View Full Version : Kodak Announcement

Scott Killian
25-Sep-2003, 07:49
Kodak made an interesting announcement this week: http://money.cnn.com/2003/09/25/news/companies/kodak_shift/index.htm?cnn=yes

Kodak has announced that they will no longer make significant investments in traditional consumer film, focusing instead on the digitial printer market to compete with Epson & HP. Of course, we've all known that they've largely ignored the LF business for a long time, but this marks the first time they've formally announced such a sweeping divestment in traditional consumer film products.

In the same announcement they also revealed that they will cut dividends to shareholders. Since they have a very mature and efficeint manufacturing process for consumer film, by slashing future development and dividends, they're basically riding this cash cow into the sunset and pouring the profits back into the development of a new digital printing line.

I guess this would be a back time to ask for Tri-X Readyloads, huh?

Scott Killian
25-Sep-2003, 07:51
Uh, I meant to say a "bad time" to ask for Tri-x Readyloads.

James Driscoll
25-Sep-2003, 08:16
It sucks, but I can't really blame them- professional products even in the heyday of film usage and every studio shooting 4x5 and 8x10 only = 10% of kodaks output. This was for all pro films and products including 35mm, 120/220, sheet, and long roll, and paper and chemistry. 90% of the output was consumer film and color paper for the mini and 1 hour labs.

The writing was on the wall years ago- XTOL was the last heavy research and devolpment project with B&W products for Kodak, and you can't say they have ignored the professional market in the past few years with the introduction of the "new" black and white films, the evolving Portra line and the new E100G and GX films. The massive cancelling of products that started in the late 1990's also gave clue to what was going on.

Start putting your money into smaller companies such as Bergger and J and C, and keep the nich black and white market alive. I am not telling you to switch films, but buying your paper or a box or two of film every view months from a smaller supplier will keep it alive.

Sidney Cammeresi
25-Sep-2003, 08:39
I telephoned Kodak and spoke to a droid who didn't know anything about this, as usual; he only restated what we already know about Kodak moving the B&W coating to another facility which required quite a large expenditure to get going.

This situation reinforces my current dilemma. I'm probably going to get into shooting a larger format camera soon (11x14), and the choice of film there is basically either Kodak Ektapan or Ilford HP5+. I'm mostly a Tri-X man right now, but if I have to figure out a new film, I may as well figure one out that's going to be around for a while. My thinking is that I will just totally dump Tri-X and everything else Kodak and go full bore with Ilford, a company in which I have a modicum more trust.

Pete Caluori
25-Sep-2003, 09:17
Hi Sidney, you certainly have more choices than the films you mentioned for 11x14. I can personally recommend Efke films, which you can get from J&C and Photo Warehouse sells an ISO 125 film proported to be repackaged FP4. As has been mentioned, if we support the niche markets, there will be film available.

Regards, Pete

David A. Goldfarb
25-Sep-2003, 09:17
Ektapan has been discontinued for a while. Tri-X in sizes larger than 8x10" has been available as a special order item for some years. I'm considering making an order for 11x14" at some point in the future, if there are enough interested parties, but I'd like to try some actual New Tri-X sheet film first.

John Downie
25-Sep-2003, 09:31
This is such a typical move for Kodak. Here is a company that has a comparative advantage in films/emulsions and a wonderful brand name in that arena. Instead of investing in this market that, though shrinking overall is still very profitable, and with others exiting may even provide some volume growth, they enter a market with three well-entrenched (I'll add Canon) competitors. Where is Kodak going to make money in this market? No comparative advantage, it is just amazing the mistakes this company will make. The market (stock, that is) seems to be voting more for the Tri-X readyloads than the Kodaprinter 2000, to wit:

Top Stories Kodak share tumble holds Dow in check; Nasdaq falls Thu 10:56am ET - CBS MarketWatch The major U.S. equity averages fell for a second session Thursday with the Dow suffering under the yoke of Eastman Kodak's 52-week low.

John Kasaian
25-Sep-2003, 09:36
Sidney......Ektapan 11x14? I don't think so, buddy, unless you've got a line on some old stuff. I think The Great Yellow Father in Rochester stopped making the stuff many moons ago.

Kodak has, we're told, a new factory to produce "dust free" sheet film. I've yet to try any of the new 8x10 tri-x, but I will as soon as I can find it in the stores. For 5x7, aerial film(dated Kodak, lol!) cut from the roll is as close to "film security" as it gets---I'm pretty much set for life, though Freestyle, Photo Warehouse, and J and C can and do provide variety at an attractive price. For ULF film, Photo Warehouse and J and C are where I'll send my business.

Whatever pieces of the market pie Kodak leaves, there are others more than happy to take a bite. Competition, we're told, leads to lower prices, better products and service, and innovation.

There are a lot of emulsions available right now to choose from in a variety of formats. They don't come in yellow boxes, but thats Kodak's loss, not ours.

Don't worry...Take pictures!

