue to watch the marketplace. Right now we still have not seen a significant growth, I think, in what we would expect to see in comparison to other parts of the world.

DE: Last July, Nikon president Makoto Kimura was quoted in a Bloomberg article as saying that Nikon would be introducing a "new concept interchangeable lens camera" some time between then and March 2013, which would probably have enhanced video recording functionality, and might be mirrorless. Is there any update on that? Is there anything you can say about it at this point?

Lee: At this point in time, really no update to that. I mean, I would just kind of reiterate what I've been saying, in that we really have an acute ear to the marketplace. So we will continue to look at that, look at opportunities and technologies, and I think that in the right time, we will always try to take advantage of whatever's happening in the marketplace.

DE: Video's really become a must-have item on the feature checklist for consumers with DSLRs, but it's a little unclear to us just how many SLR users are actually shooting video. Do you have any insights from your side, either from surveys of your own users, or focus groups, to what extent consumers are actually using video on DSLRs?

Lee: We don't have any hard data on that. I can only tell you anecdotally, that when I visit the dealers and I spend time talking to consumers at different shows, as you point out, it's the must-have feature. When you look at the kind of things that are happening in-store with the video accessories, and when you watch the packages of a camera going out at the store level, you can see that they're buying accessories that would be more relevant to taking video. So on an anecdotal basis, I can say that I really believe it's a very important feature, and that when we came this past year with the full 1080p, those models have really taken off. We can't even get close to filling consumer demand for those. So if they're using it or not using it, I'm not sure, but it's certainly part of their current purchase decision. It's "I've gotta have this," and it's really being driven, I think, by the full 1080p is a real buzzword in the marketplace right now. But again, given everything we see happening at the store level, we really think that people are utilizing it.

DE: In terms of DSLR video features, Nikon was among the first digital SLR manufacturers to introduce the option of full-time autofocus while shooting videos. How long before you come out with lenses that are optimized specifically for video? Is that something that's on your roadmap to have, any kind of video-specific lenses? You know; even faster autofocus, even quieter autofocus, that sort of thing?

Lee: Again, we really can't comment on future products, and I would go back to what I've been telling you in that we're going to try to maximize whatever our market opportunity is, so we will continue to look at those kind of features, and we certainly are hearing from the consumers that they're looking for more... kind of going to that last question... the consumers are asking for more things that are relevant to video. So our engineers are constantly looking at those, and looking at ways to enhance how we shoot as our full-time autofocus has been, with full 1080p in the D3100, in the D7000, etc.

DE: It certainly sounds like, then, that the take-away is that there's a strong market demand around video, so clearly that's going to drive engineering and product development.

Lee: Absolutely.

DE: A little more philosophical question about digicams: On the one hand we've got cellphone cameras becoming good enough for snapshots, quick memories, or "consumable" images, and on the other hand we have the SLR market pressing on point-and-shoots from the higher end with better image quality, low-light capability, etc. How do you see point-and-shoots evolving, and how do they compete against those two encroachments on their market?

Lee: I think what we've seen in the marketplace is that the more entry-level featured cameras, the 3-4x zoom cameras, those are really pricepoint-driven in features, and consumers are still... even though they're using their cellphones to snap pictures, the interesting process that we see is that people are more interested in taking pictures, and when they start taking pictures with their cellphone, we kind of view that as a great thing, because they make that next step to "You know what? I want a little better quality: I didn't get that same quality my friend did with his little point-and-shoot." So then they make that step up to a point & shoot, and as the entry-level pricepoint for a name-brand, for a Nikon, goes down to $99, $89, that step is easier than ever. OK, now they have a camera; they've stepped from a cellphone to a camera. Then, after they use that for a while, they realize that there's even more available, so...

What we're seeing in the point-and-shoot business is that the next big thing is going to be about zoom range. You know, currently our P100 has a 26x zoom range, and we have our 8100 which has 10x in a very slim package. We'll continue to develop that long-zoom strategy, and we'll expand that as new products start to come out. The other key feature is low light shooting: We're moving to CMOS sensors in the point-and-shoot cameras, where that low light level capability, and the HD movie capability is really being expanded and enhanced, as well as the shooting speed. So we see it as an evolution for photography, and for somebody taking pictures, and then you go into D3100, D7000.

I think the great thing about digital, it has expanded people's concept of taking pictures so dramatically from the film days. You just look at the market size. The peak of the film days was maybe 12 million units in point-and-shoots, we're now running around maybe 30 million units a year with the point-and-shoot digitals. You look at the SLRs, the peak was about 1.8 to 2 million, we're back up over that and it looks like there's great growth there ahead. We're seeing growth in the industry of somewhere between 15 and 20% in DSLRs in a very difficult economy. So as the economy improves, we see just huge opportunity for more digital camera purchases.

DE: That's a very interesting perspective; that rather than viewing cellphone cameras as being competitors to digicams, that they're actually an introduction and a pathway into digicams for a lot of people.

Lee: People get into taking pictures, and that's what it's all about. They'll start capturing memories; sooner or later they want better quality, then even better quality, and it's really leading to what we see as a progression.

DE: Very interesting. So talking about picture usage, obviously Facebook and social networking is huge these days...

