Smile, You're On Compact Disk

Bill Smith, owner of a small Boston photo lab, slips a gold-colored compact disk out of its case and inserts it into a black machine. Within seconds, a color photo of Boston Red Sox pitcher Roger Clemens pops up on the nearby TV. Clemens is in midpitch, frozen just as the ball is leaving his hand. Fingering his remote control, Smith zooms in on Clemens' arm. The colors remain luminescent, the resolution good. "This," says Smith, "is the future of photography."

The folks at Eastman Kodak Co. surely hope so. After months of sneak previews to pros such as Smith, Kodak's much-ballyhooed Photo CD system will hit retailers' shelves in early August, rolled out simultaneously in North America, Europe, and Japan. For $350 to $500, photo enthusiasts will be able to buy a special CD player that will display snapshots on TV or a high-resolution personal computer. Despite the cost, Peter M. Palermo, general manager of Kodak's consumer imaging division, says: "We think it's going to be a big item for Christmas."

Kodak has a lot riding on Photo CD, which is just part of a broader push by the Rochester (N.Y.) company to revitalize and protect its core photo business. After years of solid growth, U.S. sales of amateur film stagnated in 1990 and 1991. Growth in international sales also slowed markedly. Some analysts blame the popularity of camcorders; others, the economy.

LOOMING THREAT. Worse, Kodak has been losing market share to cheaper private-label films, and archrival Fuji Photo Film USA Inc. is making inroads among more affluent customers. Profits at Kodak's imaging division, which contributes more than half its earnings, have been disappointing (chart). In the short run, Photo CD probably won't give Kodak the boost it needs. Analysts predict it will take years for consumers to warm up to the technology. And while Photo CD has plenty of commercial applications, there are several competing technologies that could limit its growth.

Looming on the horizon is an even bigger threat: electronic photography. Computerized cameras, such as the $900 Mavica from Sony Corp., already can capture images in digital form. So far, the fuzzy pictures they produce aren't a match for conventional photos. But electronic cameras could eventually close the quality and cost gap, admits Kodak. That would devastate the market for film, paper, and photo-processing chemicals--the heart of the company.

To some on Wall Street, it's a picture worth a thousand weary words--or at least two: mature industry. "This is not a high-growth business and never will be again," says B. Alex Henderson at Prudential Securities Inc. To fight slow growth, the company has upped its huge advertising and promotional budget by more than 30% since 1990. "This industry needs to be reignited," says Kodak's Palermo. "That takes investment." One sign the strategy is working: Kodak's imaging sales for the second quarter, reported July 28, were up 8%.

Photo CD is Kodak's weapon against all-electronic photography. It's a hybrid system, allowing photographers to capture images on ordinary film. Then, a photo finisher could "digitize" the image so it might later be manipulated, stored, and transmitted with relative ease. "We've changed the rules of the game," says Stephen S. Stepnes, general manager of the Photo CD project.

EASIER TIME. But will anybody buy it? The price of the Photo CD player--which can also play audio CDs--is just the beginning. A photographer must take a roll of film for ordinary developing, then pay an additional $20 or more to get those pictures scanned onto a Kodak CD. "To me, it's simply a fancy way of looking at slides," says Paul D'Andrea, president of Mystic Color Lab Inc., a mail-order photo finisher. D'Andrea says he'll wait before ordering one of the $108,000 Photo CD workstations Kodak is selling to labs. Analysts estimate fewer than 50 labs will buy the machine this year.

Kodak may have an easier time with commercial applications. Photo CDs, which hold more than 100 images each, can be used in a standard CD-ROM disk drive attached to a personal computer, making it cheap and easy to use color images in everything from hospital records to desktop publishing. "We are very interested in this," says David Greenstein, director of the Bettmann Archive, a New York City photo library with more than 16 million images.

Next year, Kodak will spend a quarter of its ad budget on Photo CD alone. But if that doesn't give sluggish film sales a much-needed boost, Kodak may be left wondering if a fancy slide projector is really the wave of the future.

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