Jim Galli
25-Sep-2003, 09:43
I agree with John Downie about entering a saturated market!! Why not enter the pharmaceutical arena and make aspirin for crying out loud. I'm glad I don't have a retirement waiting in Kodak stock. And yes, I just spent $420 at photo warehouse for some British film. Model A Ford parts are still on the shelf and B&W film will be with us for as long as there are a handful of folks who want it.

John Downie
25-Sep-2003, 09:58
Kodak did enter the pharmaceutical market by buying Sterling Pharmaceutical in 1988 for significanlty more than the next-highest bid in a "pre-emptive" move. They sold the division 6 years later at a huge loss. Let us not forget Kodak Ultralife and Supralife batteries (two "Milestones" on Kodak's website).

"On May 3, 1994 - Kodak announced it would divest its non-imaging health-related businesses - consisting of Sterling Winthrop, L&F Products and Clinical Diagnostics - enabling the company to focus all of its resources on its core imaging business."

We will see the printer division flushed a couple of years from now, but the loss of a competitor in film is very sad.

The irony is that Fuji continues to bring out interesting products, though I know they have dumped some, too.

Looks like it's Ilford or one of the even smaller players.

Scott Killian
25-Sep-2003, 10:05
I hope my original post isn't taken to mean that I disagree with Kodak's decision or results in another digital vs film debate (which has been beaten to death here). As a user of film, I'm personally disapointed, but as a businessman I also understand this move and would likely do the same if I ran Kodak. They can no longer rely on film alone to satisfy shareholders and it makes no sense to invest in shrinking niche markets when the rest of the universe is moving to digital.

I've made this anology on the forum before, but people are still buying sail boats and the combustion engine has been with us for over a century. We all know that practical concerns are not driving this demand and the same is already largely true with film. Niche players will pick up this slack, just as they have in other industries. This is the discussion I was hoping to have here.

Perhaps the ideal situation would be for Kodak to license some of these classic products and sinply collect royalties. There are other industries doing this - why can't this one? I would imagine that one of the smaller players without the pressures of being a publically traded company could step up and capitalize on Kodak's (and to a lesser extent, Agfa & Ilford's) eventual disinterest in the product. In the meantime, they will continue to make these products as long as they generate strong cash flow, but we know the niche stuff is going to get whacked first, followed eventually by the consumer products. I'm just wondering if any of the niche players have approached Kodak with a succession plan of this sort?

John Downie
25-Sep-2003, 10:13
Sorry to go on, but since the announcement Kodak has shed almost $1 billion of market value. It would be nice if they would spin off the film business to fund their adventures in foolishness. The value of the division as a stand-alone company would be far more than in the Kodak corporate sieve (umbrella sounded too "safe"), and we could have an owner that optimized the film portfolio instead of the grandiose catastrophes for which Kodak has a penchant.

John Bailey
25-Sep-2003, 10:32
For those of you who have access to today's edition of the Wall Street Journal, there is a most informative article about Kodak, their future, their existing issues and the prospects for film from Kodak. This is a very interesting article and well reported without rumor or slant.


John Bailey

John Downie
25-Sep-2003, 10:44
According to the article ALL of Kodak's operating earnings come from conventional film and photography, and digital is losing money. The strategy is to move more and more into areas that are losing money. The digital wave is inevitable, it just seems unlikely that Kodak can catch it.

25-Sep-2003, 10:44
I suggest that the company (and the world) would be better off if Kodak's executives would only follow George Eastman's example. Smith & Wesson .32, as I recall.

Bruce Watson
25-Sep-2003, 14:08
Scott, you can ask for Tri-X in readyloads. I did. All the way up the chain of command to that poor dumb accountant Carp. Out of fifteen letters, I got one reply, and it wasn't from their "cosumer advocate" either.

It's a good thing that when they buried George Eastman, they installed the body into magnetic air bearings. At the rate he's spinning, normal roller bearings would have long since worn out.

John Downie
25-Sep-2003, 14:55
The bloodbath results:

Downgrade on the debt to BBB-, one tick above junk.

Losses on the equity approaching $1.5 billion, or one fifth of the company's value.

One hopes the management re-examines its plans before instituting them, given this thumbs down from the market. A terrifying piece of the film strategy - focus on market share as opposed to price. This appears to be the digital strategy - sell below cost but make it up on volume. Oh well, should mean some cheap film while it lasts.

John Bailey
25-Sep-2003, 16:08
Dear John

Forecasts for film indicate a decline, according to the article in the Wall Street Journal, from $9.5 billion to $6.5 billion before 2006. How much film, paper and chemical product are you willing to commit to buy to compensate for the loss of revenue? While LF incrementally might be profitable, overhead absorption is generally spread over divisions, product lines and an array of products. When volume declines, the buying power to purchase raw chemicals, gelatin and the like will diminish if not spread over a greater number of units manufactured.

