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
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.