Dave Etchells and Shawn Barnett caught up with John D. Knaur, Senior Manager, Digital SLR and Peter Ewen, Director, Product Marketing, Digital SLR, both of Olympus Imaging America Inc. to have a chat about Olympus, the state of Micro Four Thirds, and what implications the growing competition from Samsung, Panasonic, and now Sony might have on the fledgling market for small SLD cameras.

Dave Etchells and Shawn Barnett, Imaging Resource:
What do you see for Micro Four Thirds in the future? If you could look 10 years down the road, do you think there will be more Four Thirds or Micro Four Thirds cameras selling at that point?

John D. Knaur, Senior Manager, Digital SLR, Olympus Imaging America, Inc.:
I think the show is answering that for us. If you think about it, a year ago we started talking about Micro Four Thirds with a mockup under glass, and we came out with it in June, and it was the first of that type. Panasonic had introduced the G-type cameras, and even though they were Micro Four Thirds, they were more SLRish, about the same size as our E-420. They didn't really offer a big advantage in size. With the advent of the E-P1, and now the E-PL1 which is a consumer model, the size advantage is a big thing. If you go around the floor now, you look at Sony's new introduction here at the show, there is a camera that is not as elegantly designed as the E-P1, but is designed along the same lines of a compact camera. In research we've done and Japan's done, about 20% of digital camera buyers, not just SLR but digital camera buyers, are disenfranchised. They want better image quality than what a point and shoot is going to get them, but at the same time, they are not interested in SLRs. They don't care how small I make it. It's still big and bulky, it's got a pentaprism on it, it's got big lenses, I've got to have all these lenses. SLRs have a reputation of complexity. So, they don't want to take that jump into SLRs, but they want that image quality. And I think that's where the PEN camera is really going to hold its own, especially something like the E-PL1. It's designed to be simple like a point and shoot, and it's compact. It's not as small as a point and shoot, but it's not a lot bigger than something that has a zoom built into it that's full size, like our super-zoom cameras. And, it's easy to use. It's something they can pick up and learn how to use quickly. They can grow with it if they want to, or they can stay as simple as they want to with the camera. And they get great pictures, which is what they are buying the camera to do.

IR:
So you see Micro Four Thirds as a third category. It's for people that want more than a digicam, but not a full SLR. It's probably a larger category then?

Knaur:
It's a large category, and I don't think it's going to replace the SLR, because I think at the high-end, like our E-3 or E-30 user, there's still an SLR buyer. They are still interested in the feature set and what that camera brings to the market. So I don't think you're going to see us trying to replace the E-3 with a PEN camera. But I do think 10 years down the road, I think the mirrorless digital interchangeable lens system cameras will be powerful enough that they may start growing the market well beyond what the SLR market is, and eating into that low-end SLR. For example, I'm not sure that today, if I went into a store and there was a SLR sitting there for $599 and the E-PL1 sitting there for $599 and they both had about the same feature set on them, both had interchangeable lenses, I would probably gravitate toward the smaller, easier to carry camera. That was always the promise of 35mm; that small, easy to carry, go anywhere camera.

IR:
It's certainly telling: Getting ready to go to the show, we've probably got easily 30 different SLRs around the office, and the camera I grabbed to stick in my bag was an E-P1.

Peter Ewen, Director, Product Marketing, Digital SLR, Olympus Imaging America, Inc.:
I think that's a great, telling story. One of the stories I tell at our office all the time now that we have the E-P1 and E-P2 is, "What are you taking to the party tonight?" It tends to be the E-PL1. It's not a price-point issue, it's just a convenience factor with the built-in flash, and with the size. And we know, we're getting the same sensor that we see in our E-30, E-3 and E-620, so we know we're getting great image quality.

Knaur:
I would go as far as saying even when I came to the show, I went in to pickup a camera to bring out here to shoot with. I picked up my E-3 and I said, "You know, I'm not going to have time to go do serious shooting, probably on a tripod and carrying all my lenses with me. I'm just going to carry a lens, take some shots around the show, and grab a few shots while I'm out." I ended up bringing my E-P1.

IR:
So the future looks bright for that category.

Knaur:
I think the future for that category is extremely bright.

IR:
Micro Four Thirds cameras are mechanically much simpler than traditional moving-mirror SLRs, and so should be easier to manufacture. (No mirror assembly, no pentaprism or pentamirror and separate viewfinder optics.) Will this eventually translate into Micro Four Thirds being less expensive than equivalent SLR designs? We now have the E-PL1 which is cheaper than the E-P1, but it's still more pricey, I think, relative to the E-400 class.