Prosaic wishes and blaming management without specific knowledge will only go so far. The truth lies in the fact that digital photography exists! The invention of an alternative technology does not mean that film is irrelevant, but it does pressure existing companies to find ways to make a profit. I personally do not believe that Kodak has looked at professional/prosumer/amatuer photography and their needs and decided blithely to ignore them. However, the market is speaking and saying they do not want to buy as much film today as was purchased five, ten or fifteen years ago. The fact is that less film is being sold to this catagory of user in 35mm, 120 and LF sizes. Yes, maybe this is becoming a niche business, but for the reality of the present film is not where buyers are looking. The salary of the reps and the guys on the loading dock are spread over lots of boxes of film sold.

The decision to reduce the dividend according to reports was not easy. The last couple years they paid out all or more than all of their earnings. This reduction may allow for acquisitions. And there in lies another issue-should they buy another analog photographic company-Polaroid? Linhof? Schneider? Sinar? Heliopan? Who would have thought that earlier this year Hasselblad would sell to a Hong Kong based investment group! Or are the funds and yields better from another purchase. Maybe Kodak did not buy wisely when they acquired Sterling, but then again chemicals and drug manufacturing are allied industries. Maybe printers is not the optimum direction, but it has a positive growth forecast for printer demand as opposed to the 7% annual decline in film usage.

When was the last time most of us used a slide projector and carousel? We associate that with the past or a time our fathers showed family photos. Today, we all want to PowerPoint, email and post to the Internet. Some company or a group of individuals will buy that division or make similar products hopefully, but the R&D will vanish and the wide variety of products will come down to a few selections. In another thread, Michael Smith had a low production run of lens boards made for a Kodak Master View camera he uses. Large scale production went away and Michael seems to be offering a superior product with modern materials-but what volume can he sell to offset costs? Even if every owner of a Master View bought one, what are the number left? Maybe the same will be true for film, maybe not. Yes, a lower volume, boutique approach to film production might be viable, but could that company also afford to make developing chemicals and photographic paper as well? What happens when their demand drops by 7% annually?

Right direction or wrong direction, Kodak is attempting to do something to remain successful for their shareholders, employees and customers. Hindsight would have said that in 1985 or 1990 or 1995 they should have seen the writing on the wall that digital was gutting one of their core businesses. Did you have the vision to see what was happening? Now that it is happening, will you support the future by buying more traditional photographic products whether they be Kodak or Fuji or Ilford? Finally, if you believe that especially LF is a profitable business, will you put together the business plan and find the dollars to buy the LF portion of Kodak's film business or do you expect others to do so? I am not trying to indicate that it is your or my responsibility to save Kodak or film, but those are the questions on the table for you, me or some corporation if they are looking at the marketplace.


John Bailey

Tim Klein
25-Sep-2003, 16:11
For those of you who don't have access to the WSJ site, there was some interesting information that doesn't make things sound quite as glum for film users as the CNN article does.

It doesn't appear to me from the Journal piece that Kodak plans to "dump" their film business. They just don't plan to make any significant long-term investments in film. The article contrasts this decision to the APS strategy Kodak advanced in 1996.

It goes on to say that Kodak intends to hold onto as much of its film franchise as it can and even plans to potentially cut prices to capture market share. There is also mention of making private-label films to help expand markets abroad.

Does anyone really blame Rochester for not investing a bunch of money in advancing a technology that is obviously shrinking in demand? Is there really a lot of advancment possible and/or needed in the film we use?

I suppose it's possible we'll lose some of the smaller niche products, but it sounds to me like Kodak desperately wants to hold onto the business they have (especially until they can start earning money on the huge investments they plan to make to compete in the digital arena). As long as quality doesn't take a hit, I tend to think we'll be OK for quite a while.

John Downie
25-Sep-2003, 16:52
A few points.

First - I have nothing personal against Kodak's managers.

Kodak's projected film revenues are not exogenous - they reflect the decision to harvest the business. It would be interesting to know what Fuji Film's film revenue projections are.

We should not confuse revenues with cash flow. Entering a highly competitive market with a 7% annual revenue growth number, for an also-ran product will generate less (probably negative) cash flow than a shrinking but highly profitable market where the company has valuable comparative advantages. There are a few capital markets conundra in the latter strategy, ie. how does one manage the capital structure of what is, in essence, a wasting asset, but it would not be too difficult to do better than today's massacre.

Kodak, IMHO, should keep with film standalone or divest the division. I am guessing the market capitalization of a stand-alone film division would exceed the total value of Kodak, because of the remarkable ability of management, time after time, to make money-losing, negative NPV investments. They are destroying the market value of the film division by grafting on ill-conceived products and acquisitions. If Kodak buys another company, the price paid will reflect the value in the optimal corporate portfolio. If Kodak falls short of this optimal management of the asset, then they will have destroyed shareholder value by making the acquisition.

The key problem is that it is hard to get managers to pursue a strategy that eschews growth and focuses on the prudent management of a wasting asset. It is much like a gold mine - the ore will run out eventually, but technology can improve yield, and adding on essentially unrelated investments will not enchance the value of the gold mine.

