Wednesday, November 20, 2013

Kodak: The fading of the Old Yeller

Kodak is likely to become a different company from the one we know. Image © Jonathan Eastland.

Kodak once had a watertight business but, says Jonathan Eastland, complacency and a failure to look to the future have brought it to its knees.

Never mind what the loss of “Old Yeller” may mean to the wider public; for photographers weaned on its iconic yellow box film and printing paper, Kodak’s financial problem feels like the dying of a dear friend. In this camp, there will be much wailing and gnashing of teeth. In the late 1990s, Eastman Kodak’s share price was up in the mid $90s. Just before it filed for bankruptcy protection in January, the price crumbled to a few cents. How did it all go so wrong?
For more than a century, Kodak enabled generations of the largest economy in the world to document a lifetime of memorable moments. While other companies fell over themselves in the fight for a share of the market, Kodak innovated, regularly bringing new products to the consumer while serving professional photographers, the graphic arts and movie industry with high-quality materials. They had it made, they thought. Thus, instead of going hell-for-leather to develop and market Steve Sasson’s 1975 digital camera innovation, Kodak sat on it. The film cash cow reigned supreme.
That was the problem. Far Eastern companies, having effectively destroyed camera manufacturing in Europe in post-war decades with cheap exports, built colossal marketing operations in the US. Like the proverbial ostrich, it seems, Kodak poked its head out of the Rochester Alamo every once in a while, saw nothing, then stuck it back in.

Enter digital

By the early 1970s, the writing was already writ large on the wall. Itek Corporation’s Earth Resources Technology Satellite mapping cameras used high-resolution electronic systems. The Philips laser video disc of 1974 and laser printers a year later were a sign of more to come. Sony’s Mavica of 1981, the 1986 Nikon/Panasonic SVS and Fuji/Toshiba’s R&D on memory cards were a clear sign of Japanese intent; by 1990, every major Japanese electronics firm had a video stills camera on sale.

Kodak did eventually see the light, producing its first Nikon F3-based digital camera in 1991 with successive models appealing to the news gathering fraternity. Picture Disk allowed photofinishers to scan film images to a floppy disk enabling consumers to view them on a TV or computer – the forerunner of Kodak’s Compact Disk storage system.

Rochester piled huge amounts of money into developing these and other products while setting out on a shopping spree to buy innovative digital companies. All this was at the expense of maintaining, securing and improving its share in what was patently becoming a contracting market for film, while failing to develop an enthusiast version of the F3 digital back.

Kodak’s dilemma went from bad to worse. While loyal American citizens bought into Rochester’s dour-looking bridge and compact digital cameras, the rest of the world moved on. Panasonic and Sony created svelte and feature-loaded bijou products linked to slick advertising. These were the new icons in the burgeoning world of digital imaging.

Fujifilm, while successfully chasing the digital rainbow, also saw the smart move. Bowing to pressure, it relaunched one of its most admired emulsions, Velvia. Kodak, instead of improving its Kodachrome service, shut down the film’s production. Did that benefit profit or was the company-quoted “less than one percent revenue” the film generated still worth having? Now it tells us film sales contribute a healthy 10 percent chunk to the revenue account. That being the case, Kodachrome might still have been pulling in a few hundred thousand dollars today.

When Kodak launched Ektar 100 in 2009, I stocked up on it. I thought its colour palette was unmatched by anything in the digital world. Now I’m in a conundrum; buy more or throw in the towel and spend the money on a Nikon D4?

The future in print?

Focusing its attention on the inkjet printer market and restructuring the company, Kodak says the balance sheet should come right. But the consumer market is flooded with inkjet printers and for photographers, Canon, Epson and HP, probably have it already sewn up. The home printer and consumables market is cut-throat and has generated a fair amount of disillusionment among photo enthusiasts; the high cost of ink, dried up print heads, unsatisfactory print quality and flimsy machines, are regular discussion topics.

Because of this, and if my local supermarket is anything to go by, the demand for in-store printing is on the up. Queues wait anxiously to stab at screens before doing the weekly shop. The installed HP dry print system is quick and inexpensive, although the colour reproduction isn’t a patch on Kodak’s vibrant hues. Consumers care little for such esoterics, however, which probably means retail outlets wanting to install such services may not be looking at Kodak’s Nexpress print systems.

Short run book production is a growth area in the publishing industry and it is on this that Rochester is pinning many of its hopes for a successful turnaround. Kodak Prosper 1000 and Versamark presses use advanced ink formulation with Kodak Stream Inkjet Technology. Product quality is excellent and several print houses, including Clays in the UK, have installed this new hardware along with Kodak digital to plate systems for web offset printing. And in the US, Kodak has signed up around 100 contracts for the same product.

It looks dandy on paper. A Kodak Prosper installation costs more than £1.4m, but while short run print products are doing well in some countries, the ebook business is jacking up huge sales and climbing a near vertical trajectory. Printing is not a dead end, but one can see limited possibilities for high‑volume expansion.

Kodak may get through this financial restructuring phase, but more than likely, it will emerge a different company from the one we know. It recently sold Kodak ISS (Image Sensor Solutions) for a miserly $200m, but one of its problems will be filling a massive $1.5 billion hole in its US and UK pension funds. It hopes this will be plugged by selling some of its patents, but so far, it has struggled to offload them. There is an inherent problem in trying to flog intellectual property that no-one wants because similar or better stuff exists elsewhere, while simultaneously trying to fight expensive court cases to protect other rights. The image of a dead horse comes rapidly to mind.

Closed box

Old Yeller needs to understand it does some things better than anyone else in what is now a niche market. That must surely be exploited via clever marketing linked to great service; a service that offers everything beyond what is already prolifically available and which is reasonably priced, reliable and efficient. I want to feel, having spent the money, my reward is my value received.

In this rapidly changing world, manufacturers must think outside the box to stay in business. Kodak’s answer seems to have been climb inside and shut the lid. Despite closing more than 100 labs and a dozen factories, and shedding hundreds of thousands of employees in the past decade, many of its 2011 financial expectations were not met by year’s end. That’s why it had to borrow and file for bankruptcy protection.

Restructuring is no guarantee of success and even Kodak seems unsure “Whether we can generate or raise cash... from the sale of non-core assets... digital imaging patent portfolios.... enforcing our intellectual property rights”, in order to fund investments, capital needs, restructuring payments and service its debt. Sadly, these are just a few of the many known caveats of Kodak unknowns.

Author: Jonathan Eastland for British Journal of Photography

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