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Mark ở vũ trụ khác · Another Universe Anatomy of a Business Failure #1 · Photography · Strategy

Kodak

Eastman Kodak · filed for bankruptcy 19 January 2012 · Rochester, New York

Whatthe film giant files for Chapter 11
Scale$6.75 billion in debts, $5.1 billion in assets
Paradoxa Kodak engineer built the first hand-held digital camera, in 1975
Main sourcesKodak's 10-K and 8-K filings with the SEC, the Chapter 11 case (SDNY 12-10202)

Source: Kodak press release, 19 Jan 2012; assets and debts from the bankruptcy petition as reported by CNN Money and the Rochester Business Journal (secondary source); US patent 4,131,919 (1978).

One-minute recap

Essence

Saw it in 1975A Kodak engineer built a hand-held digital camera prototype. Kodak patented it in 1978.
Even led in digital camerasIn 2005 Kodak sold the most digital cameras in the US: a 24.9% unit share.
The money was in the loopFilm, paper, processing: bought again and again. A digital camera needs no roll of film.
The old yardstick as judgeDigital ideas were judged by the film business's questions. This is Mark's reading of the record.
Out of time in 2012Revenue fell from almost $16 billion (1996) to $6 billion (2011). Bankruptcy filing on 19 Jan 2012.

Source: US patent 4,131,919 (1978); 2005 share from IDC as reported by AP (secondary source), with Kodak claiming the No. 1 spot in its Q1 and Q2 2005 8-Ks; 1996 revenue from the 1996 10-K, 2011 from the 2011 10-K; Kodak press release, 19 Jan 2012.

Part 1

The question

The company that built the first digital camera, and later sold more digital cameras than anyone in America, still went bankrupt. Why? Not because it could not see the future. Because for too long the future was graded with the yardstick of the past.

Source: 1975 prototype per IEEE Spectrum (secondary source) and patent 4,131,919; 2005 share per IDC via AP (secondary source). The answer is Mark's interpretation.

1975–1991InventionDigital camera prototype, megapixel sensor, first professional digital camera.
→
2003–2005A late turnCuts the dividend to fund digital. Wins one battle: No. 1 in US digital cameras.
→
2007–2012The fallFilm collapses, digital cameras get replaced too. Bankruptcy filing.
Part 2

What happened

Revenue from Kodak's annual 10-K reports filed with the SEC; bankruptcy milestones from company releases and court records.

Kodak revenue as reported each year: 1996 about $15.97 billion, 2000 about $13.99 billion, 2003 about $13.32 billion, 2005 about $14.27 billion, 2007 about $10.30 billion, 2011 about $6.02 billion. Bankruptcy filing in 2012. 1680 15.9713.9913.3214.27*10.306.02 199620002003200520072011 revenue, $ billions, as reported each year * the 2007 10-K restates 2005 revenue as $11.395 billion after removing discontinued operations
Peak in 1996, steep fall after 2005. In 2005, the year digital revenue overtook film, total revenue ticked up, then dropped hard. Years after 2005 do not cover exactly the same businesses as earlier years, because Kodak removed units it had sold.Source: 1996 10-K (1996), 2002 10-K (2000), 2003 10-K (2003), 2007 10-K (2007 and restated 2005), 2011 10-K (2011); 2005 figure from Kodak's January 2006 results release as reported by dpreview and the Rochester Business Journal (secondary source).
1975 · A digital camera in the labSteven Sasson builds a prototype: about 3.6 kg, 100×100 pixels, black and white, 23 seconds to record one image to a cassette tape.
1978 · PatentKodak is granted US patent 4,131,919, "Electronic still camera".
1986 and 1991 · Still aheadA sensor of about 1.3 million pixels (1986). The DCS 100 (May 1991), the first commercially sold digital SLR, for photojournalists.
1988 · Peak headcount145,300 employees worldwide.
1996 · Peak revenue$15.968 billion, net earnings $1.288 billion.
Sep 2003 · The turn to digitalAnnual dividend cut from $1.80 to $0.50 a share to fund digital. The stock falls, a group of shareholders objects.
2005 · One battle wonNo. 1 in US digital cameras (24.9%). Digital is 54% of total revenue.
2007 · Film falls fastFilm capture sales down 30%, traditional photofinishing down 19% from 2006.
19 Jan 2012 · Chapter 11 filingBankruptcy Court for the Southern District of New York. A $950 million loan arranged by Citigroup keeps operations running.
9 Feb 2012 · Exit from digital camerasKodak leaves digital cameras, pocket video cameras and digital picture frames.
3 Sep 2013 · Out of bankruptcyMuch smaller, focused on commercial printing.