Jeff Moore
25-Sep-2003, 21:12
John Downie,

I too lament the reduced emphasis by Kodak on the large-format market, although I don't believe the disappearance of these products will happen anytime soon. However, as much as we may not want to admit it, we (large-format BW photographers) are a niche market. Put us all together and we are not a blip on Kodak's financial radar screen. You state that this is a highly profitable segment of Kodak's business. Where is your evidence for that?

I would challenge you on one other point. In separate posts you state that Kodak has no comparative advantage in the digital realm. Are you basing that claim on the fact that Kodak's digital business is not yet profitable? Practically all new technologies are are unprofitable in the beginning years, during which R & D soaks up much of the revenues.

I would point to two pieces of factual (as opposed to anecdotal) evidence that would seem to contradict your claim that Kodak has no comparative advantage in the digital realm:

1) There are currently six single-shot digital backs in the 16-22 megapixel range for medium format cameras: Kodak's own DCS Probacks; Imacon Express; Sinarback 54; PhaseOne H25; Leaf Valeo 22; and, Fuji DX 2000. Five of these six backs (Leaf being the exception) use Kodak CCD sensors.

2) As of June 2003, Kodak has more patents in the digital photography realm than any of its competitors. In fact, it has more patents than the next four largest digital patent holders COMBINED! (Source: Wall Street Journal)

Kodak's shareholders don't give a rat's butt about a small niche market of LF art photographers, and they--rightfully--should expect the company to pursue avenues which will lead them to most profitable segments of their industry's future. If you believe those future profits lie in the LF market and not in digital, well, you're simply off your rocker.

But don't get too worked up about it. As long as we have our Linhofs and Deardorffs and Wisners we will be able to buy film for our beloved instruments. It just may not come in that lovable yellow box.


John Downie
25-Sep-2003, 21:41
Jeff Moore,

You seem to have missed the point of my post - I apologize for not being clearer. I never said LF was a profitable segment - I would think this level of specificity at Kodak would be impossible or meaningless. I was speaking of film, and conventional camera technology. The market area that, according to the Wall Street Journal article, generated 100% of Kodak's operating profits.

I did not suggest that Kodak had no ability to produce digital items - just that, according to the Wall Street Journal, they were losing money in digital. Digital backs are, I am guessing, quite a small market segment? Remember the Kodak DCS 14N camera - came out at $14K, sucked, now sells for less than $3K.

The problem is Kodak entering the crowded inkjet market, where margins are being continually eroded by low upfront prices and the encroachment of aftermarket cartridges, the true profit center of the market. Please tell me how Kodak can make money in this segment against Epson, Hewlett Packard, Canon and Lexmark?

Patents are wonderful. But they don't necessarily translate into market value. One has to be able to produce the item in a cost-effective way, to generate value.

This is puzzling:

"Kodak's shareholders don't give a rat's butt about a small niche market of LF art photographers, and they--rightfully--should expect the company to pursue avenues which will lead them to most profitable segments of their industry's future. If you believe those future profits lie in the LF market and not in digital, well, you're simply off your rocker."

Shareholders lost 20 percent of their investment in Kodak over the last TWO DAYS as Kodak has unveiled its new "strategy". I would think they are more concerned about the sanity of the current management, rocker-wise. The idea that Kodak can make money in digital has been punted back, quite unceremoniously, by the market. This is no anectdote. Kodak was a headline today for hitting all-time lows and dragging down the DJIA. I am saying that FILM, not LF exclusively, is where Kodak can make money. Simply because the world is going more digital does not mean that Koday can generate any value by entering the market. Time after time, they have entered non-film markets and pissed away shareholder value.

They have to grow up and be realistic about their place in the world. Which is, I believe, a large, lean, conventional film producing firm generating very nice margins.

Please show me the evidence that making printers will be a profit-maker for Kodak.

John Downie
25-Sep-2003, 21:53
By the way, I have no axe to grind, I just find Kodak's moves mind-boggling.

I agree that LF film will always be available, in a variety of boxes: it would just be a shame if quite a few of them are not yellow.

Jorge Gasteazoro
25-Sep-2003, 22:10
Remember the Kodak DCS 14N camera - came out at $14K, sucked, now sells for less than $3K.

Isn't this the problem? I wonder when was the last time that Kodak came out with a product (other than film) that did not bombed?

And then when they do get it right, they drop the ball. I remember back in 96 I was unemployed for a while so I went to work in a camera shop to keep busy. At that time Kodak came out with a consumer digital camera, I think it was called the DC 80. Now, this little camera was great, easy to use, very intuitive controls. People loved it and they were selling very well. Now consider, this is me selling a digital camera, I figured if I could learn how to use it, anybody could! Well, what happened? next model was a piece of crap that required an EE to learn how to use....

Isnt this always the case? Maybe I am wrong, but seems to me Kodak gets into something new and a few years later the stuff is gone due to crappy products. Whatever happened with the vaunted APS system?....IMO it was a digital wannabe system without the convenience of digital. I remember when I walked into a camera store, I saw less and less APS cameras and more and more digital cameras. Go figure!

