Imaging Resource Publisher Dave Etchells and Senior Editor Shawn Barnett interviewed David Lee, Senior Vice President of Nikon Inc., and Steve Heiner, Senior Technical Manager, Nikon Inc. at PMA 2010. Read the interview to find out whether Nikon's interested in the mirrorless-interchangeable-lens market, how the Aston Kutcher campaign has done for the company, and why Nikkor optical quality has taken a quantum leap in the last few years.

Dave Etchells, Imaging Resource:
I guess we'll start out with a little bit of technology. So, thank goodness the megapixel race is I think finally over. You know, I don't think we're going to see twenty megapixel digicams -- you guys are probably sitting there going "Oh no, we've got a twenty megapixel digicam for summer," but with the megapixel race ending, how do you think the camera market is changing as a consequence of that?

David Lee, President, Nikon Inc.:
Well, I think that what's happening now is as the market saturation has started to come up to probably close to 80% level, most people are on their third, fourth digital camera, so what we're really seeing is trends and a lot of different surveys that we've seen from the marketplaces -- long zoom is a big trend right now, so consumers are asking for longer zooms. We saw that in the film days in the point and shoots, and we're seeing it even more so because of some of the capabilities of the digital cameras. We're seeing a big push to a larger display, because as we know a lot of people aren't printing -- the printing business continues to decline some -- so people want a larger display and, actually, a better display. So in our Coolpix S8000 we have a 920K dot screen, similar to the Nikon D300's 920K dot screen. Not the same exact screen, but the same resolution, so people are wanting a larger screen because they find that they're sharing images on their camera. You know, everybody says "Oh look at the picture" and then they pass the camera around the room, so that's key to really enticing the customer to step up to a new point and shoot camera.

We're also seeing that touch, you know, we've kind of been leading the way on touch. While others have touch, we pretty much dominate the marketplace with our Coolpix S70, and we added OLED to it last year, and we're now coming with our S4000 which again we've enhanced the viewing. Last year we had a 220K dot, this year we have a 460K dot screen. So we're really focusing I think in our point and shoot lineup to those three categories, because they rank in the top three as far as respondents to surveys that we've done, and other research that's out there. So we're focusing on that. Also, from this Spring going forward with our new launch, we won't be selling anything with a 3x [zoom]any more. It'll be 3.6x up to 26x. So our new Coolpix S3000 and S4000 have 4x, instead of a 3x as the standard. So we're continuing to kind of innovate with that. The other thing that really resonates on the point and shoot side is style and color. You know, you can see here on the table and we're looking at different -- you know, when you look at that, that's a very unique kind of finish to it and a unique form -- we find that style and color is driving a lot, because in the film days people had a family camera. Now everybody in the family has a camera. So you know, the kids want one color, mom wants another color, dad wants something else, so we're really seeing that that's driving the marketplace. We continue, while there's some softening of the point and shoot business, a little slowing down last year... I think a lot of that was attributed to the economy, the market was down about 8% in point and shoots. I think that as we go into next year it'll probably be flat if maybe not even up a little. It may soften some - it'll be in a range plus or minus there, you know, it could go down 5%, it could be flat. I think it depends on the technology. Our Coolpix S1000pj, our projector camera, we've gotten a lot of interesting response to that. People I think are just starting to kind of come to that idea, this whole sharing idea, large screens, sharing. We continue to try to innovate in order to get people to continue to purchase point and shoot.

IR:
That's very interesting, what you said about the long zooms being a driver now. So you've got four cameras in the family, but they all have 3x zooms on them, and that's maybe an area where people are frustrated. It's like - they want to get just a little bit closer...

Lee:
Exactly.

IR:
...and so now they're buying another camera for that, and in some cases they may be going for a really long zoom like the 26x, but then that's not a pocket camera, of course. So it's really kind of an argument for multiple cameras for different uses.