Knaur:
I think we're going to see some price reduction. The big thing we removed from the Micro Four Thirds camera is exactly the mirror box, and the mirror. The shutter is still there. There is still some complexity in the design because we are trying to do HD video now, which requires that the sensor does some things that our traditional camera sensor didn't do, so that complexity may keep the price up a little bit. But I think overall, you'll see prices to come down to where they are more affordable. But then again, I kind of look at it when I was a young kid before I got all this grey hair. I spent $250 for a basic SLR, that today costs $600; but if you look at the dollars I spent in the 70's, it would be a $1,000 camera. So I'm spending ~$500 for a $1,000 camera today. I think we've got to look at it that way. I don't think we're ever going to see this type of camera come down to $199 level. I think the quality required, the larger chip that's in it, the other mechanisms that are in it...the image quality desired from the customer is going to require better lenses, better image sensors and everything else is going to keep the price a little bit higher, but it should go down to the lower-end of the SLR price or even lower.

Ewen:
I think the fact that we started in June with a $799 price-point, and now we're offering another model at the $599 price-point, it certainly bodes well for the trend of where the pricing could go. Also, the $599 price-point is more attractive to some of our bigger national retailers that really couldn't justify a $799 price-point, whereas a $599 price-point is a very viable. So, all of a sudden you get more outlets selling the product, and greater numbers of sales. That helps the price, too.

IR:
Are we going to see them at Target then, and other large retailers?

Knaur:
Eventually, I think you will. Best Buy has come on board and they're big supporters of this product line, which we're very excited about, because they see the potential in it as well as what we see. And if you think about, even at $599 today, and you look at what's out in the marketplace for the disenfranchised customer we talked about, that has the better image quality, better cameras. They tend to be a little bit bigger cameras; they tend to be in the $499 price range anyway. So you're talking about adding $100 to the cost, which when you consider the fact that you've got better LCDs on it, you've got interchangeable lenses, you've got greater flexibility, you've got more functionality with the camera, an 8x larger sensor, then all of a sudden that $100 is not as big a deal as it was. And to me, it still has the beauty of a more advanced point and shoot, in that it's still small enough to be a walk-around camera, that you can carry with you everywhere. You don't have to worry about how big it is; can I get it under the seat in the airplane; boy this is going to be a hassle to take to grandma's. You can just throw it in your purse, your briefcase, or your coat pocket, and you go.

IR:
What impact do you see Samsung and now Sony's announcement of their own in this SLD, or "Single Lens Direct-view" camera category?

Knaur:
I think the market is broadening. I think it's interesting to see some of the plays. If you think about the introduction from Sony, it sounded just like what we said when we introduced the E-P1. You know, point and shoot simplicity, digital SLR quality. And the Samsung statement of "what will you create?" is very reminiscent of what we said with the E-30 and E-620 when we introduced the Art Filters. I think with this thing, we're seeing a group of manufacturers look at it and say "Oh, maybe there is something to this, let's expand this market segment and sell more cameras to a broader group of people." I think, being honest, as the market expands, point and shoot cameras keep going lower and lower in price; they keep putting more and more pixels in them, but they're not necessarily giving anybody a better picture, they're just getting a smaller camera. People are beginning to say, "I can get that with my cellphone, I can get that with point and shoot I had, I can get that with something else." Then they look at the pictures somebody else shot on vacation with their SLR and say "My pictures don't look like anything my neighbor's pictures, I really wish I had that picture quality, but I don't want the complexity." This is a type of product which is opening the photographic market to a much larger group of people.

Ewen:
And it's a fantastic complement to see Panasonic involved with the same sensor. Lenses now are becoming a big option. We will always maintain, for example the new 9-18mm, because of the size of the sensor, we will always have small Micro Four Thirds product, that's smaller than an APS-C lens. I really can't imagine the world getting into a tizzy between APS-C and MFT size. I can assure everyone that both sensors at that level can do an excellent 16x20-inch print or bigger.

Knaur:
We're always going to have the image quality battles between manufacturers. But the other side of the coin is, I think once we reached 8-megapixels, and you and I have discussed this before, when you go beyond 8-megapixels, are you really gaining anything for most people? The answer that I feel is "no". At 12-megapixels, I've got enough pixels that I can crop if I need to. I get excellent image quality. The new image processors in them give me excellent noise reduction up to much higher ISOs than I have shot before in my life. So, most people are getting superior images today than what they did on film, or than what they did with any digital cameras previously, regardless of the sensor size.