Source: IEEE Spectrum (1975 prototype, 1986 sensor, DCS 100; secondary source); US patent 4,131,919; Kodak chronology published by the Rochester Business Journal in 2012 (145,300 employees; secondary source); 1996 and 1997 10-Ks (revenue, 1996 earnings); 2004 POS AM filing (dividend); WSJ, 21 Oct 2003 (shareholder reaction; secondary source); IDC via AP (2005 share; secondary source); January 2006 results release via dpreview (54%; secondary source); 2008 10-K (film in 2007); Kodak release, 19 Jan 2012; 8-K of 9 Feb 2012; 8-K of August 2013 and Institutional Investor (emergence; secondary source).

Part 1

What happened

1975No. 1 in 2005$16B → $6B19 Jan 2012
Part 2

Why

the film loopthe old judge2003 dividendmyths
Part 3

Work lesson

a separate judgeswitch points in advancewhere is the recurring money
Part 3

Why: four layers of cause

Strategy, people, organisation, incentives. No single layer explains it alone.

Strategy: the money was in the loop

recurring revenue · consumables2008 10-K; Sasson
Two loops. The film era: buy a camera once, then buy film, develop, print, then buy film again, round and round. The digital era: buy a camera once, shoot to a memory card, view on a screen, nothing to buy again. film era buy film develop, print shoot repeat, paying every time digital era buy camera shoot screen no roll of film to buy again camera sold once, many rivals Illustrative diagram, no figures.
Winning in digital cameras is not the same as keeping the loop. Sasson himself said what fascinated him was photography "without consumables". For a company that lived on consumables, that was both an invention and a threat.Source: Sasson's account published by PetaPixel (secondary source); 2008 10-K (film capture down 30%, photofinishing down 19% in 2007). This piece uses no figure for film margins because none was found in primary filings.

People: early, clear warnings

early warningsSasson 1975; Barabba 1981
Three warnings over time. 1975: Sasson's prototype, managers sceptical. 1981: an internal market study, according to Barabba's memoir, concluded digital could replace film and Kodak had about 10 years. 2003: Kodak formally turns to digital, 28 years after the prototype. 1975prototypemanagers sceptical 1981internal study"about 10 years" 1991DCS 100for professionals 2003turn to digitaldividend cut 28 years from prototype to the decisive turn
Not a matter of not knowing. Sasson told the New York Times that managers then were convinced "no one would ever want to look at their pictures on a television set". But the 1975 prototype was not usable either: 23 seconds to record one image. The 1981 "10 years" forecast exists only in the memoir of the man who ran the study.Source: Sasson to the New York Times, 2008 (secondary source); IEEE Spectrum (23 seconds; secondary source); Vince Barabba, The Decision Loom (2011), memoir (secondary source; another summary says 20 years); 2004 POS AM filing (2003 dividend).

Organisation: the old business as judge

the cash cow as judgeMark's interpretation
A balance. The left pan is the film business: large, recurring, easy to measure. The right pan is the digital idea: small at first, thin margins, customers unclear. When the judge asks "does it earn like film?", the digital idea is always lighter. film businesslarge, recurring, familiar digital ideasmall, thin margins, unclear buyers the judge's question: "does it earn like film?"
The yardstick decides the result. No record says "digital rejected because of film". But the sequence (scepticism in 1975, forecast in 1981, decisive turn in 2003) fits an organisation where new ideas had to prove themselves by the old business's standards. This is Mark's interpretation, not a finding by a court or the SEC.Source of events: as in the people layer above. The interpretation is Mark's; see also Lucas and Goh (2009), Journal of Strategic Information Systems 18(1).

