Aiming for a Brighter Picture

By John Greenwald

Kodak zooms in on the home-video market

For Eastman Kodak, 1983 was the year the company's glossy image lost much of its luster. Profits of the world's leading maker of photographic equipment (1982 sales: $10.8 billion) plunged nearly 50% in the first nine months of 1983 as key products faltered both at home and abroad. The company, which prides itself on the warmth of its employee relations, had to make a series of painful layoffs. Kodak stock, meanwhile, sank 12.5% during the year despite the bull market, making it the worst performer among the 30 blue-chip issues in the Dow Jones industrial average.

But the Rochester, N.Y.-based giant has hardly been content to relax and let its dominance fade. Kodak spent much of the year preparing to invade the booming $9 billion market for home-video equipment. This week the company will launch its first attack, introducing a self-contained camera-videotape recorder that runs on narrow, 8-mm tape. The device will be smaller, lighter and easier to carry than most items now on the market, which use wider tape. Says Eugene Glazer, a leading photo-industry analyst for Dean Witter: "The new products are going to be very, very important. Small color-video-camera recorders will be the next big wave in consumer electronics."

Some experts are already predicting that Kodak, which accounts for about 60% of worldwide film sales, will quickly become a leader of the video field as well. But that eminence could be hard to achieve. Not only is the field already packed with formidable rivals like Sony, but new developments are occurring rapidly. In an apparent effort to upstage Kodak, RCA this week will unveil a palm-size video camera that comes with a separate recorder.

The new Kodak products are a key part of the company's all-out drive to sharpen its focus. Kodak, says Chairman

Colby Chandler, 58, is in "a time between eras" and requires "a clear vision of the road ahead." A genial man who wears a Ronald McDonald wristwatch and drives a pickup truck, Chandler has his eye on new, nonfilm technologies like picture-recording optical discs. Says Brenda Landry, an analyst with Morgan Stanley: "In a nutshell, Kodak is attempting to become a major participant in the emerging new forms of image making."

As part of its new push, the company has set aside its longstanding practice of developing all of its own products and has begun turning to outsiders for help. Kodak last fall bought Bell & Howell's DataTape division, which makes digital recording equipment. Last year it also acquired a Mead Corp. unit that makes ink-jet printing equipment. Industry insiders say that Kodak's new video-camera recorder was developed jointly with Japan's Matsushita.

Such forays may be overdue.

"There is no doubt," says Morgan Stanley's Landry, "that during the next ten years the complexion of the photo industry will change more sharply and more rapidly than ever before in its history." Several developments are behind this trend. With 95% of all U.S. households now owning at least one camera, the home shutterbug market is all but saturated. Cameras, moreover, face increased competition from home computers, video recorders and other entrants in the race for the so-called leisure dollar. As a result, many experts doubt that U.S. camera sales will ever again reach 1981's peak of nearly 46 million units.

Kodak, though, has more problems than just a shrinking market. The company's much ballyhooed compact Disc camera, introduced in February 1982, has yet to turn a profit. Total 1983 shipments are estimated at about 7 million units, in contrast with 8 million in 1982. Kodak had expected to sell some 10 million Disc cameras last year and installed enough equipment to produce 12 million. The device, which uses a disc rather than a roll of film, is unlikely to earn back its estimated $450 million in development costs before late 1984.

Kodak's instant camera has been a longer-term disappointment. Launched in 1976 to compete with Polaroid, the Kodamatic has made little money for the company. Shipments of instant film and cameras sagged 20% last year below the already low 1982 levels. Wall Street has so soured on Kodak's venture into instant photography that the company's stock jumped 1 1/4 last September on rumors that it was about to stop making instant cameras.

Increasingly aggressive rivals have also been laying siege to Kodak's markets.

Japan's Fuji Photo Film (1982 sales: $2.5 billion) has become particularly strong.

Fuji stung Kodak by outbidding the American company to get the title of official film for the 1984 Summer Olympics in Los Angeles. Kodak struck back by acquiring the right to have its film named the official one for both the Winter Olympics in Sarajevo, Yugoslavia, and the U.S.

summer team. Fuji, meanwhile, has also been winning points for quality and low prices. Says Modern Photography magazine Columnist Martin Hershenson, about Fuji slide film: "It actually beats Kodachrome in color saturation. Kodak used to stand alone in the film area, but it's simply not that way any more."

Kodak has been responding to tough times partly by paring its payroll. The company laid off more than 3,200 workers last year and began offering incentives for early retirement. Such moves shrank Kodak's worldwide work force by some 7%, to about 127,000.

The cutbacks raised fears in 1 Kodak's home town of Rochester, where the firm is affectionately known as "the Great Yellow Father." Even those affected, however, have been more understanding than bitter. Says Alfred Monk, who took early retirement after 33 years as a stockroom employee: "If Kodak is whittling down, it must be because they have to."

Things are now beginning to look better for Kodak. Sales began picking up in October and November, and analysts estimate that U.S. Christmas business was some 10% better than in 1981. Chairman Chandler insists that the firm "bottomed out" of its slump in 1983 and will soon resume growing at its normally brisk pace. "We know we are capable of performing much better than we have," says he. Once Kodak's new products begin arriving, he believes, the memories of last year's troubles will begin to fade. --By John Greenwald.

Reported by Adam Zagorin/New York

With reporting by Adam Zagorin/New York