What Legacy Media Can Learn from Eastman Kodak

What do you do when your industry is changing? What do you do when your innovations are fueling the changes? Those problems have plagued Eastman Kodak Co. for three decades and the company’s experience provides some lessons for those running legacy media businesses.

Eastman Kodak’s success began when it introduced the first effective camera for non-professionals in the late 19^th century and in continual improvements to cameras and black and white and color films throughout the twentieth century. Its products became iconic global brands.

The company’s maintained its position through enviable research and development activities, which in 1975 created the first digital camera. Since that time it has amassed more than 1,100 patents involving electronic sensing, digital imaging, electronic photo processing, and digital printing. These developments, however, continually created innovations damaging to its core film-based business.

Digital photography created a strategic dilemma for the company. It could move into digital photography and destroy the highly profitable film-based business or it could exploit the film-based business while it slowly declined and then--when it was no longer profitable--try to leap out of the business into digital world. It was an ugly choice and the company chose the latter.

Today, the company has just 15% of the employees it once had and its stock prices are about 15% of what they were before it finally stripped out its production capacity and distribution systems. An enduring benefit of its research and development activities is that the company now owns patents on much of the underlying technology used in all digital cameras including those in mobile phones. It is building a new digital revenue stream on licenses and infringement payments for use of those technologies. Those alone now account for 10% of its turnover.

Eastman Kodak’s situation is not unlike that of legacy media firms, especially those in print, whose uses of digital technologies two decades before the arrival Internet and whose experiments with teletext and other telecommunication based information distribution systems foreshadowed the arrival of the Internet.

Today, newspapers and magazines—and increasingly broadcasters—are faced with dilemma of whether to keep exploiting their base legacy product or to dump the old business and jump fully into digital. It is as ugly a choice as that faced by Eastman Kodak in the 1980s and 1990s. So, what lessons can be learned from its experience?

1)      Don’t try to fight change

You may not like its direction and may understand how it will affect your current business, but you will not be able to stop its momentum and trajectory if it is beneficial to many customers. In such conditions you can only protect your existing product by making it as productive and competitive as possible, by adjusting its strategies to better serve those who are most loyal and resist change, and by carefully monitoring the pace of change and the investments you make in the existing product. Simultaneously, existing companies that want to benefit from the change need to be creating new products for the new markets and allow them to develop and mature with the pace of change even though they may be compounding the challenges in the pre-existing product.

2)      Don’t wait too long to change

Waiting to move into new markets with new products gives upstart companies and other competitors opportunities to become players with better products and larger market shares once you decide to enter. Although there are sometimes reasons not to be first movers, you should not wait too long because it is very difficult and expensive to enter and become a major player once a new market moves into its maturation phase.

3)      Be willing to sacrifice some short-term profit for long-term gain and sustainability

Careful strategic consideration must be given profits during transitional periods and managers needs to make the strategy clear to the company and its investors. It may be desirable to boost research and development costs even though there is no guarantee they may produce results; it may be necessary to harm the profits of the existing product by building up its replacement and cannibalizing some of its market; it may be appropriate to make investments in the new product that may not pay off in the short-term. Whatever the strategy, it should be the result of clear and deliberate choices and managers need to ensure that investors and entire company understand the reasons for it.

4)      Own the rights to technologies and services your competitors will employ

Use your R&D efforts and make strategic acquisitions to acquire the technologies and services that competitors will need to employ in the new market so they must turn to you and share the benefits of their growth. Unfortunately, few legacy media companies invested in research and development to early exploit opportunities in digital media by creating the underlying hardware and software for content control and distribution online and in phones, tablets, and computers. Thus, they own few intellectual property rights other than trademarks to their legacy media names and most are not benefiting as Eastman Kodak from patents being used by those eroding the business base. However, the new products still need content products and content management services that legacy media have long produced and companies need to be open to cooperating with the new competitors rather than giving them incentives to go elsewhere or to develop their own content capabilities.

These are turbulent times for legacy media and they require making choices and positioning firms for the future. It is no time for timidity or keeping on with business as usual.

Google, Newspaper Archives, and the Business of Cultural Heritage

Google announced this month that it is ending its ambitious project to digitally archive newspapers. The project to scan the archives of the nation’s newspapers and make them available online as a searchable historical record was announced in 2008 with the level of hubris only found in online enterprises.

"Our objective is to bring all the world's historical newspaper information online,” said Adam Smith, director of product management at Google, announcing the project. Those lofty aims were echoed by Punit Soni, manager of the newspaper initiative: “As we work with more and more publishers, we'll move closer towards our goal of making those billions of pages of newsprint from around the world searchable, discoverable, and accessible online…."Over time, as we scan more articles and our index grows, we'll also start blending these archives into our main search results so that when you search Google.com, you'll be searching the full text of these newspapers as well.”

After scanning about 60 million pages and beginning to make them available as full page shots--because costs of disaggregating and indexing were too high and copyright clearances were difficult to obtain for older material—the company announced that it will quit scanning pages, but continue offering the existing pages available on it Google News Archive site. It said it would not invest any new effort to improve indexing or add tools to better search and manage the archive.

The project may have been well-intentioned, but it was not well thought out. It was a free service designed to use the search traffic at the site to raise revenue through advertising Google would put on the site. The scale of the project was enormous and requiring finding, scanning, and indexing thousands of daily and weekly newspapers--many no longer in existence. It would require a long-term commitment of funds, personnel and server capacity to catalogue and scan the material and provide and maintain search functions. The project ultimately incorporated on a fraction of the papers it had hoped to scan, did so spottily in many cases, and its usability was poor because it never mastered the problems of handling so much content. Worse yet, it discovered that history was not a money making business.

The exit announcement is not a surprise and is another sign that players the virtual world are stopping deluding themselves that they are replacing the entire world and that the laws of economics and finance to not apply to them.

As laudable the preservation of newspaper archives might be, expecting it to be completed and maintained by a commercial firm defied sense and historical experience. For centuries, the most important historical records, books, art have been maintain in governmentally and charitably funded collections because commercial enterprises were either unwilling to bear the costs or to allow the large scale efforts required to preserve, catalogue, index, and make available cultural heritage materials distract them from their business activities.

Why would anyone expect Google to act otherwise?

As Google increasingly acts as a mature business it will increasingly shed activities that were launched as goodwill gestures because the costs of their operations reduces the company’s financial performance and will diminish the value of its stock compared to other tech firms. Over time it will be harder for the firm to maintain the stance that it is not self-interested and motivated only by the opportunities to improve the lives of the public by providing access to all the world’s information.

The tentacles of its operations that have reached out into to many fields will increasingly be pulled back if they do not yield financial results. And fears that Google will rule the world will diminish. Google, Microsoft, Amazon and other big players of the digital world all have limits, just as did the handful of firms that once controlled steel, oil, and shipping through cartels. At some point even mammoth, wealthy companies do not have the resources and capabilities to keep expanding endlessly and their performance declines, leading shareholders to rein them in and competitors to find opportunities.