Lee: Hadn't noticed! (laughs)

DE: (laughs) ...and that's changing the use case a lot for the cameras. How do you see that influencing Nikon's point-and-shoot designs, and what can you do as a manufacturer to facilitate sharing or make your cameras more part of that ecosystem of images?

Lee: I think that it's just in the engineering and how you can get pictures out of the camera, how you can transfer it. We continue to strive to have great software that's delivered with our cameras so that they can easily move pictures into Facebook. We see it just as again, that interest in photography. I can't tell you how many more people talk about taking pictures these days than when I started in this industry many years ago.

DE: Can you say any more about how camera makers might be able to bridge that gap? We saw WiFi in cameras, and we've seen the Eye-Fi cards, but it doesn't seem that WiFi ever really caught on as a means of connectivity in the camera. Do you have any thoughts about how you can make it easier to bridge the gap between the computer and the camera?

Lee: We continue to try to look at ways that we can improve that whole process. Nikon was first with WiFi built into a camera. Our current cameras still accept WiFi-enabled cards; certain models of our line. I think that's something for us to really look at and say, "Okay, how can we improve that? What can we bring to market to do that?" Consumers do seem to be able to get the photos up there; there's millions of pictures posted, and it continues to go forward. We continue to work with our NX software on the DSLR side to try to improve handling of images, and enhancing images, so we continue to look at that.

DE: You mentioned the Capture NX platform, Nikon is more of a software developer than many manufacturers are. How do you see the computer environment changing with tablets, handheld devices, smartphones, and things like that?

Lee: I think that's very fascinating. I was an early adopter of an iPad, and I think that for my iPad, my main uses are either email, or sharing my images. I think it's a wonderful way to share your images, and a wonderful way to display your pictures, and to share them instantly, as opposed to looking on your cellphone, or on a smaller screen on the back of the camera. As technologies go forward, we're very active not only in our Capture NX software, but also in MyPictureTown. [Ed. note: http://www.mypicturetown.com is Nikon's photo-storage and sharing site.] We have storage available for consumers, where they can share them and get free storage of a certain volume of images, and also buy additional storage, so we're constantly looking for new ways to help the consumer use and share their images.

DE: That leads naturally to my next question, which was about MyPictureTown and online storage. Long-term backup of images is clearly a concern for users – you know, when the house is on fire, the first things you grab are the photo albums. When we spoke last year, you talked about MyPictureTown as being a solution for backup. How do you see that evolving? Do you see people using it as a safe repository, are they using it as a sharing solution? How's that working for consumers, what do they really use it for?

Lee: We continue to have increased usage of MyPictureTown, but I have to say I don't think the consumers have really gotten it yet.

DE: They still haven't gotten the idea that they need a safe place...

Lee: Exactly. I think that people that are in the DSLR space, I think they get it far more than the average point-and-shoot person, but I think that's a place where there's still a very, very robust opportunity, because I know that a lot of people that I talk to occasionally will have a computer crash. Unfortunately, while they've become much more stable, computers still aren't as stable as we would like them to be. I know many photographers that have multiple backups. They have a backup on some kind of place like MyPictureTown, they have hard drives that they have in their house, and they have hard drives that they keep in some kind of safety deposit area. So it really depends, I think, on the consumer and what their style is. It's like somebody's desk, you know? Some people like to have it nice and organized, some people aren't quite so organized. So I think it's something that's a great opportunity in the marketplace, but yet on the other hand, I think it's going to take a lot of time for consumers to really understand that "Okay, there's an archiving process that really needs to happen."

DE: So, still a huge need for education.

Lee: I think so, yes.

DE: We've seen economies worldwide wildly fluctuating, and currency values running up and down. As a manufacturer, how do you deal with these currency fluctuations, in trying to sell a product to be profitable, and yet market it worldwide?

Lee: Luckily, our company has become very adept at that, and we have to deal with it on an ongoing basis. It's really more based on working on a consolidated basis. We continue to weather those swings; sometimes you get the great upswing, and sometimes you take it on the chin, if you will. We work very hard in monitoring those markets, and keeping our company very strong and financially sound.

DE: When you say working on a consolidated basis, you mean where Nikon corporate looks at the whole equation...

Lee: Exactly.

DE: ...and so if this part of the world's down, and this part's up, overall it balances out and we're still making cameras, and making a profit.

Lee: Correct.

DE: I guess the last question, talking about economy, is what do you see (asking you to pull out your crystal ball): We all know that 2009 was a really rough year, but 2010 seems like we saw some recovery; what are we seeing going into 2011?

Lee: I think that when we look at an overall imaging basis, we see it very good for us. The first eleven months of 2010, in the numbers that we've seen, overall imaging dollars are up over 2009 by single digits. As we look forward, on a market segment basis, we believe there will continue to be a very good increase in the DSLR business. We think that the point-and-shoot business is trying to find its base; it has come down a little, but again I don't think that the decline we saw in 2009 or so will recur. We think it will start to flatten out very much, and we think there's great opportunities in lenses, and in the overall industry. Overall, we think it'll be positive.

DE: Overall positive... I'll vote for that! – And that does seem to be what we're seeing in our own traffic. Thanks very much for your time; I know it's in very short supply at a show like CES. Best wishes in the rest of your meetings!

Lee: Thanks.