My questions are, isnt Kodak behind the ball years as far as research, production and development of printers? Do they really think they can catch up with Epson, Lexmark, etc. As far as research and developement? I really doubt this, I think we should look for Epson or any of the others to be buying Kodak in the future if they continue with this asinine idea....

Tony K.
26-Sep-2003, 06:03
Agfa sheet films will fade also...here's a reply to my letter.

Dear Tony,

Thank you for contacting Agfa Consumer Imaging. Agfa B&W sheet film will be phased out worldwide as existing stocks are depleted.

Sincerely, John Auer Agfa Consumer Imaging

John Downie
26-Sep-2003, 06:40
Does the combination of moves by Agfa and Kodak suggest that the users of this forum should focus on the films of one manufacturer in order to help ensure the viability of at least one of the bigger suppliers? Though this will limit the choices available in the short term, it may improve the longer-term outlook. Buying the remaining Agfa, for example, is a "vote" for a candidate no longer in the race. It's too bad we have gotten to this point.

Tim Klein
26-Sep-2003, 09:05

Do you really believe that Kodak's stock price has taken a hit because of the announced strategy change?

The drop in their dividend is what's killing them in the market this week.

Michael Kadillak
26-Sep-2003, 09:07
The realistic situation relative to this post is that it is a business condition and believe it or not has absolutely nothing to do with large format sheet film or any "product" decisions they may or may not make.

Kodak is suffering from a systemic corporate culture dilema that has taken more than 80 years to create. What I am making reference to is the self serving relationships within the corporation to just get through another quarter and hold on to their incomes while they put on their game face for the financial world. I know because Kodak is a client of mine. The further you get away from Rochester (they have other facilities in the lower 48 and throughout the world) within the Kodak ranks, the better the decision making and the more solid the individual balance sheet. But when you go to Rochester, be prepared for the spin. They do not have a clue as to how to hold costs and make money.

The financial markets are imparting the hard lessons to Kodak because over the last five + years they have shown an alarming propensity for bad management decision making/leadership and have realistically ignored the competitive world. But the single largest issue Kodak is facing world wide is their high cost structure and wastfull policies in nearly all of their raw materials costs. And the sad thing is that when you speak to their managers, they think that they are doing a great job. Yes, they may be cutting a small bit of their previously posted internal cost indices, but they were so far off of the scale that you could be in a coma and perform these cost reduction tasks. It will not be pretty, but large numbers of additional jobs will be lost and Rochester will inevitably take it on the economic chin but they will continue to produce large format films because in the correct cost to profitibility relationship, it makes them money.

The challenge is to get their financial costs exposure down to the correct levels and that will take years.

Bottom line - continue shooting as you normally would and be patient. It will eventually pass. In the meantime, Kodak would be a great candidate for shorting their stock as the pain is inflicted by the financial community. Being forced to cut a dividend that has been paid for nearly 100 years is about as desperate a measure as one can take.

Ellis Vener
26-Sep-2003, 09:27
Remember the Kodak DCS 14N camera - came out at $14K, sucked, now sells for less than $3K.

John D., I don't what planet you live on or where you get your information, but the list price for the Kodak 14n camera was about $4999 and still sells new for about $4500-4800. And for what it was designed for -studio portaitre and commercial producy photography --does a very fine job equal to and better in some ways and worse in others than the $8,000Canon EOS 1Ds.

I've actually shot enough with both cameras to know what I'm talking about.

what the camera suffers from is basically Kodak's misunderstanding of the market that would buy what is essentially perceived as a 35mm SLR type camera. We expect a camera of that type & expense to be more versatile, and I suspect the upcoming revision of the 14N to better meet those expectations. If it does not the 14N program will be doomed and I will either switch to Canon or wait for the Nikon D2X.

John Downie
26-Sep-2003, 09:54
I can imagine the corporate culture at Kodak has created a series of perverse incentives. The desire to increase revenues, fiefdoms, budget hording, etc.

If a Kodak shareholder wants to invest in the printer market, there are at least two ways they could do it. One would be to give Kodak money to enter a race in which they are way behind, another, take the money that Kodak pays out in the form of dividends (as opposed to investing in printer R&D and manufacturing) and buying stock in Epson, or HP, etc. The latter makes more sense to me.

(Ellis, you are quite right about the 14n pricing - I was too quick in my perusal of ebay for current pricing. Mille pardons). The market misunderstanding element, though, is emblematic of the other issues we have talked about.

As of 11:00 AM EST, the weekly equity loss for Kodak is over $2 billion, 25% of its market value.

Kevin Crisp
26-Sep-2003, 13:20
The business section of the Los Angeles Times had its take on the Kodak announcement today, and suggested that one of Kodak's goal was to increase its market share of film and would do so by lowering prices.

Jeff Moore
26-Sep-2003, 19:04
John D., I agree with many of your points. I too believe that Kodak's management, in the recent past, and currently as well, has given ample evidence of being rudderless in these tumultuous, changing times in the photographic industry. Their forays into areas outside of their core business have been disastrous for the company and its shareholders. I am in complete agreement with you on this issue.