Lee:
Correct. Now you're going to have a 10x that you can really slip into your pocket. Or we have a 7x version of that same camera that's a little bit thinner and a little bit smaller. So, all in all we see zoom as very important. Touch continues to be more and more important, because we're a society that is around touch iPods and iPhones, and things like that, and so as more and more people get used to that, I think that's how they want to interface with their images also.

IR:
That's very interesting. You answered a lot of this already, but as we're going past the megapixel, where we have just this single "goodness number," how do you go about communicating the user benefit or the value of upgrading now that we don't have -- "we have a six megapixel and we need a twelve now"? I think you answered a big part of that with the zoom, that that's an obvious upsell now.

Lee:
It's zoom. It's touch. It's color. It's style. I mean, it's kind of interesting in that style is playing a big part of, you know, people have a bigger, thicker, bulkier camera. When they see these slim cameras with rechargeable batteries, maybe theirs has AA batteries, a lot of them are upgrading to that. I think on the megapixel question, one of the other interesting things is -- I think that people still have some interest in what the megapixel is on a point and shoot camera. What we're seeing on the DSLR cameras is the megapixels are a lot less important. In the marketplace we have our D5000 and D3000, and when we look at that they were in the Fall, number one, number two, they were in the top five always, and yet they didn't always have the highest megapixel count compared to their direct competitors. So it seems that that customer who steps up to that next level, whether it's a D3000 or a D3s at twelve megapixels, it isn't the highest megapixel camera out there yet in many reviews we've seen where they've said it's the gold standard of DSLRs, and the image quality and everything coming out, so the megapixel race is quite interesting how different segments of the market are responding differently to what the megapixel means in their purchase process.

IR:
The higher end of the market has gotten beyond just "How many do I have?" and they care what kind of pixels are they...

Lee:
Exactly.

IR:
...and what can I do with them, and they realize "Well, twelve is enough for what I'm doing, but I really care about ISO 24,600 or something." That's interesting. This is completely switching off of technology, and into marketing more. Nikon had a hugely successful campaign in the US with Ashton Kutcher, and it continues. I never would have predicted that. I wonder, were you surprised at just how successful that campaign was? It really moved the needle for Nikon a lot, I think.

Lee:
I don't know that surprised would be the word. I think any time a company makes a decision to make an investment, which we've had a few different stints with some celebrities, any time you make an investment you enter into that investment thinking it's going to be really great. <laughs>

IR:
You don't go in thinking "Well, this is going to be really stupid, but we're going to do it anyway," yeah. <laughs>

Lee:
Exactly. So, I think the thing that I would say most surprised me is how he transcends both genders. Because, you know, the ladies seem to like him because they think he's good looking or something, I'm not sure, but they really seem to like him for that. Then you have the guys, with his Punk'd show, and his personality, and the fact he's married to Demi Moore. They kind of envy him, or they kind of wish they were him, you know? So what's really been great about the campaign is that I think it's helped us across the whole market segment. Both male and female, he seems to resonate both, and he's been very helpful in our marketing campaigns. What we've found especially in this recent economy, you know, companies have a choice of either pulling back, or do you go forward? One of the things that we have found, that if you have a great brand, and you give a value proposition to the consumer, it motivates them. So tying that in with Ashton has really been, I think a great success for us, and we certainly hope to continue that.

IR:
Going back a little bit, I guess it might be technology, it would be usage too. What do you think is the single biggest disconnect for consumers with digital cameras? What is the one thing that is still most frustrating for them, or that they wish it would do, but it doesn't? And how do you see Nikon addressing that?

