RIT Experts Discuss Kodak’s Bankruptcy Filing
ROCHESTER, NY—Jan. 19, 2012—The vibrancy of the bright yellow box of film has faded. The iconic Eastman Kodak, once a giant in the film industry, has filed for protection from its creditors under Chapter 11 of the U.S. Bankruptcy Code. Founded in 1881 under the helm of inventor George Eastman, the company was a trailblazer in photographic equipment and cameras until the shift to digital technology.
It’s no longer a “Kodak moment,” say experts from Rochester Institute of Technology (RIT)—who discuss the decline, struggles and opportunities for the global industrial and commercial technology giant.
The following are insights from experts at RIT’s E. Philip Saunders College of Business and RIT’s College of Imaging Arts and Sciences:
The business perspective
Daniel Tessoni, assistant professor of accounting in RIT’s E. Philip Saunders College of Business:
• The Eastman Kodak Chapter 11 filing was not unexpected. The filing indicates that the company’s ability to generate cash from its continuing operations is simply not sufficient to meet its creditors’ obligations.
• The good news is that this will buy time for management to deliver on a business plan that, if successfully executed, would allow it to emerge from Chapter 11 a more financially sound organization. The fact that the company has secured a $950 million line of credit and is seeking a stalking horse bidder for the patent portfolio that it is attempting to monetize can provide time for the company to deliver on a more sustainable business model.
• Ultimately that remains the big question. Is there a viable business model underlying Eastman Kodak’s financial troubles? Companies have emerged successfully from Chapter 11 filings because they have been able to deliver on a financially viable business plan.
• While Eastman Kodak’s management continues to express confidence in its ability to be a successful company, it has not provided any observable or tangible evidence to support that position. Until Kodak’s financial performance improves, its employees, retirees, creditors and other stakeholders remain at high risk.
John Ward, former Kodak employee and lecturer in RIT’s E. Philip Saunders College of Business:
• Kodak has many strong assets to carry forward post bankruptcy. While the brand value has dropped over the years, it is still very strong on a global basis. They have an excellent portfolio of intellectual property in the imaging space that can be the core of new solutions. They have excellent employees around the world. They have strong product lines in the commercial printing areas. These assets are significant and will likely provide the basis for successful go-forward model post bankruptcy.
• “You push the button we do the rest” was the tagline for one of the most unique business models in history. The model provided people with a highly valued way to capture and preserve their cherished memories for over 100 years. There is still an opportunity for some company or companies to provide a similar, simple solution for the entire system—from capture to storage and access in the digital space. The opportunity is large.
• The photography market that Kodak dominated was a uniquely profitable model. Every picture taken used a piece of high profit margin film, and one or sometimes two, pieces of high profit margin paper. Add to this profit on the sale of film, frames and processing, there was tremendous value created. With digital there is profit made on the sale of the camera but after that there is little else. The pie shrank rapidly, and as Kodak had the biggest portion of the pie they felt the most pain.
• One of the things that probably hurt Kodak’s transition plans the most is the lack of consumer printing. Kodak was well positioned to grab a share of this printing market with their photographic, thermal and ink jet solutions.
• In the late 1990s and early 2000, it was clear that digital photography would replace traditional photography. What was uncertain was the rate at which the change would take place. In the short-termed-focused world of the U.S. business it would have been very difficult for a CEO at Kodak to bias towards a more rapid decline of their film and paper business. So the incentive was to always bias toward a slower substitution rate and this led to the “slow bleed” that the company has undergone for the past decade.
• Even if Kodak had made a faster move to focus on digital imaging, the net impact on Rochester, N.Y., would have been very similar. The reality is that digital cameras and other imaging devices would likely be manufactured offshore. Kodak would need to be a much leaner company to compete in the lower profit margin world of digital, regardless.
The historical and photographic perspective
Therese Mulligan, professor and administrative chair of RIT’s School of Photographic Arts and Sciences in the College of Imaging Arts and Sciences:
• Eastman Kodak’s bankruptcy filing marks the end of one era in the larger-than-life legacy of a photographic industry giant, and the beginning of another. For much of its history, the company has been a sustaining force in Rochester, especially in its support of educational institutions, such as George Eastman House, International Museum of Photography and Film, and Rochester Institute of Technology and its School of Photographic Arts and Sciences.
• In an intertwining history of ambition and innovation, legions of Kodak personnel received their educational degrees at RIT, pursuing such diverse areas as professional photographic illustration, photographic sciences and technology, and engineering, to name but a few.
• At RIT today, there is not one student who is not touched by the legacy built by the company—whether walking through the quad or hall that bears George Eastman’s name, being taught by a professor who worked at Kodak, attending an annual photo educational panel supported each fall by the company, working in one of the company-named photo or digital labs, or using the products the company donates to current students for their educational experience.
Andrew Davidhazy, professor of imaging and photographic technology at RIT’s School of Photographic Arts and Sciences in the College of Imaging Arts and Sciences:
• Let’s not forget that Kodak is not alone in this quandary. Film giants like Agfa and Ilford and these days also Fuji are feeling the effects of the digital “revolution.”
• Kodak led the industry in helping set photographic standards. Their research and development division was, in my opinion, second to none in terms of advancing the industry and setting the highest standards that others benefited from.
• Kodak helped RIT in general, and the School of Photographic Arts and Sciences in particular, with significant support through the years—more so than any other corporation. It contributed, to some extent, to establishing a symbiotic relationship. Many RIT grads went on to contribute to Kodak particularly in the areas of chemical engineering, mathematics, electrical engineering, business, etc.
• While some assume that Kodak was in the business of camera making, they were not. They are a chemistry based, film production corporation. They essentially provided the expendable material (film) to the masses much like Mobil, Chevron and others provide gasoline. Once the demand for gasoline dwindles, what will these companies engage in to stay afloat? Build cars? Sell electricity? I don’t think so. One item that others also consider a poor move was to sell off Eastman Chemical.
Malcolm Spaull, chair of RIT’s School of Film and Animation in the College of Imaging Arts and Sciences:
• I’m somewhat surprised that it has come to this because the sale of motion picture film stock and processing chemicals, while declining slowly, is still very profitable.
• Kodak has continued research and development in this motion picture film and there is sustained demand. It will eventually suffer the same fate as still camera film but not for another decade.
• The number of screens in the world projecting movies with film projectors is roughly 80 percent and 20 percent digital.
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