Incentives: turning hurts now, not turning hurts later

incentives · dividends2004 POS AM; WSJ 2003
Annual dividend per share: $1.80 before September 2003, $0.50 after, a 72 percent cut, to fund digital. The stock fell about 14 percent and a group of shareholders campaigned to reverse it. annual dividend before Sep 2003$1.80 after 24 Sep 2003$0.50 (−72%) reaction: stock down about 14%, a group of shareholders campaigns to reverse the strategy money taken from shareholders to buy the future, but the future was already crowded
The right direction, late and contested. People paid in dividends today have a reason to want film for one more year. Every year has such a reason.Source: Kodak's POS AM filing with the SEC, 2004 (semi-annual dividend $0.90 → $0.25 from 24 Sep 2003); dpreview (72%; secondary source); Wall Street Journal, 21 Oct 2003 (stock down about 14%, shareholder opposition; secondary source).

One battle won

2005: No. 1 in US digital cameras, 24.9% (IDC via AP, secondary source); 54% of revenue from digital (Kodak, January 2006, via press).

The game lost

9 Feb 2012: Kodak exits digital cameras, pocket video cameras and digital frames (8-K of 9 Feb 2012).

The weight of the big years

End of 2011: US retiree benefits other than pensions above $1.2 billion, about $10 million a month (8-K, November 2012).
Part 4

Fact check: what is true and what is myth

14 things often said about Kodak, checked against Kodak's SEC filings, the bankruptcy record and clearly labelled sources. Click a line to see why.

Two figures for 2005 revenue. The figure reported in early 2006 is $14.27 billion. The 2007 10-K restates it as $11.395 billion after removing discontinued operations. reported Jan 200614.27 restated, 2007 10-K$11.395 billion same year 2005, different scope: the later figure drops units Kodak sold
Two numbers, neither wrong. When comparing Kodak's revenue across years, ask which businesses the number includes.Source: Kodak's January 2006 results release as reported by dpreview and the Rochester Business Journal (secondary source); 2007 10-K, statement of operations.
SOLIDA Kodak engineer built the first hand-held digital camera in 1975

Steven Sasson, 1975 prototype; Kodak was granted US patent 4,131,919 in 1978. Note: it was the first self-contained hand-held digital camera, not the first device ever to make a digital image (IEEE Spectrum, secondary source).

SOLIDIn 2003 Kodak cut its dividend to fund digital, and shareholders objected

2004 POS AM filing: semi-annual dividend from $0.90 to $0.25 from 24 Sep 2003. Wall Street Journal (21 Oct 2003, secondary source): stock down about 14%, a group of shareholders campaigned to reverse it.

SOLIDIn 2005 Kodak was No. 1 in US digital cameras

IDC via AP (secondary source): 24.9% unit share, 7.05 million cameras; Canon 17.7%, Sony 16.9%. Kodak itself claimed the No. 1 spot in its Q1 and Q2 2005 8-Ks.

SOLIDIn 2005 digital revenue overtook traditional revenue

54% of total 2005 revenue, per Kodak's January 2006 results release (via dpreview, secondary source). This is the company's own figure.

SOLIDOnce film started falling, it fell fast

2008 10-K: in 2007 film capture sales fell 30% and traditional photofinishing 19% from 2006.

SOLIDKodak filed for bankruptcy on 19 Jan 2012, with debts above assets

Kodak release, 19 Jan 2012: Chapter 11 in the Southern District of New York, $950 million loan from Citigroup. The petition listed $5.1 billion in assets and $6.75 billion in debts (CNN Money, Rochester Business Journal; secondary source). Case no. 12-10202, Judge Allan Gropper.

CAUTION"Management buried the invention to protect film"

Sasson recalls scepticism. But the 1975 device was not usable: 23 seconds to record one image, viewed on a TV. Snopes (secondary source) concluded the main reason was that it was not ready. Kodak still patented it and kept researching (1986 sensor, 1991 DCS 100).

