Olympus interview: Cautious Americans finally coming around to mirrorless?

Launching our interview program for the 2012 Consumer Electronics Show, Imaging Resource publisher Dave Etchells, senior editor Shawn Barnett, and features editor Arthur Etchells were joined by Toshiyuki Terada, Manager and Group Leader of the Product and Marketing Planning Group, Product and Marketing Planning Department at Olympus Imaging Corp., and Sally Smith Clemens, Product Manager at Olympus Imaging America Inc.

The interview covers difficult times faced by Olympus and the photo industry in general over the last year, the history and future of the increasingly competitive market for compact system cameras--an area in which Olympus was a pioneer--and how the popularity of these cameras varies around the globe. The discussion also touches on the increasing popularity of rugged, lifestyle cameras, and on Olympus' expectations for the coming year.

Dave Etchells: Anyone watching the business or photography news in the Fall of 2011 would have had a hard time missing the news of Olympus' financial problems. Since it's the most uncomfortable topic of the interview, let's get it out of the way. To what extent would these troubles impact camera development, or will there be an impact on camera development?

Toshiyuki Terada: Actually, for our usual business, not so big an impact, we are working usually. Nothing special.

DE: So things are pretty much going along as they have?

TT: Yeah.

Sally Smith Clemens: Business as usual.

DE: Okay, well that's good. 2011 was a very hard year for the camera industry, with the earthquake and tsunami in Japan and the floods in Thailand both coming on top of a sluggish world economy. To what extent was Olympus affected--or not--by the earthquake and floods? If you were impacted, when do you anticipate returning to full production?

TT: Unfortunately, we had a slight impact from the flooding in Thailand. We are facing lack of product, especially for our EP3, which has a really good reputation, but we cannot fulfill the whole demand from the market at this moment.

DE: And was that from your facilities, or the fact that so much of the supply chain is in Thailand?

TT: Yes, the supply chains.

DE: So Olympus facilities themselves didn't have any damage.

TT: No.

DE: But the supply chain did.  Do you have any sense of how fast that's recovering there? When do you think your suppliers will be back up to speed again, or do you know?

TT: I think the system is already start to recover, becoming normal, bit by bit.

DE: More and more manufacturers are entering the compact system camera space, with the list now including Nikon, Panasonic, Pentax, Samsung, and Sony, in addition to Olympus -- and now Fuji. Do you think this increases the size of the pie for all manufacturers, by increasing customer awareness, or does it just make it that much harder for everyone to make a profit?

TT: I think this is a good opportunity to increase business, because once we introduced our PEN system, the Micro Four Thirds compact system cameras, customers dramatically increased. On top of the current DSLR market, once we have more manufacturers coming into this category, I think it's a good chance to enhance the whole imaging business.

DE: So some of that large growth we're starting to see with compact system cameras now is many people are advertising, and educating customers.

TT: Yeah, sure.

Arthur Etchells: A question we had in our Q&A session sort of dovetails with this: For so many years, there would be SLRs and there would be point-and-shoots, and there was very little experimentation or innovation in that space between the two. Why now do we see this wealth of different manufacturers... you were trendsetters in that way. Why are compact system cameras taking off now? Is it technology? Is it that you've exhausted the opportunity with SLRs?

TT: Very difficult question. One is that the shooting style is already changing; once we have the mobile phone with camera, everybody's taking pictures without using a viewfinder. That's a side of this sort of camera, the point-and-shoot camera. But those users like to have more good pictures with SLR or DSLR. In the past, this is the only chance to use a DSLR, huge camera with viewfinder. But if we have a chance today, if we give a chance to them to have a compact, smaller size but without a viewfinder, taking easy shots, but the image quality is equal to the DSLR. I think this is one of the good traits of the design.

SSC: I think you can even look at historically, if you look back to when the original PEN was invented by Mr. [Yoshihisa] Maitani in Japan, if you recall back then in the 40s / early 50s, a lot of the photography was done with twin lens type of product, or bellows type of, physically larger cameras. Mr. Maitani, as Toshi explained, began to notice how people were using cameras. They were becoming more prevalent in everyday life -- women were using them. But these were big, kind of complicated cameras to use, and he recognized that there was a need for something that would give you the same quality as these larger, more sophisticated products, but that was much smaller and easier to carry. That's very similar to what Toshi described -- again, it's being cognizant of the way that people are using the technology, and growing your R&D to accomodate those applications.

