Kodak's Old School Response To Disruption

Differentiation based on traditional strengths rather than reflexively following the pack may be the most effective strategy. JL

David Sax reports in the New Yorker:

Kodak’s name has become a byword for discarded analog industries. Kodak’s Super 8 project tells an interesting tale about opportunity and value in today’s post-digital economy.What Kodak is selling is a renewed analog experience that taps into the scarcity of a historically resonant product, and that will help it sell some film. Disruption is a distraction from investing in businesses with the proven ability to bring cash in the door today.

Amid the giant televisions, Bluetooth-enabled baby socks, and virtual-reality headsets at the Consumer Electronics Show in Las Vegas, Kodak calmly introduced a more low-key device. Its new Super 8 camera, which will go on sale this fall for a base price of four hundred dollars, is a reimagining of the analog Super 8 format that Kodak invented, in 1965. The new camera’s image-capture process remains relatively unchanged from the original design (light enters the lens and exposes the film), but the company has added a few modern digital features to this updated version. It will include a foldout LCD viewfinder and a computerized menu where light, exposure, and other variables can be controlled, and the audio will be simultaneously recorded onto a digital memory card, for later editing. This hybridized model extends to post-production as well: shoot your film and drop it in the mail, and Kodak processes it into negatives that you can display via a projector, digitally scans the footage, and uploads it to a cloud-based service where you can download and share it.

Beyond the technical specs, Kodak’s new camera is impressive for its chutzpah. The company introduced the Super 8 as a simple and affordable way to shoot motion pictures, essentially creating the home movie. But with the introduction, in the nineteen-eighties, of videotape, which was even simpler, less expensive, and more adaptable, Super 8 sales rapidly declined, and its prestige eroded for all but a few diehard fans. The same could be said for film as a whole. Kodak’s name has become a byword for discarded analog industries—the company invented the digital camera, then ignored it until, in 2012, competition from digital bankrupted it. Yet at C.E.S., Kodak generated more buzz than most other companies—the new Super 8 was featured, for example, on the “Tonight Show”—with a device that is neither fundamentally groundbreaking nor even especially new.

Kodak’s Super 8 project tells an interesting tale about opportunity and value in today’s post-digital economy. Over the past twenty years, the cult of disruption, which embraces the notion that, to succeed today, you must relentlessly innovate and overturn established products and businesses, has become the reigning gospel in the corporate world, especially in America. Frequently, the choice is placed in stark terms: Do you want to be Amazon or Barnes & Noble? Uber or the taxi industry? Instagram or Kodak?

But, while billions of dollars await those who create the next genuinely transformational technology, this goal remains implausible for most companies. For them, disruption is a distraction from investing in businesses with the proven ability to bring cash in the door today. Doing this means seeking out undervalued and neglected asset classes—the core of the meat-and-potatoes investing philosophy followed by everyone from real-estate speculators and private-equity firms to Warren Buffett. Compared to the astronomical market valuations of a tech unicorn, the returns offered by manufacturers of meat cleavers and potato peelers may seem paltry, but they’re dependable and long-term.

For a company like Kodak, this has meant looking beyond the surrounding tech push to revisit an earlier, successful product, and bringing it to what appears to be a simmering market. During an interview at C.E.S., Kodak’s C.E.O., Jeff Clarke, cited an “analog renaissance” as one of the drivers behind the new Super 8 camera. He was alluding to the resurgence, especially among younger consumers, of analog technologies like vinyl records and board games. In a world where digital formats are ubiquitous and often breathlessly promoted, the more restrained, tactile charms of analog goods appeal to a certain subset of consumers.

As a result, if you bought into a record-pressing plant, watchband factory, or a board-game café when those markets were facing serious technological disruption a decade ago, you’ve likely seen your investment grow significantly. According to Nielsen Soundscan, Americans bought nearly twelve million vinyl records in 2015, an increase of more than twelve hundred per cent since 2006. Fujifilm, meanwhile, projects that it will sell more than five million Instax instant-film cameras this year globally, compared to just under a million in 2010. The lesson appears to be that, eventually, disrupted businesses can settle into highly profitable niches: candles, bicycles, and fireplaces were all displaced by better technologies at one point, and yet companies make billions, and grow consistently, by manufacturing and selling these goods each year.

The Harvard Business School professor Ryan Raffaelli documented this process, which he calls technology reëmergence, in a paper published last year on the rise, fall, and resurgence of the Swiss watch trade. Switzerland dominated watchmaking until the nineteen-seventies, when inexpensive digital and quartz watches undercut the domestic industry and sales plummeted. Only after this disruption took place did the industry consider that its traditional expertise might allow it to market Swiss watches as a luxury product—not because it kept better time than a Casio watch, but because, thanks to its disruption, it had become a limited-run, high-value object, worth more by virtue of its scarcity. By 2008, Swiss manufacturers accounted for more than half of global watch exports.

Kodak is hoping to spark a similar resurgence. Following its bankruptcy, in 2012, the company split in two, with the British division (Kodak Alaris) continuing the still-film business, while Rochester’s Eastman Kodak focussed on motion-picture film, as well as the advanced-imaging technologies that drive most of its revenues (touchscreens, inkjet printers, medical imaging, and others). As recently as 2009, the year that Apple introduced the first video-camera-equipped iPhone, the 3GS, Kodak was still producing nearly twelve billion linear feet of motion-picture film; by 2014, the figure had dropped to about four hundred and fifty million. But film remains the core of Kodak’s brand identity, and the company has reaped dividends over the past few years, at least in terms of popular perception, by promising to reinvest in film and support it. Initially, this shift was spearheaded by Hollywood directors such as J. J. Abrams, Quentin Tarantino, and Christopher Nolan, who shoot on film and wanted to guarantee its supply. They claim to prefer its “warmth” and other aesthetic qualities, such as its granularity, as well as the artistic constraints that shooting on film imposes. These are subjective attributes, of course, but for some that’s part of the appeal.

Hollywood’s embrace has, in turn, led to a growing demand for film among independent and amateur filmmakers. Chris Kennedy, the executive director of the Liaison of Independent Filmmakers of Toronto, one of the few remaining Canadian sources for motion-picture film stock, told me that, mainly thanks to young filmmakers, from student directors to wedding videographers, demand for film has more than doubled over the past two years—especially for Super 8 stock, which is still relatively affordable. Kodak’s new Super 8 camera recognizes this demand, and creates potential for new growth. “Kodak’s new camera is something no one expected,” Kennedy said. “It’ll keep film alive for them and maybe even reinvigorate it a bit, because all those people who buy one will need film to put in it.”

The new Super 8 is by no means attempting to challenge the technological supremacy of today’s digital video cameras, or to disrupt the way people make home movies. What Kodak is selling is a renewed analog experience that taps into the scarcity of a historically resonant product, and that will ultimately, the company hopes, help it sell some film. It’s still a gamble, but it probably has a better chance of making money than the “smart” umbrella that appeared at C.E.S.—promising, perhaps, to disrupt the way we sing in the rain.