Lee:
Again, I think that hits on many different levels. I think what concerns me the most in the entry level is -- I don't know that people really have an understanding of how to archive. In film it was almost done automatically for you, because a negative would last how many tens or hundreds of years. In digital, a lot of people either leave it on a card, or they put it on their computer. I don't think a lot of consumer-level people truly manage their images well enough. And to a certain extent, if you print every picture, you're archiving it, because that silver halide print will last for sixty, eighty, whatever -- I'm not sure what the exact years -- if not over a hundred years. So we've been developing myPictureTown, which is a storage place where we give a certain amount free, and then you rent space bigger than that. I think one of the things that the consumer level customers maybe don't even know yet is that archive, and they don't realize it until that hard drive crashes, and it's that "Oh my God". If you read the statistics on insurance and fires, one of the things that people go back into their burning house for is their shoe box of images and films, or their photo albums, so I think that education of that necessity is very important. I think when you move up into the DSLRs and then the pro level, I think the pros have a concept of it, and I think they're very active in it. I don't know that there's a perfect fix out there for it -- I see so many different products, so many different avenues, I don't know if that's personal choice or there's just not the right thing in that sense. As a company what we start to look at is, is there an opportunity there for us to bring that down to the right kind of process in order to do that.

IR:
It's tough from a corporate standpoint, if the consumer doesn't know they have a problem, then you have to try and sell them a solution. Somebody told me once if you have to explain to explain to a customer why they need your product, then you've lost half the battle already.

Lee:
Right.

IR:
But that's interesting hearing you saying that as a camera manufacturer, that one of the biggest sensitivities that you feel is towards the security of people's memories.

Lee:
I think it goes back to... if the customer is not happy in the end, we'd like to be part of the solution, not part of "OK, well yeah, your camera took all these pictures. Why didn't you warn me that I had to be careful here?" And we try to do that as best we can, and like I said, we have our myPicturetown which offers that kind of security for the consumer, but I think it's just been a slow process trying to educate them, and it's like anything else - I think sometimes human nature is they worry about it after they have a problem.

IR:
You talked a bit earlier about what the shifts are in the market in the short term. What do you think things will look like five years, or ten years from now? What are the kind of mega-trends, or what are the things that we aren't even thinking about now that are over the horizon? In what way will things be very different five to ten years from now? And again, it's going to be very different for consumers, enthusiasts, and pros.

Lee:
Right, right. I wish I knew exactly...<pauses>

IR:
And if you can tell me who's going to win the race at Santa Anita... <laughs>

Lee:
Yeah! <laughs> I wish I had a crystal ball, because we could make a lot of money if we knew what was gonna be, but I think that my sense of the marketplace is that I guess the excitement of... I grew up and went through a lot of the film years, and was part of the digital transition, you know, Nikon being very much on the forefront of that digital transition, and the D1 being the first true commercially viable DSLR. I think back on even before the D1, we had a product called the E2, which was the very, very first DSLR we had that could take digital images, and I think they were a whole -- not even quite a megapixel.

Steve Heiner, Senior Technical Manager, Nikon Inc.:
One point three...

Lee:
So I think about that, and I think about from there to here, what has happened, I would have never guessed that I could take a D3s, and go into... I did some non-disclosures to some customers, and would go into a room and literally turn off the lights, have somebody flip open their cellphone, and get a perfect exposure on that person's face. If you would've told me when the D1 came out, ten years from now I'm going to have this camera, I would've never guessed it. Looking back and guessing what will happen going forward, I can only guess that the cameras will become far more pocketable, far more intuitive. Our point-n-shoots now include an auto scene select, so everybody was... "We have two scenes, we have three scenes, we have ten scenes, we have fifteen scenes". So now the cameras are becoming intuitive. We have in our auto scene mode, it selects the scene that's best for it. I'm sure that face [detection / recognition] technology will come along a lot further. I mean, I think a lot of the technologies you'll see five years from now will be either enhanced, or automated, or so seamless that you really won't even see that they're happening. We're adding in a lot of our cameras, in-camera editing. I think that's gonna start to grow even more and more. You'll see more creative capabilities in-camera. I think that I mentioned archiving. Archiving could become more automated. You know, there could be more GPS kind of geotagging, there's just... there's a whole spectrum of things. And unlike film days, and I hate to keep going back to the film days, but that's kind of the reference of the photographic industry, is that technology couldn't move that fast, because there were so many limitations within what was physically possible. I think now with the digital era, I think things can move much quicker and can take on many different attributes... A digital viewer, I saw the introduction of the [Apple] iPad and I could see some kind of interface that you know, you have this beautiful screen now. What would be greater than to have that just automatically be able to pop up there, or pop up on your parent's computer, or pop up anywhere, so it's just - it's really kind of the sky's the limit in digital, and I think that's the exciting part of it.

