Technology changes, and so does the demand of technological products. Perhaps that's what happened with Eastman Kodak Company (EKDKQ.PK).
Based on the 3Q 11 financial report, we note that the revenue from the products section dropped to $1.25 billion in the third quarter of 2011, compared to $1.33 billion in the same period in 2010. In fact, the licensing and royalties revenue manifested a decline of around $222 million. That's huge!
Maybe, that led to the company filing patent infringement lawsuits against Apple (NASDAQ:AAPL) and HTC Corporation on January 10, Fujifilm on January 13 and Samsung on January 18. This quick succession of events shows Kodak's desperation in reviving licensing and royalties' revenue as soon as possible.
Even in a press release this year, the company declared the decision to transform and streamline its business towards profitable segments, and that included licensing and royalties. Following this decision, Kodak's Consumer Business will also include online and retail-based photo printing, as well as desktop inkjet printing.
Coming back to the topic, this might have been the reason of selling Kodak Gallery online photo services businesses to Shutterfly Inc, a leading Internet-based social expression and personal publishing service, for $23.8 million.
"This sale is consistent with our objective of focusing Kodak on a core set of businesses in which we can most profitably leverage our technology and brand strengths, and provides a well-proven mechanism for ensuring that Kodak receives maximum value from these assets," said Pradeep Jotwani, President, Consumer Businesses and Chief Marketing Officer. "KODAK Gallery is a unique property, with more than 75 million users, and an ability to attract new members through innovative customer offerings such as its category-leading popular mobile apps."
Now, is this a good decision? From an outsider's point of view, only time will tell.
To be honest, the prices of these products (that include archive DVD, cards, frames, photo books, collages, calendars, etc) are pretty low. But maybe, the price really doesn't matter much, when it comes to brand popularity and user experience, right? As a common user, if you ask me, I would always choose Slickpic.com, flickr.com or photobucket.com. My friends use them, my cousins use them and even my boss uses them. No one is really that fond of Kodak Gallery, and nonetheless, this affects my choice as well. The online world is much like high school. You are what others think you are.
Moreover, it seems that the visits to Kodak Gallery have fallen by around 10% in the last two months, which just goes to show how the popularity of the site has fallen over time. In fact, monthly visits to Photobucket.com cross well over 18 million, while Kodak Gallery barely reaches 2 million. And needless to say, Photobucket is far more popular among younger browsers than Kodak Gallery.
All this makes me think that Kodak has taken the right decision, and this might as well save a couple million dollars in operating costs, which can be utilized in other investment activities. And looking at the operating margin of -9.96% of Kodak, compared to 10.63% of Canon (NYSE:CAJ), 6.92% of Xerox (NYSE:XRX) and 5.9% of Fujifilm (OTCPK:FUJIY), it can be concluded that the company has a long way to go.
This is a crucial phase for Kodak. If it passes its current test, it can only go up from there. My question is, are you an optimist or a pessimist?