Kodak Bets on Film-Digital Format : Photography: ‘Photo CD’ is seen as a bridge from imaging to electronics.

When Eastman Kodak Co. announced its latest reorganization, Chairman Kay Whitmore made one thing perfectly clear:

In a world rapidly being transformed by electronics and computer wizardry, he said, Kodak would continue to mean pictures.

The Rochester-based photo giant would not become a computer company or an information company or a communications company, Whitmore said. But anywhere pictures are made--whether in a traditional darkroom, an electronic scanner or a thermal printer--Kodak would be there.

“If there’s a picture involved, people ought to be able to get it from us,” said Leo J. Thomas, newly appointed president of Kodak’s imaging group, which includes the former commercial imaging and photographic products group.

The centerpiece of Kodak’s strategy for the future is Photo CD, scheduled to be on the market by next summer.

Photo CD, produced by Kodak and Dutch electronics giant N.V. Philips, is a system to store images from conventional film on a compact disc. These photos can be viewed on a television screen or computer terminal using a special CD player.

Kodak officials say research shows consumers want to be able to look at their photographs on television. The company expects Photo CD to become a mass market item, reaching at least 15% of the 100 million households in the United States, said Stephen Stepnes, general manager of Kodak’s Worldwide Electronic Imaging Systems.

But Photo CD is bigger than that, Stepnes said.

“What we’ve done is create a new photographic medium,” he said. “It’s as elemental as a roll of film.”

When a film image is transferred to a Photo CD, a digital negative is created with the same quality as the original picture. By contrast, digital images from a filmless electronic camera--which some believe represents the future of photography--have far lower resolution than film images.

Picking up a green ink marker during a recent interview, Stepnes drew dozens of lines shooting out from a box representing the film image. The lines illustrate the ways that the image can be used once it is transferred to Photo CD, he said.

Photo CDs can be used by hospitals to store medical images, by hairdressers to show new styles to customers, by interior designers to demonstrate proposed alterations or by desktop computer users to combine pictures with text, Stepnes said.

“You’re only just limited by your imagination,” he said. “There are thousands of applications we don’t even know about.”

The Photo CD does everything an electronic camera can do, “with one critical exception,” said Eugene Glazer, an industry analyst with Dean Witter Reynolds Inc. in New York. “You still take the picture on film.”

Glazer said he expects Photo CD to be successful, but not necessarily to bring in huge returns. More important, he said, is that it will protect the high-margin film market where Kodak makes its profits.

“We believe the film business is going to survive much longer than we did before Photo CD,” said Stepnes.

The success of hybrid technologies such as Photo CD could mean major changes for Kodak.

The company’s biggest customer has always been the amateur photographer. But these days, picture taking in the United States is growing only at single-digit rates, compared with double-digit growth in computer and desktop publishing technologies.

Thomas still sees room for growth in photography on the consumer front: both at home, through innovations to improve picture quality, and in less-mature foreign markets. The amateur snapshooter will continue to have a special place in Kodak’s heart--but consumer business will inevitably become a smaller slice of the Kodak pie.

“In the year 2000, consumer picture taking will still be our main business,” Thomas said. “After that, who knows?”

Even if electronics do someday make today’s silver halide photo film obsolete--and Kodak is betting heavily that it won’t happen soon--Thomas said he is confident that Kodak can still play a key role in imaging.

Electronic imaging won’t eliminate demand for prints, any more than computers ended the need for paper, he said. “The number of hard-copy pictures that people have and hold is not going down.”

As its latest reorganization takes effect, Kodak will get out of some peripheral businesses that aren’t profitable and make changes in the way the century-old company is managed, Thomas said.

“We have evolved to the point where we’re a very complicated company,” he said. “Our customers will tell us we’re complicated--and we can’t afford that. We need to be simple to do business with.”

That means decentralizing management, so that decisions about adapting equipment for the Japanese market are made in Japan, not Rochester. And reducing Kodak’s bureaucracy so the company can make changes more quickly.