When we think of Kodak, we think of cinema. It’s always fascinating to see how large companies react when new technologies threaten to upend their existing businesses, and Kodak’s clash with the digital revolution is a fascinating example. In the 1970s, when Kodak dominated the photographic film market and offered gadgets that shaped an entire generation, the New York company was hesitant to embrace digital photography because of poor image quality and, more importantly, because digital threatened its hugely profitable business. The amazing thing about the story is that Kodak was not caught off guard by another company offering this technology, since Kodak had invented it itself.
The story begins in 1975 when a 24-year-old Kodak engineer, Steven Sasson, was given a seemingly minor task: to find out if a new electronic sensor called a charge-coupled device (CCD) had any practical use. Sasson’s inquisitive mind led him to build what turned out to be the world’s first digital camera. As you can imagine, this was far from the type of high-tech digital camera that many people enjoy today. For example, the rudimentary camera took 23 seconds to record a photo onto a cassette (yes, a cassette!), and even then it was black and white and 100 pixels square. After inspecting the results, Kodak’s top team wasn’t particularly impressed, concluding that people would much prefer prints to lower-quality digital images. But as the quality of digital images improved, Kodak became increasingly aware that digital photography posed a serious threat to a business model that generated huge profits across the entire photographic process, from cameras and film to processing and prints. Still, Kodak knew it couldn’t ignore this technology and so continued working on it to see where it could take it.
The great choice of Kodak
By 1989, it was clear that digital photography was on the right track, whether Kodak was at the forefront or not, and Sasson’s prediction in 1975 that it would compete with analog photography in 15 to 20 years seemed even more prescient. The challenge for Kodak now was whether to go all-in on digital photography, knowing full well that it could hurt its lucrative film business, or whether to hold on and protect it for as long as possible.
While major companies like Sony and Canon were developing electronic photography technologies in the 1980s, Kodak was also pursuing its own digital photography technologies. In 1989, for example, Sasson and his colleague Robert Hills produced a 1.2-megapixel digital SLR (single-lens reflex) with image compression and memory cards, bringing digital cameras closer to the form we know today. Sasson’s camera was actually good enough to sell, but in a crucial decision, the company chose not to manufacture it, apparently fearing that it would ruin its film sales.
At this point, it seemed that the question for Kodak was no longer whether digital photography would become a viable option for consumers, but when it would become a true competitor to film. In the 1990s, Kodak continued to work on digital technology while fully supporting its film business, which continued to generate good profits. Oddly, the company seemed to be preparing for a future that it also had an interest in delaying. But changes were happening quickly, and eventually Kodak’s hand was forced.
Decline of cinema and reorganization of Kodak
By the early 1990s, other companies were already marketing the first digital cameras, with Fujifilm, for example, unveiling the FUJIX DS-X in 1989, and the Dycam Model 1 a year later. The transition to digital photography was accelerating, forcing Kodak to respond. This he did in 1991 with the professional digital camera system (DCS). But the DCS still clung to Kodak’s analog roots since the camera, while capable of capturing 1.3-megapixel images, was built as an accessory for a modified Nikon F3 film camera.
For most of the 1990s, film sales remained profitable as camera manufacturers continued to work on more advanced digital cameras. But by 2002, with better digital cameras on the market – some of them even becoming cool again – new cameras were outselling film cameras. Kodak’s digital cameras also proved popular, bringing them more than 20% of the U.S. market by 2004. But as it made headway in this nascent sector, Kodak’s once-profitable film business was collapsing, with global film sales falling 20% in the third quarter of 2005.
Ironically, Kodak wasn’t doing a bad job in its digital efforts, but the economics were very different than before. As photographers abandoned film, Kodak saw its bottom line decline rapidly because it could not sell enough cameras to replace its film revenue. The situation worsened and Kodak filed for bankruptcy in 2012 before becoming a much smaller company a year later. Even though Kodak saw the future, it failed to embrace it quickly and effectively enough to transition smoothly from film, and paid the price with drastic reorganization and a sharp drop in overall revenue.