CAUTIONThe line "That's cute, but don't tell anyone about it"

Widely shared, but no dated original source was found. The sourced remark is Sasson's to the New York Times in 2008: managers were convinced "no one would ever want to look at their pictures on a television set" (secondary source).

CAUTION"In 1981 Kodak knew it had 10 years"

Only in the memoir of Vince Barabba, who ran the study (The Decision Loom, 2011). Another summary says 20 years. The original study has not been seen.

CAUTION"Digital cameras killed Kodak"

Kodak won in digital cameras (2005), then abandoned that business too (8-K, 9 Feb 2012). Film fell fast, a camera sold once has no loop like film, and retiree costs were heavy (above $1.2 billion, 8-K November 2012). Several causes stacked up.

CAUTION"Fujifilm faced the same and survived, so Kodak was just badly led"

Fujifilm diversified early; film was about 60% of its operating profit in 2000 (Harvard d3, PetaPixel; secondary sources). But its structure differed (Fuji Xerox), and secondary sources disagree on film's share of revenue (54% or 33.5%). The comparison is suggestive, not proof of a single cause.

FALSE"Kodak did not see digital cameras coming"

Kodak built a prototype in 1975, patented it in 1978, made a megapixel sensor in 1986, a professional digital camera in 1991, turned to digital in 2003 and was No. 1 in the US in 2005. Kodak saw. What it lacked was speed, and a way of making money to replace the film loop.

FALSE"In 1998 Kodak had 170,000 employees and sold 85% of the world's photo paper"

A post circulating since 2016. Peak headcount was 145,300 in 1988 (Kodak chronology via the Rochester Business Journal); about 86,000 in 1998 (The Week, 2011, via TruthOrFiction). Both are secondary sources, but both are far below 170,000. The 85% has no source.

FALSE"Kodak went bankrupt and disappeared"

The court confirmed the reorganisation plan on 20 Aug 2013 (Kodak 8-K). On 3 Sep 2013 Kodak emerged, smaller, focused on commercial printing. The personal imaging business went to the UK Kodak Pension Plan and became Kodak Alaris (8-K April 2013; Institutional Investor, secondary source).

Source: as given in each line; full list in Part 8.

Part 5

Assessment

Scores are Mark's assessment based on the sources in Part 8, not figures from a study.

Saw it coming
5/5
Acted in time
2/5
Avoidable
3/5
Transparent record
4/5
Done right
  • Invented early, patented
  • Dared to cut the dividend to turn digital (2003)
  • Won US digital cameras in 2005
Done wrong
  • 28 years from prototype to the decisive turn
  • Won on devices, never found a new loop
  • Patents sold for about $525 million, far below expectations

Source: patent sale of about $525 million (Dec 2012) and analysts' expectation of $2–3 billion per TechCrunch (secondary source).

Kodak was not blind. It saw very early, but let the film business sit as judge for too long, and when it turned, the new money was no longer in what Kodak sold.

More: why the "didn't see it" story is so easy to believe

"Kodak didn't see digital coming" is a tidy story: an arrogant giant, an ignored future. It is easier to tell than the messy truth: a company that saw, studied, invested, even won, and still lost.

The messy version is more useful at work. Most of us do not lack information about the future. We lack a way to stop new ideas being graded by the yardstick of whatever pays our bills today.

The "More" section is Mark's commentary, based on the sourced events in Parts 2 and 4.

Part 6

Work lesson: don't let the cash cow judge the new idea

For any team with one thing that "feeds the family" and one new idea that is still small: a product, a sales channel, a way of working.

Four habits: a separate judge for new ideas; write how a rival would kill your own business; write switch points in advance; ask where the recurring money is. 1 · a separate judgeits own yardstickwhat we learned, who came back 2 · eat yourself firsta one-page "rival"how they would kill this 3 · switch points in advancehit the line, switchdecide before you need to 4 · where is the loopa new "roll of film"not just a new "camera" "We know" is not "we have switched".
Each habit patches one of Kodak's failures. Ideas graded by old standards, waiting for rivals to move, a decisive turn 28 years late, and winning on devices while losing the loop.Source: the failures come from Parts 2 and 3; the habits are Mark's suggestions.
A separate judgeGrade a new idea by what you learned and whether real users come back. Not by this month's revenue of the old business.
Eat yourself firstWrite one page: "If we were the rival, how would we kill this business?" Then ask: why aren't we doing it first?
Switch points in advanceWrite it down now: which metric, at which threshold, moves people and money. Decide while calm, act when due.
Where is the recurring money?Is the new product sold once or sold forever? Winning the "camera" but losing the "film" can still be losing.
Check your own team: 5 questions

