Way back in 2005, Bloomberg Businessweek ran a piece called "A Tense Kodak Moment." "Low-margin digital sales aren’t picking up the slack of disappearing film profits, and debt is coming due," the piece proclaimed. This provided some prescient perspective for Eastman Kodak’s (NYSE: EK) current struggles, which it now appears to be betting on printing and legal wrangling rather than film.
Kodak is much more diverse than many people may know, offering services that range from newspaper and magazine printing to industrial materials and sensors. And how is it trying to finance the nichification of many of its product lines? By suing the likes of Apple and Google over patent infringements related to sending photos from devices. Oh, and it just did a big reorg to align better around its commercial and consumer businesses (Kodak Sues Apple, HTC and Realigns).
From a strategic perspective, Kodak is made up of a number of businesses that are being marginalized by digital developments: digital cameras, digital movie making, digital books, and magazines. Kodak needs to base its strategy on its brand, and suing over patents doesn’t do justice to its legacy.
Instead, Kodak needs to get small.
I would suggest that Kodak abandon its digital camera business as well as its consumer printer business. That it retreat from the retail market with digital printing kiosks and that it sell or also abandon most of its commercial printing. Between aerospace and medical instrumentation they should find a home for their sensors and related patents. What Kodak will be left with is film.
And film is not a bad thing.
Kodak made its name in high quality film. That market has evolved to be valid to three customer segments: older people with cameras they know how to work and who still like to comfort of a familiar process, commercial photographers with large format needs, and professional photographers and filmmakers.
Frist thing: Get out of the kiosk business and go to a Netflix-like model for film developing. My family still has plenty of old Kodak film rolls around with stamps on them from mail-order processing. Bring it back. Mail order processing keeps Kodak in the business of developing, but allows it to reduce costs by centralizing the processing of the film. Create a few regional centers, include the digital upload and the hardcopy prints in the development price, along with a branded envelop and the postage. I know Netflix is thinking all streaming, but it still has a sizable home-delivery market, and if you think of the customer profile, Kodak would do even better as that albeit shrinking market is probably comfortable with mail. They could even offer a registered Kodak website that might be Snapfish or Flickr under the covers with automatic upload so sharing is automatic with development (once the family has the URL, all pictures are available immediately upon development). And during this transformation new partnerships could develop among former rivals with the likes of Flickr, perhaps, offering Kodak prints from its site.
And then there is the professional market: Professional photographers (art, fashion, etc.), commercial photographers, and film makers. If you look at DVDs of old television shows, you can tell which ones (like Star Trek and I Love Lucy) were captured on film because of the high quality of the digital images. Aficionados still like film and tinkering with their own development where some tricks remain the purview of analog processing. Make the relationship with film the new Kodak moment.
Yes, this would mean a significant near-term reduction in the size of Kodak. The near-penny stock may be an embarrassment to its board and shareholders because it didn’t grab the digital camera market that became the domain of Canon and Nikon, or dominate printing when HP stepped into the market. But as Fuji well knows, nobody does film like Kodak.
This approach is not unheard of. Large steel miles downsized to become boutique, small-batch steel makers in the 1980s. More recently, high-end stereo equipment manufacturers have seen a resurgence of interest from just the kind of customers I am suggesting that Kodak nurture. No, not grandmas with snap cameras, but the photography equivalent of audiophiles. High-end tube receivers, speakers, and turntables—not to mention vinyl records, have all make a comeback. Some turntable models run into the tens of thousands of dollars. Why? Because as much as digital dominates our perceptions, we actually live in an analog world, and that isn’t going to change. I used the word "tinker" earlier, and that is just what has taken place in the analog recording world, with new offerings like half-speed mastering, environmentally friendly processes, and higher quality vinyl. In the age of MP3 music, records sound better than ever before.
Rather than try to live off the cash flow of others funneled through not-so-lossless legal infrastructure, Kodak should revisit its strategic roots and reassert its brand as a counterpoint to the digitalization of everything, not a flailing footnote to digital dominance.
I remember fondly walking around Disneyland as a kid and migrating toward the Kodak Photo Spots that dotted the precious maps of the Magic Kingdom. These were great places to take iconic pictures of Sleeping Beauty’s Castle or the Matterhorn. Disney, always the entrepreneur, partnered with uncontested consumer photography leader Kodak to not only print these locations on maps, but to put Kodak branded signs in the park so Disney guests wouldn’t have to wonder where to stand. I’m sure I’m not the only one with warm memories of Disneyland captured by a Kodak Brownie—a camera that dangled heavily from my neck. It was already a twenty-year relic at the time, inherited from my father’s camera collection. But I loved that camera and the black-and-white pictures that captured my memories of Disneyland—my memories, not someone else’s. And all of those memories said Kodak.
It would be a shame for the world to lose another representative of indomitable innovative spirit because the leadership and the lawyers forgot that their job was to defend the brand and ensure the continuity of the company. If "getting small" is the right thing to do, then fight momentum and do the right thing, not just the expedient thing.
[Image: Flickr user Miikka Skaffari]