For this week’s Engadget Interview, journalist J.D. Lasica spoke with Steve Heiner, the head of Nikon‘s digital single lens reflex systems, about how Nikon is faring in the transition to a digital world, its new line of D70S and D50 cameras, and the hullabaloo about Nikon’s encrypting white balance metadata in RAW image files in some of its cameras. Or at least he tried. Heiner, an accomplished photographer, spoke from Nikon’s headquarters in Melville, NY, with two media representatives listening in. 
Let’s start with the big picture. In the age of film, Nikon was always known as the class of camera manufacturers. How has Nikon been faring now that we’re transitioning to the digital age?
Nikon has had a line of SLR cameras for many, many years. Even before we started making SLR cameras, we were making world-class Nikkor optics. Our reputation has been built over the years as much on our lenses as on our camera bodies. We take a great deal of pride in that.
Twenty years ago, when I first joined the company, I got a peek at some of our first digital products. Back then, Nikon was the first to introduce the NP1000, a film transmitter designed for photojournalists at newspapers. You could web process a C41 or a black-and-white negative and scan it using this device, and it had a modem built in so you could transmit the photograph.
In the ’90s we introduced a series of cameras with a moniker E at the beginning, E2S, E3. Those were cameras really designed for industrial purposes. They were large, bulky and very expensive but were very high quality for that time.
In 1999 we introduced the D1 camera and took the market by storm because no one by that date had produced a digital camera that was the same size form factor as our previous 35mm cameras at a price level below $6,000. We introduced that at about $5,500, and most other digital cameras were well over $10,000 at that point.
As the years have progressed, we’ve seen a succession of professional digital models, including a sub-$2,000 camera, which came out in late 2001. It was designed for enthusiast photographers, amateurs and hobbyists.
We introduced the D70 over a year ago, and it’s been a tremendous success. Won 2004 Camera of the Year at Pop Photo and won numerous other awards and was accepted wildly in the marketplace because its price point for the body was just under $1,000. We then paired it with a very high-quality 18-70mm lens.
In the digital age and a new generation of kids who aren’t familiar with the Nikon brand, aren’t the digital camera manufacturers essentially coming off the same starting line?
Essentially. Even though they can’t possibly appreciate the history of a company like Nikon going clear back to 1917 when we started making lenses, what matters most to that customer is the lens. Not to denigrate the importance of the camera body, but the old principle of garbage in, garbage out always applies, especially in photography. The quality of the optics, the clarity of the image, the simplicity of the camera’s operation has got to be a major factor for anyone considering an SLR.
Our goal, from the design side of the company over in Japan, is to make that transition from a digital point-and-shoot camera to an SLR as easy as possible. We try to make these technologies — like our advanced multipattern or metrics metering system and the autofocus operation and all of the processing that takes place in the camera — as fast and as invisible as possible to the end consumer so that they’re focused on getting the best image results.
This may be the year in which a majority of cameras sold will be digital rather than film—
Certainly digital SLRs over film SLRs. The popularity of digital overall has lunged ahead of film sales.
What have been some of the ramifications of that for your industry? Kodak, for instance, has had to reinvent itself.
Well, we’ve been doing digital photography for quite some time. We see, based on sales figures, that the demand out there in the marketplace is definitely for digital. There’s no question that digital is fast replacing film as the camera of choice for most consumers.
Do you have an internal business unit devoted entirely to digital SLR cameras?
The majority of departments within this company are, for the most part, digitally oriented. We still sell quite a number of film SLRs, and there’s still a considerable segment of the market who prefers to shoot film. But most departments in this company have long become digital-centric. …
Our digital SLRs take not only our latest dedicated DX lenses, designed specifically for the sensor we use in our digital cameras, but we also have a full line of regular Nikkor lenses that were designed for our digital cameras as well as our film cameras. So, we all sit in the same building, we all meet together, but there’s no doubt that digital is the way things are going.
Another internal change, of course, is that you now have to write software for your products. How difficult is it for a hardware manufacturer to be producing software?
Actually, it’s not, because Nikon has been real proactive about being in the software business. Even before our first digital cameras, we had digital film scanners that required special software designed by Nikon engineers. Every time we introduce a new camera, the software has to be compatible with all our previous cameras. So we’re doing quite well in the software business.
In the past two years we introduced a new browser and basic editing software called Picture Project. Plus, we have a very capable image browser and thumbnail program called Nikon View and we have Capture software, which is designed to be an integral part of our digital SLR systems.