1. What question stopped your team's last new idea? Was it a yardstick of the old work?

2. Who on the team can say "yes" to a new idea without the old business agreeing?

3. If a rival launched a cheaper, faster version next month, what would you lose first?

4. Is your switch point written down? If not, write one number today.

5. Where does the new product earn recurring money: service, supplies, a subscription, or nowhere?

They were convinced that no one would ever want to look at their pictures on a television set.Steven Sasson on Kodak managers' reaction in 1975, to the New York Times in 2008 (secondary source).
Part 7

Further reading

Lucas and Goh (2009), "Disruptive technology: How Kodak missed the digital photography revolution"Journal of Strategic Information Systems 18(1), 46–55. A peer-reviewed case study.
Vinokurova and Kapoor (2022), "Kodak's Surprisingly Long Journey Towards Strategic Renewal"Wharton working paper: half a century of Kodak trying to go digital, against the "didn't see it" story.
Kodak's 10-K reports for 1996, 2003, 2007, 2011Read "Business" and "Risk factors" to see how the company described its own change.
Anatomy of a Business Failure #02: Theranos (2015–2018)Verify before you trust the demo, and who is allowed to say "it doesn't work yet".
Part 8

Sources

Kodak's SEC filings and the bankruptcy record first. Secondary sources are labelled. The working environment blocked sec.gov, so primary filings were checked through excerpts of the sec.gov pages in search results, not read in full.

  1. Eastman Kodak, Form 10-K for 1996 and 1997 (revenue, net earnings 1995–1997). sec.gov · sec.gov
  2. Eastman Kodak, Form 10-K for 2002 and 2003 (revenue 2000, 2002, 2003). sec.gov
  3. Eastman Kodak, Form 10-K for 2007 and 2008 (restated 2005–2007 revenue; film and photofinishing 2007). sec.gov · sec.gov
  4. Eastman Kodak, Form 10-K for 2011 (revenue $6.022 billion, loss $764 million, about 17,100 employees). sec.gov
  5. Eastman Kodak, Form POS AM, 2004 (dividend cut of 24 Sep 2003). sec.gov
  6. Eastman Kodak, Q1 and Q2 2005 8-Ks (No. 1 in US digital cameras). sec.gov
  7. Eastman Kodak, press release of 19 Jan 2012 on the Chapter 11 filing. investor.kodak.com. Case In re Eastman Kodak Co., US Bankruptcy Court, Southern District of New York, no. 12-10202 (ALG).
  8. Eastman Kodak, 8-K of 9 Feb 2012 (exit from capture devices). sec.gov
  9. Eastman Kodak, 8-K of November 2012 (retiree benefits above $1.2 billion). sec.gov
  10. Eastman Kodak, 8-K of April 2013 (settlement with the UK Kodak Pension Plan) and August 2013 (plan confirmed). sec.gov · sec.gov
  11. US patent 4,131,919, "Electronic still camera", Sasson and Lloyd, Eastman Kodak, 1978. patents.google.com
  12. Secondary sources: IEEE Spectrum (1975 prototype; KAF-1300 sensor; DCS 100); PetaPixel (Sasson's account); New York Times 2008 (Sasson); Vince Barabba, The Decision Loom (2011); Wall Street Journal, 21 Oct 2003; dpreview (2003, 2006); AP/NBC News (IDC share 2005); Rochester Business Journal (Kodak chronology, 2012); CNN Money, 19 Jan 2012 (assets and debts); TechCrunch, 19 Dec 2012 (patents); Institutional Investor (emergence); Snopes; TruthOrFiction; Harvard d3 and PetaPixel (Fujifilm).