However, here, in a nutshell is where I think we are in disagreement. I infer from your posts (correct me if I am wrong) that you believe that Kodak should not pursue digital technology at all? In fact, you state "[Kodak has to]...be realistic about their place in the world. Which is, I believe, a large, lean, conventional film producing firm generating very nice margins." Nothing else? No pursuit of digital technology at all? Just film?

A couple of questions: Do you deny that the film market is in decline, and that digital photo technology is on the ascent? Twenty years out, where do you believe the film and digital markets will be, relative to each other?

I suppose that Kodak could eschew digital technology altogether and focus totally on film. But if they do, twenty years from now they will become a quaint little film company, generating nice margins, competing with Bergger and J & C, and employing about 100 people. (And de-listed by the NYSE.)

Moreover, I stand by my ascertion that most new technology is unprofitable in its early stages. Just because Kodak's digital business is unprofitable today is no prima facie evidence that it will not be profitable tomorrow. Kodak may screw this up as well; neither of us has the answer to that question. But I contend the current malaise at Kodak is not due to its decision to put a larger emphasis on the digital segment of the photographic industry.

To deny that the digital market is a growth industry, and that the film market is a mature, shrinking industry is to argue that 2 + 2 = 5. To survive as a viable, growing company into the future Kodak must pursue digital technology (this is not, by the way, limited to inkjet printers). Hopefully, they will pursue digital advances and bring the film segment along with it, much as Fuji is doing today.

I plan on loading film into my Wisner until the day I die; hopefully, some of it will come out of those bright, yellow boxes. But, if not, well, I'll get it from someone else. Anybody seen my buggy whip?


John Downie
26-Sep-2003, 19:37
Hello Jeff,

I think you and I agree on the basic facts - digital is growing and film is declining, though quite slowly overall, given growth in lesser-developed markets. The question is "Can Kodak make money in non-film markets?"

The antics of Kodak are nothing new - when Kay Whitmore announced his retirement in 1990 the stock increased by over $900 million, without an announced successor. That is how bad it was.

The shrink-and-be-profitable strategy is exactly what I am advocating. The value will decline through time, though increase dramatically, initially, without the albatross of the impending digital error. This is in contradistinction to the 25% instantaneous loss stemming from the announced digital strategy. The stock has to go up by 33% just to get back to zero! Kodak will lose money in the growing but incredibly competitive printer (and other digital) markets. They will get creamed and decline at a much more rapid rate than the overall change in the conventional film market.

Entering markets that have overall growth is no guarantee of profitability. Wal Mart became America's most valuable corporation in the same market that put K-Mart into bankruptcy. One has to generate cash at a rate that justifies the investment, not just enter "growth" markets. The management of Kodak should scuttle the current plan, focus on film, and pay out the free cash flows to investors, so that they may invest them in enterprises with some real opportunity to generate inframarginal returns, or at least return the cost of capital. Kodak will turn bread into rocks and destroy shareholder value.

How can you justify the current strategy - one that has wiped out 25% of shareholder's equity?

Would you put your own cash into Kodak?

Jeff Moore
26-Sep-2003, 20:18
John, I disagree with every sentence in the third paragraph of your previous post (excepting the mathematical fact about the climb back to the previous stock price). You cannot state with absolute certainty that the 25% stock price drop is solely, or even partially, attributable to Kodak's digital strategy. I contend that the immediate plunge is attributable to the announcement regarding the dividend.

Kodak is currently being run by a bunch of blockheads; you'll get no argument from me. I just don't agree with your "nothing but film" strategy.

I wish there was a way to conduct the following hypothetical experiment: Monday morning, acting on your strategy, Kodak's management team announces they are abandoning all digital technology, and will become strictly a film company. Yesterday's 25% decline in the stock price would be miniscule in comparison to the freefall that would follow such an announcement.

To answer your final question: No way!

This has been fun, but I gotta go. Take care.

John Bailey
26-Sep-2003, 20:32
Dear John & Jeff

What we may have is our own Rashimon about Kodak. We see it differently, but each of us has some truth and some misunderstanding.

Kodak does lots of things wonderfully and probably too many things poorly. Corporate cultures are difficult beasts to turn around and change. This is only further compounded when a core business comes under such sweeping change from their customers.

It might have been one thing if only the professional/prosumer/advance amatuer market who pushed for film changes and improvements and quality had defected to digital. Instead at the very same time this top level group of users began to leave, the bread and butter customers who picked up a roll or two of film at Walgreens or the local photo store also began to change their purchasing patterns.

When I first bought an early digital camera around 10 years ago, the quality of images was terrible and my printer was not helping the situation. At that time I was convinced it was a gimmick. Then the computer magazines began talking about the amazing new camera from Kodak and I saw one at Calumet during a Kodak road show. I was convinced if I could only scrape together some $28,000 or so, I would be buying a camera for the future. No way was a company going to invent or produce an affordable digital model that I could really afford, let alone affordable, easy to use digital cameras for my parents or friends.