IR:
It sounds like generally looking back over what you just said, a big part of it is just for the cameras to become more transparent, you know -- you're not conscious of the limitations. People I guess, all along, they wanted to have a picture that looks the way they remembered it looking, and that's been a challenge. You know, scene modes, and white balance, and ISO, and all that kind of thing.

Lee:
I mean, I think what's great is like -- the camera that Shawn [Barnett] just picked up there, the S8000, and you know -- to think that you could have a 10x zoom with a popup and that goes out to 300mm. I would've never thought I'd have that camera! <laughs>

IR:
Well, the change that's happening right now in the industry is -- it's a format issue, with the... we call them single-lens direct view, with the interchangeable lens, mirrorless cameras. Now you've got four companies out there, with Sony's announcement of their products. What do you see happening with that format? Do you feel there's a niche there? Is that something we might someday see from Nikon? Do you think it's sort of a -- just a blip in the road? What's your view of that whole format?

Lee:
I think that obviously it's a format that has been in the US market for I think about 18 months to 24 months now, with regards to that newer style you're talking about. Four Thirds has obviously been out longer than that. But currently it demands about 1% of the marketplace, so you know... We have been trying to focus really on listening to what the consumers are saying, and that's really how we kind of have been driving our business, and so our focus has been very much on style, color, design, screens, things like that. We're always looking at what's going on, trends in the industry. That trend is strongest in Japan. I think the market share for that style camera is probably in the 19-20% range in Japan, it's very large in Japan. That being said, Japan is a relatively small marketplace for the photographic industry. I think that we'll continue to look at that, continue to analyze it. In the US certainly, the customer demand has not been there yet, even though Olympus has been out with several different iterations already, it's something we haven't seen really catch on fire yet.

IR:
That's interesting, it's such a big difference in the two, whether it's cultural difference or, you know, they're kind of early adopter types, it's hard to say.

Lee:
It is hard to say. They tend to go more towards smaller things. In the US when you're selling, you give someone a small camera like that they go "I have nothing to hold onto, give me something with a grip on it." I mean, that's why we'll sell tons of that 10x, we'll sell a lot of these cameras [grabs a Nikon P100] because somebody that wants a long zoom camera wants something to hold onto, they want to have that stability feeling when they're picking up the camera. So I guess our feeling is when you take a D3000, which we've made very small, very lightweight, very easy to use and compact, and you compare it against that, when you put on a similar kind of lens, that small package they still haven't dealt with if you will the lens, the physical size of the lens. So while the form is slightly different, I don't know that it's that small of a package, as far as overall. Unless you put a pancake lens on it, and then all of a sudden you're back to...

IR:
It's a different camera, it's a wide-angle...

Lee:
A digital rangefinder, if you will. So I think it's something that's very interesting, and I think if there's some technical leaps going forward, there's a possibility that that could be another category, but at this point in time we're listening to what the consumers are saying right now.

IR:
Skipping back over to the other end of the market, the pro SLRs. It's our sense at least, from the outside, that Nikon's really done a pretty dramatic comeback in pro SLRs over the last six to seven years against some really tough competition. Obviously you've got strong products like the D3 and D3s, but what've you found as being key in that turnaround, and what can we expect as a continuation of... what led to that, and how's that going to play out in the near future?

