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Kodak heading to Chapter 11

Film dinosaur slain by digital demon

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Analysis It's not what you'd call a Kodak moment: Eastman Kodak, the very image of film-based photography, is heading for the Chapter 11 knackers yard because its management, despite the most visible and public threat imaginable from digital photography, has failed to get Kodak out of the digital trap.

The Wall Street Journal reports that Kodak, a company was synonymous with photography during a good part of its 131 years of existence – it had a 90 percent share of US photo-film sales in 1976 – is preparing for Chapter 11 bankruptcy if it can't make survival cash by selling off its patent portfolio, itself a pathetic last act for the once-mighty company.

There's no need to repeat in detail what has happened to Kodak; the overview is damning enough.

Digital imaging killed the film photographic king, which made its money selling photographic media, with one sideline – and a pretty strong one – in point-and-shoot cameras, and another in inkjet printers. That latter one wasn't wise, taking on HP's printing competition – like, really, let's find the biggest gorilla in the printing jungle and compete with it.

It was never really a taking-pictures (camera) company; instead being a making-pictures – processing – company that film to make negatives, prints, and slides at a time when there was no other way to make your pictures visible.

As soon as JPEGs and digital cameras sorted that out, Kodak fell into a hole from which its - we're going to be harsh here - clueless management has failed to extricate it despite spending millions of dollars trying. It's been in trouble since the 1990s, a twenty-year period, and its last profitable year was 2007.

In September of last year, responding to bankruptcy rumours, the company stated:

Kodak is committed to meeting all of its obligations and has no intention of filing for bankruptcy. The company also continues to actively pursue its previously announced strategy to monetize its digital imaging patent portfolio. Kodak remains focused on meeting its commitments to customers and suppliers, and on delivering on its strategy to become a profitable, sustainable digital company.

It is not unusual for a company in transformation to explore all options and to engage a variety of outside advisers, including financial and legal advisers. Jones Day is one of a number of advisers that Kodak is working with in that regard.

What utter bilge. Monetising its patent portfolio is like renting out the family silver, a recourse of desperate people who have no other place to go.

If the world needed yet another object lesson in how a disruptive technology1 can wreck an existing business in full view of that business' executive leadership and over a 5-to-10-year period, then this is it. Digital photography has killed the chemical photography business in full public view – a classic slow train wreck.

Yes, El Reg knows it's easy for hindsight armchair hacks to point the finger, but we haven't been paid millions of dollars, as Kodak's executive leadership has, to stop the company running into the most visible buffers imaginable and then gone and run the company into those buffers. That seems pretty clueless.

As Steve Jobs might have said: "What a bozo."

In its 2010 financial year – a year in which Kodak revenues were $7.19 billion with a net loss of $687 million – Kodak paid its CEO Antonio Perez in salary, bonus, options, and so on a cool $5.7 million. He was effectively The Six Million Dollar Man.

This egregiously obscene amount was a reduction of 50 percent from the $11.4 million he trousered in 2009, because he missed performance targets. MIssed performance targets? Like what, not running the company into the ground? Kodak lost $442 million in 2008 and $210 million in 2009 against revenues of $9.42 billion and $7.6 billion respectively. How can you be that strong in a revenue sense, know your core market is in decline and still make losses because you don't cut costs enough?

It just beggars belief: The Six Million Dollar Man failed.

Perez has been CEO since 2005, and the water has been draining out of Kodak's bath all through that period. Under his leadership, the company has failed to turn things around, and failed drastically. Deciding to enter the inkjet-printing business was just bizarre and indicates delusions of corporate grandeur. As Steve Jobs might have said: "What a bozo."

What should Kodak have done? Gone downstream and bought its way into the digital image making business is what we hindsight armchair hacks say. It should have abandoned analogue photography – when an anchor is stuck in the seabed and stopping you sailing away to avoid a storm, then you cut the anchor chain.

A guy is paid millions of dollars a year to run the Kodak ship, with everyone outside yelling at Kodak to cut that chain, and still he hangs on, hoping, hoping ... lightening the film photography ship, as it were, by selling off patents while digital photography and imagery grows and grows and grows.

And now? Chapter 11 might work but it doesn't answer the bass question: why is Kodak in business and how will it survive and prosper? The best thing to be hoped for is a private equity deal that will bring in management that has a clue. Or there's simple liquidation

We could and should be using Kodak point-and-shoot cameras in a big way, and Kodak could be making light-sensing chippery. Casio entered the digital camera business from outside, from its a digital watch and calculator businesses, and made a go of it. Kodak, on the other hand, with all its photographic knowledge tried to do the same from the inside, and made a mess of it.

Kodak's CEO and board knew it was happening, saw it was happening, responded to it, saw the response wasn't working, and still fouled up. The company's board and executive leadership should hang their collective heads in shame. This is Kodak's moment after all, and they have blown it. ®

1: Bower, Joseph L. & Christensen, Clayton M. (1995). "Disruptive Technologies: Catching the Wave" Harvard Business Review, January–February 1995.

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