Kodak’s digital dilemma

Every revolution has elements of tragedy as well as triumphs — even the bloodless revolutions in the way people earn a living. Economist Joseph Schumpeter called it “creative destruction,” the entrepreneurial-driven process that “incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.” Such a process was set in motion by digital technology, which released information from its physical bonds and allowed it to be stored, displayed and shared as data.

This digital transformation is now on the verge of claiming its most iconic victim: Kodak, itself one of America’s great innovators and the erstwhile king of film and photographs. The real tragedy, though, is that Kodak helped invent the technology that gradually wiped out the demand for its main products, but couldn’t capitalize on it. And much of the entertainment industry is facing the same dilemma.

The Wall Street Journal reported last week that Kodak was trying to sell patents in an effort to stave off filing for bankruptcy. It’s conceivable that the company could rebound, but its fundamental problem is that it was built around the practice of physically capturing, storing and copying images. Digital cameras and online photo albums don’t just threaten Kodak’s raison d’etre; they render it obsolete.

Not that the pride of Rochester, N.Y., was blindsided by these developments. Kodak invented the digital camera, creating a prototype in 1975 of a device that captured images on electronic sensors, translated the information into digital bits, stored the data on a cassette tape and transmitted the data to a TV for display. No film, no developing, no printing. Had Kodak been a gadget-making start-up, it would have raced to turn the prototype into a product. Being in the film business, however, it had little incentive to undermine its other revenue streams.

Record labels, Hollywood studios and TV producers confront the same sort of choice. They built much of their business around production and distribution methods that digital technology and the Internet have either improved upon or replaced. As long as they produce content the public wants, they’re likely to find a way to muddle through. But there’s another lesson in Kodak’s story that’s not so reassuring: Even if they encounter an innovation that could help them adapt, they may not recognize it. As Steve Sasson, the Kodak engineer credited with creating the 1975 prototype, wrote on a company blog: “We were not really thinking of this as the world’s first digital camera. We were looking at it as a distant possibility.”