Lee:
We have had a big resurgence back to Nikon and really, I think I have to say it probably started a little with the D1, D1x, but really the D3 and the D300 were really the huge turning points for these people, because those two cameras truly allowed you to make pictures you couldn't make with any other camera, period. So with that being said, the D3x and then now the D3s, we have cameras that allow the professional photographer to make pictures they can't make with any other product. I think the best part of it for me, I was up in Vancouver for a couple of days and we have a service depot for the professional photographers at the Olympics, and while talking to a lot of the Sports Illustrated guys, and a lot of the other professional photographers, I think the great part -- and they've shot from both sides -- Nikkor glass they all say I didn't realize how much I missed it until I came back for the D3. So our glass continues to really outpace any of our competitors, and that coupled with cameras that will take pictures that you can't take [with other cameras], I think that's why you're seeing that big swing back to Nikon. Because really, our engineers have outdone themselves, and really delivered products that are above our competitors.

IR:
Yeah, actually, talking about the glass, it seemed to me right about the advent of the D300 and D3, that coincided with a real quantum leap in the lens capability -- the 14-24mm, 24-70mm that were announced at that time -- were not just a little bit better than what had gone before, it was a really dramatic improvement. It was surprising because it was such a quantum leap. How did that happen, why was it a leap rather than incremental?

Lee:
Well, I think that when we developed the D3, it would perform at such a level, you had to have optics that matched that. So prior to that a lot of both companies that are really players in this were using glass that was maybe designed for either early digital or really more for just the format, not actually digital SLRs. So our engineers and -- we have a great competitive edge I think in that we are so active in the stepper business, which is a very, very precise optical process used in producing either LCD TVs, or machines that produce integrated circuits. We had a lot of technology that we had developed in the years leading up to digital photography that could now been transferred over like nanocrystal coating which allows us to produce a much better lens and a much better image quality, so you're seeing that nanocrystal coating coming in more of our lenses.

IR:
That's interesting, so nanocrystal coating actually came out of the stepper business.

Lee:
Yeah. So you see that kind of thing happening, and optical formulas and technologies that we'd developed are now able to be utilized because the capabilities of the cameras and the sensors are getting to a certain level. Before, with film, there was no real benefit to utilizing a lot of that technology. Now there's a benefit.

IR:
So really, the creation of the D3 kind of mandated this whole new level of capability in lenses, and it sort of pulled the capability of the camera body...

Lee:
It allowed us to use that technology that we had over here because now it was worth making that investment to utilize that. It's really interesting to see what the cameras can produce when you put it in the hands of some of the pros like the guys up at the Olympics, and you see some of the images that are coming out -- they take your breath away. I mean how do they get that image?

IR:
Another two questions on the technology area that are kind of related, and then one on the economy at the end. Video on SLRs, this is obviously -- I'm not sure what to call it, it's a big feature anyway, there's a lot of activity going on around it, a lot of interest, a lot of demand from the customers. Where and how does Nikon see video fitting into the DSLR picture overall? Again, this is definitely going to segment by market, but you know, who will be using it for what, and what features and capabilities are critical to provide the user there?

Lee:
I think it's my opinion we're in the infancy of this. We started it with the D90 which was the first camera to have video capability in it. We've added it to our D5000, our D300s, our D3s. We see -- I mean, as you said it's very segmented, and in the entry level camera, the D5000 and even the D90, we see the consumers having the ability to shoot clips of movies to have -- there's a lot of software out there to do slide presentations where you take movies and you take stills and you put them together and really create family portraits or albums if you will. So we see that capability -- YouTube, you know, people post things... Social networking, all of that, we see that happening. On the higher end, there's a few different things. The cameras capabilities have a different look in video than a camcorder would have. Some of it has to do with the ability of the cameras to produce videos in low light levels, it has to do with the depth of field produced by putting in a lot of our more 35mm-kind of lens look, so there will be a lot of videographers who will use a DSLR because of those unique capabilities and what they can do with that. Again, it goes back to what tool do you have to create a certain look and effect, and how can your look and effect be different from what everybody else is producing, so we see digital or the "D-movie" if you will, being a big part of our DSLR lineup. We think that consumers and pros and semi-pros will want and expect that in their cameras, and we see a lot of opportunity going forward with that. We think that from a pure pro, more of a press side, the news agencies are going to start to look for convergence cameras that will allow them to do video, still, and maybe even frame grabs because what they're trying to do is they're trying to take a photographer, put him out on assignment, and get three or four revenue streams out of one camera, and one person out on the road. So we see there's going to be a big demand for that going forward.