Macworld carried a story earlier this year saying the world is essentially divided into three kinds of digital cameras: compact point-and-shoot cameras; advanced amateur cameras that are a little bigger and offer more optical zoom power without interchangeable lenses; and professional SLR cameras. Would you agree?
I would, though they’re not divided so much by the camera’s controls or features so much as they are by the lifestyle they appeal to. We have Coolpix cameras that shoot an amazing photograph for their size and weight and price, and the person who buys that camera is just as interested in high quality as a person who buys a higher-level camera. It’s just that their lifestyle dictates that this be an easy, affordable camera they can slip into a coat pocket.
So you have professional cameras, compact cameras and right in the middle are what other companies tend to call prosumer cameras. We tend to shy away from that word, but they’re more advanced, more full-featured than typical compact cameras. And for people who want a digital SLR, we now offer two models under $1,000.
One of those would be the 6.1 megapixel Nikon D70 (pictured at right), which some have billed as a strong competitor to the Canon Rebel. 
The D70 is the best-selling SLR camera we’ve had, by far. The goal of keeping a camera at a price point where it can be had by as many people as possible was always in the designer’s mind. Unlike some camera manufacturers, we weren’t interested in stripping down a camera to reach that price point. It was built to retain the most amount of capability.
The D70, unlike the Rebel, affords people the opportunity to grow much more, because there are many more menu settings and manual controls and options that are available to a photographer as their interest in photography grows, where other manufacturers — and I daresay the Rebel specifically — are limiting in their manual control capabilities.
The D70 is powerful and yet simple to operate. A photographer can take advantage not only of aperture and shutter speed but also those more complicated settings like in-camera sharpening and tone compensation and color mode, which are all automatically set.
You released the D70S (pictured at left) just last week. How does it differ?
It has a larger LCD (2 inches). It has a more refined auto-focus system so it can acquire the primary subject a little faster. It has improved focus tracking, so if you’re autofocusing something that’s moving, all of the sensors can concert with one another and track the subject better.
In addition, some of the feedback we got from customers was that the D70 has a small optional ML-L3 infrared remote trigger, a push-button you can use to trigger the camera. Many advanced amateurs and hobbyists had commented that it was difficult to use when shooting close-up photography on a tripod, for example, because the sensor is on the front of the camera. so we included a remote port on the left side of the camera so you can plug in an optional electrical cable release with a locking switch.
It now shoots with a higher-yield battery, which now can shoot as many as 2,500 images on a single charge, which is pretty amazing. The menu design has changed; it offers a different color scheme and a slightly larger font so it’s easier to see, especially in bright light.
And the cost is $899 for the body, and $300 for an 18- to 70-mm lens kit?
Right.
Do only Nikon lenses work with the Nikon SLRs?
Well, there are aftermarket lenses out there, but for someone who’s interested in getting the highest quality photographs you can capture, we highly recommend Nikkor lenses. It’s also worth noting that the digital SLRs will accept the lenses used on Nikon’s F-mount cameras going back to 1959.
The D70 and your SLRs take a compact flash card. But why did Nikon decide to go with SD cards rather than CF cards for your entry-level digital SLRs?
Not only to keep the body smaller and lighter, but also because of the popularity of SD cards. The D50 will take SD as well.
You’re rolling out the D50 (pictured at right) next month for $899, and that’s being targeted as a family camera, right? 
The D50 is similar to the D70 but has simplified the process of taking images even more so. There’s a child mode, because we recognize that a good number of users of this camera at this price point will be family users, people who want to capture everything from birthday parties to pictures of the kids playing soccer.
One of my favorite features in the D70 has been expanded even more in the D50, and it’s fairly unique in the industry. We’ve built into many of our cameras a help menu to help the user with a full-featured, easy-to-understand menu. It will show you a description on the menu of exactly the setting you’re about to set, so as you use the camera you can learn as you go.
The lenses that will paired with it will provide the first-time SLR user with a great deal of picture-taking power, frankly. It’s paired with an 18- to 55-mm kit lens and an optional 55- to 200mm lens, so within those two lenses you’ll have coverage from 18 to 200mm.
Why would people want to move up from low- or mid-level digital cameras to a digital SLR?
One of the inherent difficulties with a compact digital camera where you’re really surrendering all of the control to the automated systems in the camera is that it tends to slow down the reaction time. In many situations that’s not necessarily a detriment. But in certain instances, trying to capture that decisive moment, that expression or peak of action, sometimes it’s difficult to do with a compact camera.