IR:
I'm switching a little bit, talking about SLRs in general. There has been an enormous growth of SLRs over the last few years. We're way ahead of anywhere we were back in the 70's with SLRs. How much of that growth in popularity of SLR cameras do you think is has been because of the ability to interchange lenses; the fact that people want that flexibility? Or how much is purely because of better performance, especially shutter lag and low light capability?

Knaur:
I think if you look at the pro category, the interchangeable lenses have been a driving force there. Because there are some lenses coming out. If you look at what Olympus has done, we have a 14-35mm f/2, a 35-100mm f/2, and a 150mm f/2, which in our film life, it was always, "Boy, I wish we could do that." But you physically could not do something like that in those days. So that type of interchangeable lens has driven some of the pro and advanced hobbyists. I think in the entry-level digital SLR, it's pretty much what we were talking about before. A lot of people have had their point and shoots, they've had advanced point and shoots, but they really haven't had the image quality. "I want better image quality, so I want this SLR-type camera." Anecdotally, when I rode into the show there was a gentleman on the shuttle that was not associated with PMA. He just happened to be coming to another show here. He had just purchased an SLR. I got to talking to him about it, and I asked him "Why did you get it?" And he said, "Basically, I got tired of bad images. I wanted better image quality. But man, the learning curve on that thing is unbelievable." He already experienced the fact that that this is not as easy a camera to use, no matter what the manufacturer said. So I think image quality is driving SLR sales, I think interchangeable lenses are driving it. I don't think there is any one factor driving it; it's multiple things together.

IR:
What do you see happening with lens ownership. I guess speaking across the board, do you have any idea of how many different lenses the average consumer owns, and these step-up consumers, are they going to be buying lenses in the future?

Knaur:
Looking at historic data from the film era and transposing that into the digital era, I think most of your step-up users will probably buy the camera in kit form. As you see now in a lot of the advertising, we have our two lens kits. Other companies are offering two lens outfits. A lot of people come in an buy only the two-lens outfit. They might buy a third lens if they have a specific need, like a macro lens, or more of a telephoto for shooting their children playing in sports. But generally they buy the kit, and most of them will stay within that kit parameter. The higher you go up the camera "food-chain", say an E-520 customer buys the kit, then you move up to an E-620 customer, he may get a third lens. Go up to the E-30 customer, he may get 3-4 lenses. He's a little more involved in photography, so he starts saying "I really wish I had wider angle lens, so that 9-18mm looks really good, or the 7-14mm." Or he says, "I really want to do better macro than I can get out of the kit lens.", so he goes out and buys a 50mm f/2 macro. So he's a little more prone to buying the extra couple of lenses and maybe a couple of flashes. When you get up to the E-3 customer, you get the guys that say "I want the 14-35mm f/2; I want the 7-14mm f/4. I want the better glass because I'm buying the better camera. I want better pictures on my wall." They get very passionate about it. So as you move up the channel, you see the lens selection change, and the number of lenses go up as well.

Ewen:
The other thing, on our entry-level model the E-PL1, the camera ships with a 14-42mm. So in 35mm, we've got a 28-84mm. Our second lens offering that would attach to this primarily, in a big way, would be the next lens, the 40-150mm. Which would be around $199 at the promotional price-point. So what we're saying, with two lenses the entry-level consumer owns between 28 and 300mm. In the film days, a 70-210mm would be a really popular second lens.

Knaur:
I think even if you look at pictures taken today, probably 98-99% of all pictures taken will fall within that range very easily. I think also, from a retail standpoint, one of the advantages to a camera with an interchangeable lens, whether it's the E-PL1 or the E-620, is as the person who owns it, whether it's the husband or wife, buys into it, you have Christmas. What do I get my spouse for Christmas. "Oh, they have this camera; I'll get him a flash, a lens, a case." It's sort of like an instant shopping list, where I can get them something that can go on the camera. So you do see some of that happening.

IR:
Do you think the enthusiast market is growing? Are there people that end up a step-up user, but then they get into it? Do you have any sense how much that happens?

Knaur:
There are quite a few people that step-up into an SLR. My sister did. She went from a point and shoot to an SLR. Every time I talk to her, she's always out shooting something. She became very enthusiastic about it. I think that's one of the things that happens, there is no question about it.

IR:
Low shutter lag is a key feature of SLRs, but because of their reliance on contrast-detect focusing, SLDs have tended to have slower shutter response than SLRs. Shutter lag is one of the biggest negatives consumers point to in all-in-one digicams, and a key reason for step-up SLR sales. What do you see in the future with the PEN series to reduce that shutter lag?

