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Monday, 3 October 2011

Requiem for a brand?! Or, why a bankruptcy of Kodak could in fact be the final end of an era in photography.

Eastman Kodak, the once-leading brand of printers, digital camera’s and (until quite recent) camera film is in very heavy weather nowadays.
The brand is on its way to be swallowed by the markets that it (even more than other brands) helped to create: the digital camera and printing market. Kodak’s digital cameras were neither able to compete with smartphones, nor with other successful brands, like Canon, Sony and Nikon. And their printer division is not yet successful enough in its own right to keep the whole company afloat.
Kodak, in a desperate attempt to stem its fate, is considering to sell its ‘family jewels’: the intellectual property of the company with an estimated value of $2.4 bln. If this sale would succeed, all financial trouble would be over; at least for a few years. The strategic focus of the company on its printing division could then be finished and the brand could have a better future after all.
But there is a snag in this intended sale of intellectual property. Bloomberg writes on this developing story, of which I print the pertinent snips:
Eastman Kodak Co. (EK), the unprofitable 131-year-old camera maker, is weighing options including a bankruptcy filing because of concerns raised by possible buyers of its patent portfolio, said three people with direct knowledge of the process.
Some potential bidders for the patents are wary of proceeding because a purchase may amount to a so-called fraudulent transfer if Kodak is insolvent, said the people, who asked not to be named because the talks are private. Kodak confirmed that it hired Jones Day to advise it on considering options and said it doesn’t plan to seek bankruptcy protection.
“As we sit here today, the company has no intention of filing, and there is no change in our strategy to monetize our intellectual property,” Gerard Meuchner, a spokesman for Kodak, said yesterday. “We’re not concerned about fraudulent conveyance in regards to the sale of our IP portfolio.”
A number of suitors, such as Google Inc. (GOOG), have signed confidentiality agreements to examine the assets, said the people. If a sale was judged fraudulent, creditors may sue for more money, said one of the people. A bankruptcy filing may help clear the way for a patent sale, said the people. The sale could fetch about $3 billion, MDB Capital Group estimates.
Kodak plunged 91 cents, or 54 percent, to 78 cents a share yesterday in New York Stock Exchange composite trading, the biggest drop since at least 1974. Trading was halted four times by circuit breakers introduced following the May 6, 2010, crash to prevent losses in one security from spreading throughout the stock market.
 “What’s facing Kodak is whether it can give assurances to third-party buyers that they’re not going to get sued,” Mark Kaufman, an analyst at Rafferty Capital Markets in New York, said yesterday by telephone. “Here’s the irony: If they sell the assets for a good price, the issues of insolvency are over. It’s a conundrum.”
A bankruptcy filing “would be a mechanism to get this asset sale done,” said Kaufman, the only analyst among seven tracked by Bloomberg who rates Kodak as “buy.” He values the patents at $2.4 billion.
Kodak’s sales have fallen by half since 2005 to $7.2 billion last year, with further declines predicted this year and next. The company’s losses since 2008 exceed $1.76 billion.
Todd Harrison ( always says: ‘Hope is not a viable investment strategy’. And I may add that compassion is even worse than hope.
Objectively, Eastman Kodak seems more like a brand of the past than a brand of the future. Even if their turnaround strategy towards printing and copying succeeds, the company has extremely fierce competition with giant companies like HP, Canon, Xerox, Nikon, Kyocera and Konica Minolta, to name a few. And their roll in the digital camera industry is currently (virtually) non-existent.
The bankruptcy filing for Kodak, in order to sell all patents without legal consequences for their buyers, seems like a panic-stricken advance: although it might work as a strategy, it might also be the final blow for the company. That is an opinion that is unfortunately shared by many shareholders, when you look at last Friday’s 54% drop in value.
But still, it would be a shame for me if Eastman Kodak would disappear eventually. My life and career are at some points closely connected to the brand:
·    My father was a passionate and very talented photographer during his life. Kodak’s yellow film boxes are therefore etched in my memory.
·    During my first project at my first official job in 1992, I was invited for a demonstration of the first Kodak/Nikon digital camera. This camera could be bought for a ‘token’ price of $25,000, together with a Kodak digital image printer ($25,000) and a Kodak slide-film scanner ($25,000).
o    This first professional digital camera, although priceless and almost exclusively used by official press photographers, was about as important for photography, as Neil Armstrong was for the space race.
o    In a way you could say that Kodak helped to dig its own grave by developing the digital camera. But, had the brand not done it, the competition would have anyway.
·    In 2002, I was introduced to the brilliant Kodachrome slide-film by a story in my newspaper. I was immediately hooked to the product, although it was quite expensive, had a terrible ISO-rate (64) and the films needed to be shipped to Switzerland (!) in a special envelope for developing, which took about two weeks;
o    If you saw the Kodak package in the mail box, it always felt like Santa was coming to town.
o    Since then I keep wondering, why we accept the poor quality of our digital cameras and abolished material that could supply such beautiful pictures.
o    Sometimes evolvement is truly abatement, as digital and (especially) smartphone pictures take us 75 years back in time, as far as quality and definition are concerned.  
But all these ponderings won’t help Eastman Kodak to survive. Sometimes brands just cease to exist as they are at the natural end of their lifecycle. Let’s hope it will not be that way for Eastman Kodak, but I won’t put my money on it, if you don’t mind.

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