In a digital SLR camera, the response is much quicker, and it prepares for the next shot, and the shot after that, much faster. In addition, you get a wider selection of lenses and speed lights and other attachments. For someone who likes photography a lot will very quickly reach the limit of what a compact camera can do.
Sony’s Cyber-shot is one of the best-selling digital cameras in the world. How did camera manufacturers like Nikon, Canon and Konica Minolta let an outsider like Sony come in and let that happen?
Well, Sony obviously has a great name that’s ubiquitous and omnipresent in so many facets of this electronic life. When Sony makes a camera that appeals to people who buy that brand of product, it will always have some level of penetration. I daresay there are a lot of people who are used to buying home electronics and don’t necessarily recognize Nikon’s name. We want to change that and let people know we’ve been in the photographic business for almost 90 years. We’re not just trying something new here.
Adobe has been trying to get camera manufacturers to adopt the license- and royalty-free DNG or Digital Negative standard. Is Nikon considering that?
Saurabh Wahi, MWW Group (PR representative): Actually, let me jump in real quick. Let’s save that question for another discussion because we just want to talk about digital SLR cameras now. Is that OK with you, JD?
Well, it’s not OK, because if you don’t address some of these issues, our readers are going to rip into you. So it’s for your own good to get in front of these topics that have been swirling around the past two weeks.
Wahi: I understand. But at this point, we have put out an advisory, and we want to forward that advisory over to you, but beyond that we have no further information. So I hope that’s fine.
I don’t know why Steve wouldn’t be able to talk in general terms about these issues.
Wahi: There’s so much information out there right now, we want to make sure we can come back with specific information that can help people, and we are in the process of putting that together.
There was a report in CNET on April 21 about the encryption being broken on the white balance metadata for RAW files in the Nikon Capture application, does Nikon plan to take any action against the programmer who broke your encryption code?
Wahi: Again, whatever information that we have available right now is available in the advisory, and I can make sure I can send that out to you.
Could we just talk about the business decision of Nikon encrypting its white balance metadata in the RAW files?
Wahi: Again, the advisory contains all the information that we have available to give to you, and we’ll send that out to you.
I’d like to know what you would say to your customers who are hopping mad about this.
Wahi: The advisory contains all the information and as soon as we finish this interview I’ll send you that.
Steve, talk to me briefly about FoveOn, a 5-year-old technology coming out of Silicon Valley that sounds like one of the most promising, revolutionary developments in the history of cameras and optics. And yet, virtually nothing has been done in the camera industry. Why is that?
Steve Heiner: From what I understand, it does take a very precise manufacturing process to ensure high quality, and I know this technology has been out there for some time, and FoveOn has offered it to many companies. I can’t speak to our designers’ technical reaction to it or to our business sense of it, but suffice to say our engineers are always looking at new technologies that come down the pike. I can’t really address why that particular type of sensor type hasn’t been widely adopted.
Tell me about the long-range outlook for Nikon and the industry. Will our cameras get smaller, faster, smarter, cheaper?
That’s always the $64,000 question. Everyone wants a more efficient workflow, a more efficient camera, they want it smaller and lighter, but there’s a point of diminishing returns. Many pros recognize that sometimes the smaller camera doesn’t perform as well as one that is more stable in the hand. So our designers are trying to strike the right balance between performance and ergonomic comfort. Building a smaller camera isn’t always the answer.
There’s also a point of diminishing returns with higher resolution. We’ve gotten into the double-digit megapixel range, many photographers can’t imagine needing a whole lot more. What you’re going to see is a refinement of more fundamental elements of camera design, that being image processing, efficiency of operation, speed, improvement in new optical designs, things like that. I don’t think the megapixel wars will necessarily yield the best possible cameras.
Elsewhere, we’re already into our second generation of wi-fi transmission, which is an exciting prospect. We’re able to transmit images directly to a server or computer, and the amount of interest in that has taken off in the pro market.
By newspaper and magazine photographers?
Yeah. We originally expected wire service and newspaper photographers and people on deadline would find it most appealing, and they certainly do. Now we’re finding wedding photographers who use it as part of their service. They have the ability to be shooting in one part of a venue and transmitting images to a computer via 802.11g connected to an LCD projector so that people can see the photographs in nearly real time, which is pretty neat.
Here’s the version on the Engadget site.