Today most anybody and everybody seems to want a digital camera. I would love to think my nephews would want one of my film cameras to learn how to take photos. They have all bought digital so they can immediately share pictures with their friends on the Internet.

Then there is the whole printing thing. Again, I never imagined a printer on my desk that could produce 'photo quality' images. As I write this, an ad on TV touts Dell's bundling digital cameras and printers along with their computers. From what I have read, the computer makers like HP, Dell and Gateway are expanding their product offering especially in photo products to offset their lower demand and pricing on computers. This is another industry going after the Kodak core.

On one hand, Kodak has to justify strategies to its shareholders. However remember that often the price of stock relates to yield of dividends as much as other factors. Reducing the dividend will cause the price to lessen to find balance. Had they not changed the dividend, perhaps there would not have been the same decline. As I recall, they had been paying out all or more that all of earnings as payments to shareholders instead of conserving cash for purchases or investment in existing lines.

Maybe they should go into printers, maybe they should buy some other company in some other industry. Unfortunately, I do not think film this time will pull them out of the problems.


John Bailey

John Downie
26-Sep-2003, 20:38

It seems you are taking this personally - I have no idea why. Nice to bail with a logic-free final statement.

I cannot state with absolute certainty that the 25% decline in Kodak's market value, plus the reduction of the company's debt rating to one tick above junk was caused by the new strategy. It would be rather an odd coincidence, no? The reduction in dividend was to generate the cash necessary to fund the new strategy - the internal investment and $2 billion in acquisitions required by the new path. It was not a random event. Perhaps you are unaware that Kodak INCREASED its dividend just 20 months ago.

Please Jeff, give one iota of evidence that Kodak can make significant money in digital. They have crapped out on every other new major consumer venture, they have no technological advantage, no manufacturing advantage, no cost advantage, they are entering what is now a mature market against several well-funded, entrenched, and technologically-superior incumbents. Please give some evidence that this can generate positive returns for a laggard like Kodak. Please refute the market reaction with a sound argument.

Your second-to-final line answers all of the questions, I suspect.


Jeff Moore
26-Sep-2003, 20:55
No, no, no. I am not taking this personally; this is great fun, really.

I wouldn't invest in Kodak stock because I don't believe that with their current management they can execute the necessary strategy to succeed, whether they pursue your line of thinking or mine.

I just disagree with the "nothing but film" strategy. And I do contend that if the company announced such a strategy on CNBC Monday morning the stock would freefall to much lower levels.

We'll just have to agree to disagree. Nothing personal.

John Downie
26-Sep-2003, 21:00
That's cool.

I would be interested in evidence, that's all. Keep in mind that ALL of Kodak's operating profits are generated by conventional film-based technology, according to the WSJ. Digital loses money. What is the corporate finance theory that supports the contention that adding other businesses will improve the outlook for Kodak? I am not saying that it will be good in the film-only world, just not as bad as film plus money-losing digital investment world.

Jorge Gasteazoro
26-Sep-2003, 22:11
I do not think film this time will pull them out of the problems.

I think perhaps it might with the correct planning. You guys are focusing in the US market, and your reasons are very good both pro and con, but south of the US border and in many more developing countries film is alive and well.

Loosing 25% of its value in two days is a message from institutional investors that for one, the stock is not making money for them any more (lets face it, if you have 1 million shares and you loose the dividends, that is a hefty chunk of money), second that they disagree with the new strategy. In essence they think Kodak is throwing good money after bad judging from their performance in the digital area, after all their digital division is sucking money out of the company faster than a teenager at the mall with a platinum credit card.

Consumer digital cameras in many countries are still the new toy and are mainly for the upper middle class, since they are the only ones who can afford them and the peripherials. This of course is the minority of the people. If Kodak took the time to develop these markets the profit potential is enormous. WIth these profits they can have some breathing room to create a sound strategy to enter the digital arena. I thought this is what they were doing some years back, but apparently is not, they have let the world market slip out of their hands and have been unable to create a profitable entrance into the digital field.

What Kodak does not seem to realize is that the fundamental bussiness of consumer photography has shifted. Digital cameras are no longer "cameras" but computer peripherials. The kid selling them at Circuit City, Comp USA knows far more about them, knows what are the best accesories and printers and can sell them much better than any clerk at a Camera store. The old maxim "you press the button we do the rest" no longer holds, now a days people press the button and do everything without even thinking about Kodak.