DE: With so many manufacturers in the compact system camera market, what's Olympus' strategy for differentiating its products and winning the market share? What's your strategy for creating your own niche, for carving out your own niche in it?

TT: For the compact camera business, we are considering a step-up type of strategy. Once a customer is using our camera, we are opening those customer to upgraded cameras. We have each product for each category, each customer. Especially the PEN, it's a really good kind of bridge type of camera from the compact to the DSLR.

DE: Part of it is to take your existing Olympus customers and give them options to step up one?

TT: Sure. And besides this, we have more unique cameras, you know; underwater, tough cameras. A full line-up is our kind of current strategy to grab all users once in the Olympus world, and we like them to keep our brand loyalty for upgrading cameras.

SSC: And I think if you're just talking about CSC, how do we differentiate now that that space is starting to fill out in the market, I think when you look back in 2008, it was Photokina I believe, when Panasonic introduced their first product in a mirrorless type of product. Olympus introduced some prototype product at that event, and then in 2009, we introduced the PEN. We really are the first manufacturer with a legacy in optical design and still-camera manufacturing, to introduce a product in the CSC category. For a long time, we were the only manufacturer that has a legacy in camera manufacturing and optical manufacturing, whereas the others came more from the consumer electronics industry. It's not been until recently that you've started to see other manufacturers with a legacy in film, legacy type of products enter this space. I think that differentiates us in the CSC category -- we know how to do this, we know how to make these types of products.

DE: Yes, you're a camera manufacturer, and I think that's somewhat been reflected in the breadth of your lens line-up, in the quality of your lenses, that's been a real hallmark of the PEN line.

SB: It is a strength of the Four Thirds line.

SSC: Very much so. We have a very strong legacy, people that know us know that. They understand that very quickly. Some of the newer people that are growing up with digital products might not know that, but they're starting to learn and understand that. We have a long, long legacy and heritage within optical and still photographic equipment that we can bank on.

DE: A slide we saw in the presentation earlier spoke to this a little bit, but CSCs have been very popular in Japan, less so in Europe and much less so in the U.S. Why do you think this is, and what is Olympus doing to address it? How do you capture the U.S. user and get them to move into the compact system cameras more?

TT: Not only the U.S. market, but also the European market is a little bit of a late-comer, especially in new technology, compared to Japan and the Asian people. We Japanese and Asian people will accept a new gadget or new type of product, but you are a little bit conservative. But recently, we see that something of a good trend starting, a good movement for the CSC category. Once people know about the benefit of the product, we can get the same trend in the U.S. market.

DE: So it's really a matter of broader consumer education.

SSC: Yeah, and I know you guys are aware of this, but if you look at our "PEN Ready" campaign, where we gave away 1,000 cameras on the streeet just randomly, in different cities -- that collection of individuals has grown now to 10,000 on our blog and Community site where they can go share and upload, and interact with others related to that. We've also seen it grow in our social sites -- probably exponentially this last year, over any other year. It continues to grow, obviously, because it's a relatively new medium in the last few years, but this last year particularly, a tremendous amount of growth in people engaged in conversations related to that space, the CSC type products, in interest and curiosity. So I think a lot of it is just us getting out there and touching the mass market, and then the consumer, and letting them get the camera in their hands and try it, has helped.

DE: We're interested in the split between novice consumers and enthusiasts in the CSC market. What percentage of each would you say have been buyers of Olympus' PEN models in the U.S. versus worldwide?

TT: Compared to U.S. and Japan? Unfortunately, we don't have enough data in the U.S. at this moment...

SSC: I mean, initially, when the products were first introduced, obviously, in 2009, it was very, very clear that it was more pro or enthusiast users that had some knowledge of photography first, and then technology, that were interested in the products. I think we've just seen in the last year, again, partly to do with PEN Ready, there is a better and a broader understanding from the consumers that don't really have that much photo background, and that has come from just seeing what others can do with it. Less about the specs, but the fact that you can take these amazing photos.

DE: ...with these very compact cameras.

TT: Especially in Japanese and Asian market, it's very much novice.

DE: Very much novice users?

TT: Yeah, that's one reason that it's rapidly growing.

DE: Yeah, that struck me as being a big difference in the -- we hear from multiple Japanese manufacturers that they view the market for these cameras as being step-ups from point-and-shoots, but really in the U.S., it's all SLR users who want a pocket camera. It comes from the other direction.

TT: Mm-hmm, sure.