IR:
So we are at the infancy in that market. What do you think is missing? In two, three, four years what will we have in terms of capabilities that we don't now that really are important to the end users?

Lee:
I think more control, I mean right now sound is probably one of the big challenges -- you've got to mount an external mic, the mixing of that; capabilities to listen while you're shooting. I think even some of the ergonomics of where buttons are, and how things process will start to change. There's a lot of different things going on with the codec, the code you use to record the movies. Some are admissible in a court of law, others aren't because of the technology in that some are making up frames, so they're taking a frame here, and making a frame here, and they're making up frames in between, whereas others are actually taking every frame.

IR:
That's fascinating, it had never occurred to me. So like the...

Heiner:
It's the difference between an interframe and an intraframe codec.

IR:
So Motion JPEG is admissible in law because it's frame by frame, whereas AVC HD or H.264 isn't.

Heiner:
Exactly.

Lee:
So you have a lot of those kind of things that I think in the market will start to play out to see who's right and who's wrong, and there may be different applications, and people may want one for one application and one for another. So again, we're in the infancy, and I think it's here, it's here to stay, I don't think it's a flash in the pan, and Nikon plans to be very involved in it.

IR:
Yeah. On the consumer side you described the kind of casual use of videos, I've called it a video snapshot for a long time. You're not making a movie, you're taking the kid blowing out the birthday candles, that sort of thing. But certainly on the consumer side, one of the biggest limitations is focus -- to be able to autofocus, to maintain autofocus while you're filming. Can you say anything about what's coming there? Is that something you think will be addressed in the reasonably near future for consumers?

Lee:
I believe it will be addressed. The time frame I don't know. I don't know that I could tell you ... I think it's obviously in the more short term than real long term, but I think that if you're going to get ease of use, and you're going to have movies be an important part of it, autofocus is a very important part of that step, so I would certainly say that the consumer expectation on a consumer level, they're going to want a DSLR that works similarly to a camcorder, in as far as just the general, basic options of that.

IR:
So again, it's a case of there's a pull from the consumer, so you know, the manufacturers will find a way to answer it.

Lee:
I mean, that's how we're driving great success in our business, and that's what we plan to keep doing.

IR:
You actually really talked a lot about this last question at the beginning. We've been asking all the execs that we've been talking to in the industry to try to get a consensus, what's the general outlook for the economy do you think, in 2010. Actually, it seemed like the last holiday season, noticing it from our end in terms of web traffic, was I think a lot better than what a lot of pundits have been predicting, but there's no question 2009 was a tough year. You know, 2010, are we up, down, the same?

Lee:
We plan to look at the economy, we have some caution in it. Unemployment is a huge caution there, the federal deficit, consumer confidence, all of those things will play a part in the economy coming up. We think that if you have a name brand, a brand that is out there, and you give a good value and you have a good promotion for the consumer, that they'll respond -- and I think that that's what we saw in the Christmas time. We saw that not only Nikon but many companies were out there with a great value, some name brands, and those companies I think had some pretty good sales during the holiday period. I don't really think that's going to be any different as we go forward into this year. I think that a lot of the credit markets are going to drive if there's any growth or no growth, depending on what... just today, the credit card companies, all those new regulations went into place, and how is that going to play on the consumer's psyche?

IR:
I guess, how does it play out in the credit market too -- will there be less credit available as a result, and that means less buying...

Lee:
Correct. So I don't know that we know right now what's going to happen. I just know that we think that, if a company is in the marketplace and they -- if they listen to their consumers, what they want, and give them a great value, and they have a need, they'll find a way to make the purchase. So we just need to tell them we have a great value, and we have Ashton to do that for us, and we have -- as you can see -- fabulous products. We're actually looking forward to this year. A lot less unknown over last year, a lot less unknown. I think we have a good idea of what we're facing. I just think that the overall feeling should be good.