If I was running Kodak I would forget about trying to astound the developed world with then "new" I gig sensor camera or the ultra super duper printer. Other companies are better suited and have much greater advantage than them in these areas. I would look at developing countries as the cash cow and would make research into creating a cheap digital camera that came with a method of outputting photos on paper and would try to do what they did many years ago, when they brought photography to the rest of the world. The first company that manages to bring affordable digital methods to those countries with lower purchasing power, will be the next giant in imaging. Mark my words...

shawn kielty
27-Sep-2003, 06:12
Jorge -- that's beautiful, brilliant - a digital picture spitter -- polaroid should do that. -- I want it to make phone calls, fax, gps, Flashlight, and car door key. Wait -- it's coming. Ultimately the paper will not be necessary -- because we will have displays for information built into the walls, windows and appliances of our houses. Parts of the world with "low purchasing power" are increasing their technical expertise - Many of the jobs now in the high tech industry are in India -- one of those places I would have associated with low purchasing power. Before long it won't be a question of cheap v. good, we, and they, should expect both.

I am not really an advocate of digital over film -- although it may sound that way. I am just trying to identify the truth lying ahead. Utimately, human vision is the lowest resolution device in the system, which explains why we need all these optics. And why digital images are exceptable.

Within ten years or so -- most people in the developed world will be able to shoot and print extremely high quality (possible much better than anything today's film can do) images without film, on their desktop at home, on the phone, in their car - without even a great cost. They will be able to phone them home -- and won't even need the storage in the camera. The number of people willing to tolerate the "hassle" of film will be incredibly small. Storage and data processing technology is increasing at a good pace despite the "lull" in the computer hardware industry. Within a reasonable period of time the entire consumer film market will be absolutely and completely gone.

Even in strongholds of film like the motion picture industry - there are now entire digital films shot with cameras. The consumer market already think that the images are good -- and they like the idea that a digital camera fits into their shirt pocket and can take a bunch of pictures. The image quality is bound to get better.

Every one I know has or asked me if/when I am going to buy a digital camera, shown me theirs -- or given me their polaroid. The answer is -- "When the digital cameras are better than film." Better -- of course -- is highly subjective, and for me has little to do with image quality. A digital back for my 4x5 will probably never really drop in price much -- and I like to take pictures to get away from my computer, not bring it along too. Before long the quality of images produced by consumer digital products will increase - and soon enough my 4x5 will be really obsolete (like it was - in say - 1960).

Kodak must be able to see the writing on the wall -- film enthusiasts won't -- the stockholders probably don't, and the market just continues to be fickle and buy what's in vogue, what's new, the latest gadget, because it doesn't care.

If Kodak doesn't adapt quickly, they'll be buried in film. They need to make annoucements like this - so that the rest of the world will start to prepare for the inevitable reality of not so much film.

What I think is possibly really great about this is that film (as painting was when the camera was invented) will be liberated from the responsibilty of documenting the world.

Jorge Gasteazoro
27-Sep-2003, 10:00
Jorge -- that's beautiful, brilliant - a digital picture spitter -- polaroid should do that. -- I want it to make phone calls, fax, gps, Flashlight, and car door key. Wait -- it's coming. Ultimately the paper will not be necessary

Exactly, Kodak in the past brought us the ease to take photographs, and did so even in countries where people are very poor but still desire to take pics of aunt Gertrude. This can be achieved with as you say a digital picture spitter. Or Kodak using it's name recognition could invest in "one hour labs" where you bring a flash card and you get the pics in a few minutes, coupled with a cheap, easy to use digital camera that gave good enough results, they would probably make a mint. I dont know that paper wont be necessary, I think it will, people will still want to give away pics etc.

For me digital is not an option, but as a bussiness it is the wave of the future, and the future is here and has caught Kodak with their pants down. IMO Kodak will never be able to catch up with the rest, they are just too far behind the ball as far as cutting edge technology goes. Making a digital camera that has 50 M pixels and costs $500000 or a printer that reproduce 100000 colors and shades but costs $30000 is not going to keep them in the black or make the technology available worlwide. Sadly they have forgotten what they do best, which is bringing picture making ability to everybody affordably and conviniently. Ah well, is time to short sell Kodak....:-)

Sergio Caetano
28-Sep-2003, 17:06
" ... We all want to Powerpoint ... " (John Bailey)

John, we WHO ?

28-Sep-2003, 17:50
Well, at least Leica seem to like Kodak's digital products: http://www.bjphoto.co.uk/cms/photo_news/266.shtml.

Kodak have been going since the dawn of popular photography - I wouldn't count them out just yet; the market has simply diversified so no one company will dominate anymore.


Jeffrey Scott
30-Sep-2003, 05:47
This may have been mentioned already but I didn't have time to read all the replies this morning, but I hope this means primarily the 35mm market, which seems to be affected by the digital onslaught the most.

Wilton Wong
16-Jan-2004, 15:34
Scott Killian writes: <I've made this anology on the forum before, but people are still buying sail boats and the combustion engine has been with us for over a century. We all know that practical concerns are not driving this demand and the same is already largely true with film. Niche players will pick up this slack, just as they have in other industries. This is the discussion I was hoping to have here.>

Being a sailboat owner for 25 years, I can tell you about all the sailboat companies going out of business over the years.

But that should not prevent Kodak from continuing to be a multi-national in the film business even if digital does become their cash cow some time in the future. You don't have to exit a business just because it has shrunk, as long as it is still profitable and providing good returns on the investment!