DE: Lens quality is one area where Micro Four Thirds has distinguished itself over the other CSC platforms, and Olympus now has three very nice prime lenses available. How will the Olympus lens product map expand in the next year or two -- more zooms, more primes, or what?

TT: In Micro Four Thirds range, we already almost fill up the zoom lens line-up. Then, now we are concentrating on single focal lens line-up.

DE: There appears to be a whole spectrum of sensor sizes coming into the market now, ranging from the digicam-sized chip in the Pentax Q to Nikon's CX sensor in their 1 series, to your own Four Thirds format, to APS-C sized chips in Sony and Samsung products. Do you think we'll continue to see a proliferation of different sensor sizes like this, or do you see the industry eventually settling down to just a few relatively standard sensor sizes?

TT: (Laughs) That's a really difficult question. Of course, from our side, the Micro Four Thirds and Four Thirds, the sensor size is the same, right? And that system is the best system for [compact] interchangeable lens, it was found for long R&D work in the past, size-wise and lens quality-wise, it's the best sensor size. I don't know why they're using so many different sizes. We always remember asking them to join our Four Thirds standard, but no success at the moment.

DE: There are other manufacturers wanting to join Four Thirds?

SSC: We always invite them, so it can be standardized optics then, anybody can make optics for that format.

SB: Then they'd be competing against Olympus on your terms.

SSC: They could sell their own optics, or.. yeah.

DE: So the answer from Olympus' standpoint is that you did the research, and you really decided after a long thought process that Four Thirds format was really the one that was the best trade-off for lens and sensor?

TT: Really, obviously, the current DSLR manufacturer, the successful DSLR manufacturer [referring to Nikon], they're taking the smaller size sensor rather than the APS, because they have to keep their business, just a business point of view.

DE: They have to protect their existing business.

TT: Yes, that totally separate system they are considering. That's the reason they have smaller sizes and so on. But from the whole user point of view, I think the best sensor is somewhere between APS and one inch; Four Thirds is kind of the best compromise as one system, right? Of course the bigger sensor is a nice benefit, but as the best interchangeable product for everyone as one product, I think somehow Four Thirds class is the best size.

DE: The tough camera market segment seems to be increasing in popularity, and Olympus has been a leader there for years now. Are the reasons that people buy tough cameras changing some?

SSC: I think to some degree, they've become more popular because more manufacturers are making product like that now. You know, we were the first to come out with the tough attributes that also included shock-proof, and in this case, the high-end crush-proof. There's not many others that offer that. There's always been a few camera manufacturers that have offered waterproof, you know, even back in film. But the popularity of the active lifestyle, you know, as people -- particularly younger people -- as they come out, and they're bicycling and they're kayaking and things. For a long time, it was just Olympus -- now there are so many other manufacturers. I think there's a broader understanding of that category, so I think you're finding more people interested in products that offer the ability to use in whatever their lifestyle might be. I think that in general, the application has expanded because of the knowledge that the product exists. Partly to do with us, but we've seen so many others come into that space now. I think people are buying it, not necessarily because they're going to go snorkeling, but because they know they can get a product that's very durable. Maybe it's just that they've got kids, or they're going on random vacations -- if they've got the option and they know it exists, and it's still beautiful and small and they can fit it in a pocket. Why not? Why not have those qualities?

DE: So people... rather than saying, "Oh, I need to get a tough camera because I'm going on vacation," it's more like, "I'm buying a camera, so it might as well be a tough design."

SSC: It's just an option, yeah. "Why would I not want to have that?"

DE: I guess the last question that we were asking everybody is asking you to look in your crystal ball again. What do you see happening with the economy? It's certainly been a time of much uncertainty and, who knows what's happening with the Euro these days, but there seem to be some glimmers of hope, at least in the U.S. economy. What do you think will happen in the next year with the economy? Will we see consumer spending pick up more?

TT: Hmm. I think not so dramatically improved, but we are expecting a slightly improved economy, even in the U.S. I think we're really expecting to see many potential customers return to our market.

DE: So basically, a slow increase - nothing dramatic.

TT: Slow, yes.

SSC: And it's an election year, I think that also impacts in our economy.

DE: It's a question of whether it impacts it good or bad, right?

SSC: Right, and whether or not people are kind of waiting to see what happens come November, and then whatever happens, that will have an impact as well on where the economy goes in the next year and a half.

DE: Well, that was the last question. Thank you very much for your time.

TT: Always a pleasure.