Knaur:
Well, even if you look at the E-P1 to the E-PL1, with the new lenses we're coming out with. I think you got a chance to see the 9-18mm and we've got a 14-150mm coming, and there are new motor technologies coming which reduce the lag time. There are new contrast-detection algorithms coming out all the time which reduce the lag time. So that is being reduced very quickly. I think with the larger sensors that are in the PEN series cameras, one of the advantages is you've got enough light well there to actually capture and make these things work quickly, but when you're dealing with very small pixels in these point and shoot cameras, it's going to be much more difficult just to grab enough light to decide if you're in focus a not. The bigger wells will give us an advantage as we go forward.

IR:
Yes, I did have the experience back at CES when I first saw the prototype of the E-PL1 with the wider lens on it, and it was a whole lot more responsive.

Knaur:
Yes, that is an indication of what is going to happen in the future; you're going to see increased responsiveness.

IR:
Talking about lens development, Four Thirds lenses can be used on Micro Four Thirds cameras with an adapter, but at that point they get pretty bulky (eliminating most of the size advantage of Micro Four Thirds, or of either platform over conventional APS-C sensor models). Olympus has a pretty wide range for Four Thirds lenses now. My sense is you're focusing more development effort on Micro Four Thirds now. How do you think that's going to be going forward?

Knaur:
We haven't stopped developing Four Thirds cameras. We still anticipate having Four Thirds cameras, even later this year we may release a camera. Micro Four Thirds is a new system, so we have to get some lenses out for it because it is a system camera. It is not just a point and shoot, so I need to have lenses there, so I think we have to focus initially on the lenses that go with this, so we have a respectable system out there for a customer to buy into.

Ewen:
So we have four now, and we will constantly be bringing more out, and we have the partnership concept between, let's say with Panasonic. So for the consumer it's blossoming. Your lens choices are increasing.

Knaur:
Of course, selfishly we want to sell all Olympus lenses and I'm sure Panasonic wants to sell all Panasonic lenses, but the reality is you can use either one of them.

IR:
That really is the strength of a common platform, that apparently could be an issue with Sony or Samsung.

Knaur:
Big difference. They still have that same issue going forward.

Ewen:
That, to me is a big factor, Dave.

Knaur:
But I do think we will continue to develop on the Four Thirds line. But as we've said earlier, 10 years down the road, if you start seeing this category growing leaps and bounds over the traditional SLR category, then we need to make some focus there. We have to build what the people buy. If the consumer tells us they want to by $1,600 cameras, and they don't care about anything else, we'll build $1,600 cameras. If they come out and say "the PEN E-PL1 is the camera I've been waiting for the last 20 years, where have you been?" We'll focus on the PEN E-PL1. I personally think the PEN cameras, whether it's ours or the mirrorless cameras from Sony or Samsung or Panasonic, are the wave of the future. I can see so many advantages to that type of camera, for general photography. I don't see the traditional SLR disappearing, or disappearing from the Olympus ranks, at least not any time soon. But I do think you are going to see more and more emphasis on this type of camera, whether it's from us or Sony, or Samsung, or any of the other competitors that decide to come out.

IR:
Video recording has been the big new feature in SLRs and SLDs over the past year or so, but there's still a big disconnect for users between the camcorder experience ("live" and fairly fast AF during recording, lack of motion artifacts, and smooth zoom and exposure control). What do you think Olympus can do to close this gap? Any idea of time frame?

Knaur:
Some of it's already happening. The new 9-18mm and 14-150mm have new silent technology types of motors in them, geared to video production. You will never get rid of (all) the zoom or autofocus sound in the lens. Even on a camcorder, you will hear it, but you can reduce it to a very acceptable level. I think that's what we're looking at with our new lenses. The motion artifacting is a speed thing, and in actuality the E-P series cameras; it depends whether it's the E-P1, the E-P2 or the E-PL1, have a high enough quality video recording at 30 fps. Although we can't tell you who, we do know several motion picture companies that are using them to actually do professional production.

From the HD video standpoint, the quality is there. It's getting to the point where we can develop it so that it's as consumer-acceptable as the camcorders are, and the E-PL1 takes one of the steps towards that. On the E-P1/2, you had to go into the movie mode, you had to set the camera up, then you did a movie. If you wanted to go to still frame, you came out of the movie mode, setup to do a still frame and did it. With the E-PL1, we have the direct record button on the back. Regardless what mode I'm in, it'll start shooting the movie in that mode. I don't have to worry about resetting the camera. If I want to take a still image, then I just press the shutter button, it takes the still image. As soon as that's buffered and written, it starts taking the movie again.

