Sure, digital imaging killed Kodak, but the decline started in the 1980s

The graph below illustrates the number of Kodak employees over time. It suggests that the company’s decline was not only attributable to digital imaging and lost film revenues. The problems started much earlier and are largely related to the emergence of FujiFilm as a serious competitor on the global stage. Read more about the Kodak vs Fuji case here.

Kodak employees


Quotes from Kodak’s annual report 2000

As we move further into the information age, historical documents are increasingly available online, giving us the opportunity to marvel at how the times are changing. The statement below comes from Kodak’s annual report in 2000 (the complete quote can be found here), which is the year when Kodak’s decline was about to accelerate.

“Last year, the US economy was red hot, and the so-called “new economy” was even hotter. Today, as you scan the business headlines, the key word is “slump”… consumer confidence is in a blue funk… and the NASDAQ couldn’t get much flatter.

The question for investors now becomes, “Where do you invest your money after the bubble bursts?”

Let me suggest three possible answers. First, it makes sense, now more than ever, to invest in strong brands. Because when time are tighter, consumers are less inclined to risk their money on a new or unknown name.

Second, invest in products and services that offer high satisfaction at a low price. In other words, value-for-money is king.

Third, it might be wise to seek companies that are adept at generating cash. Those are the firms that will continue to invest in themselves and prepare for growth, regardless of the economy.

And that as you might have already surmised, brings us straight to Kodak. However, if a great brand and a great balance sheet are not sufficiently compelling, there is something else investors should consider: this is a very smart time to be in the picture business.

Picture-taking is now at an all-time high worldwide. Amateur photographers took more than 80 billion snapshots last year, a new record. They ordered more than 100 billion prints, another milestone for the industry.

In the health imaging category (our second largest business), more records were shattered. Healthcare professionals last year ordered more than 1.5 billion Kodak radiological images.

For the past century, our business has been all about making it simpler for people to capture better images, first with film, and more recently, with digital technology. And, as we continue to make film and digital photography more accessible, picture-taking will continue to grow.”

As a rule of thumb, one should be cautious as investor when management recommends a company’s stock. Management’s job is not to analyze the stock market, their job is to run the business and candidly communicate the business’ performance.


No more Kodak moments in the Olympics

Looking back at the rise and fall of Kodak over the past century, one can make several observations about its role in society. Kodak’s hegemony was manifested through its strong presence in the Olympic Games. During these games, not only athletes compete – firms also compete for our attention. Tracking Kodak’s role in the Olympic Games is therefore a way to track its performance, and vice versa.

In fact, Kodak was present as a sponsor during the first Olympic Games in Athens 1896. Being only 16 years old by that time, Kodak had pioneered amateur photography and created a consumer market that it would thrive upon for more than a century.

At the Olympics, the most famous contemporary consumer brands are exposed. Globally recognized top brands such as Coca Cola and McDonald’s are the only ones that can afford and benefit from such major sponsorships. For many decades, Kodak’s presence in the Olympics was more or less taken for granted.
As the company grew in the 20th century and continued to dominate the photographic industry it became increasingly used to extensive market power. Kodak had built a global monopoly position and with such hegemony usually comes a certain arrogance and resistance to change.

By the early 1980s, a challenger named Fujifilm was gaining momentum. The first signs of Kodak’s decline could in fact be spotted at the Olympic Games in Los Angeles 1984. As Kodak controlled about 90 percent of their domestic market and the organizing committee preferred American sponsors, Kodak took its presence for granted. In doing so, they dictated the conditions and were generally very difficult to do business with.

In contrast, the Japanese challenger adopted a ‘name-your-price’-strategy and eventually became the official sponsor of the Olympics in L.A. Kodak now tried desperately to offset this loss through massive TV advertising but the harm couldn’t be undone – Fuji’s green box was now familiar to American consumers.

After 1984, Kodak made sure to have a strong presence at the Olympics and it seems like the company had learnt from its mistakes. This didn’t stop them from losing market share to Fujifilm, both in the United States and elsewhere.

The next blow to Kodak came with the shift to digital imaging. From the year 2000 and on, the company slid further into decay, the layoffs continued and the 2008 Olympics in Beijing was the last time Kodak entered this stage for global consumer brands. The official motivation for not sponsoring the Olympics in London last year was that Kodak wanted to focus its marketing efforts and get closer to its customers. Put differently: Kodak was no longer a global consumer brand.

As the torches were lit in London last year, the lights had gone out at Kodak.