IR:
So the focus is getting faster with these new lenses, how about live focus during recording? With contrast detect, the lens has to hunt a bit, which shows up in the recording.

Knaur:
If you think about, all camcorders either use a contrast-detect system, or they don't focus at all. They use what's called hyper-focus.

IR:
Really? So most camcorders are using contrast-detect anyway.

Knaur:
So the technology to do it is just, we've got to get it to a point where we can do it at the speed we want.

Ewen:
And we do have continuous AF tracking in video on even the E-PL1. So if you lock-in to your subject, and your subject starts moving around, it follows it.

Knaur:
If you think about it, we've only been in the Micro Four Thirds interchangeable lens, non-mirrored cameras since June. It's a very short period of time, and look at the amount of progress that has been made in that amount of time. Take that out a few years to where we think we can be, I think as these cameras develop, the technology glitches people are experiencing now are challenges to us to find solutions. They are not non-solvable problems, they're just: how do we achieve the solution. Once those solutions are achieved, we're going to have cameras that are just absolutely incredible to use. That are small and easy.

IR:
In a highly competitive market, what do you see Olympus's particular niche being?

Knaur:
I think one of our strong-points has always been our lenses. We have some of the best optics in the industry, bar none. Of any manufacturer.

Ewen:
We have the 35-100mm f/2 and 14-35mm f/2, two f/2 zoom lenses. That's pretty rare out there. We've always had the optics on our side.

Knaur:
Optics is one of our niche areas. Technical innovations. Fast Company Magazine just rated us one of the top technology companies, above a lot of our competitors. We have technologies that are developed for medical that come over to the digital imaging side. We have digital imaging technologies that we developed that slide over to our medical side. Our R&D staff and technology are really above and beyond many others. If you think about over the years, how many times we've talked about first to do this. It's like almost every time, we have something new to offer, something first, something that is revolutionary, something that is technically innovative. That's also a hallmark of Olympus, pioneering these new technologies, bringing them to technical fruition that actually works and is consumer friendly. I'd also say compact size. If you think about, even our E-3, as big as it is as a professional camera, it's smaller than most of the competition out there of equal quality. Much of our heritage falls to that compact, technological inovativeness, and image quality.

IR:
What impact has the soft economy had on R&D spending? Do you think we're going to see a lag in new-camera announcements (or a lag in actual innovations) from multiple manufacturers in the next 12-18 months, because people have cut back on R&D?

Knaur:
There has been some lag, but I think if you look at it, the area that you do R&D spending, and it's usually at the highest end of your product line. In the case of the photographic industry, that's what we'd call SLR-type and PEN-type cameras; that part of the market is still growing worldwide. So even with the economic downturn, as an industry we've still see growth in the potential market area where we would do our heavier R&D spending on. So, I think there will be some lag, but I don't think it is going to be as severe as it would be for a consumer point and shoot only type of company. Also, the economic recovery has been kind of strange. If you watch the news, it's a little hard to tell what the economy is doing, because the group on this side of the economy is coming back with what's happening, and then the next day you have the governors' meeting where they're talking about the next two years are going to be the worst two years economically in the US; through 2011. Then a day later, you've got Warren Buffet saying something, so there's a lot of different things going on with the economy. I think it's still bad. I think people are hurting as a result, economically. So, it's kind of mixed message of the economy. It reminds me very much of 1973 when we had the recession back then, it was sort of a mixed bag recession that we didn't get out very quickly. The people that had jobs continued spending. You didn't see people not buying, but at the same time the people that didn't have jobs were still looking 3-4 years later.

Ewen:
As it related to R&D though, I think the last 7 months have been unbelievable from our standpoint with the three PEN cameras. We all know Sony's got a model, Samsung, Panasonic. I would say the R&D groups are working feverishly to stay ahead ahead of the curve.

Knaur:
They've got jobs and they want to keep them.

Ewen:
I think there's some really healthy, healthy competition, and the numbers are definitely showing that SLRs are showing some growth.

Knaur:
Last year was a really tough year for everybody. SLRs didn't grow at the level that everybody expected them to. If you looked at the projections pre-crash, they were expecting 3 million cameras, with massive growth through 2013. What happened is, we took those numbers down. But taking down doesn't mean we didn't grow. We still grew, we just didn't grow as fast.