Film Margins

[RattyMouse]

I just read this article, which some here might find interesting.

http://betanews.com/2013/12/12/how-kodak-and-polaroid-fell-victim-to-the-dark-side-of-innovation/

The author has some quotes from Kodak and Polaroid executives that discuss the margins that they used to get making film. The numbers quoted are quite high. Margins of 70% are off the charts! I work for a specialty chemical company and we are doing EXCELLENT work if our margins are 40%. If we hit 45% we would get an enormous bonus.

Why are film margins so high? Since the volume of film sold used to be enormous (billions of rolls!), couldnt Kodak sacrifice some of that margin to keep customers from switching over to digital? Or is the overhead so high making film that enormous margins are needed just to make an average profit?

I wonder what margins are like on film today.

 

[gone]

I don't think that's the reason people are switching to to digital. Just the other day I was in my local grocery w/ my Nikon EM. When one of the employees saw it, he said "I can't believe someone is still using a film camera". I suspect he was the only guy in the store that even knew it was a film camera. I explained that a lot of people still are shooting film, but "a lot" probably isn't many, and the number is surely getting smaller every day. He said that he used to shoot Canon FD and a Mamiya medium format camera. He also developed his own stuff. His reason for going to digital was that film just required too much work.

In most businesses a 40% margin would be only a dream, much less 70%. It depends on the other numbers though. I think that Kodak had huge machines, huge factories, and a sizable workforce devoted to film production. As the amount of film that was sold went down, no profit margin in the world was going to pay for all that, along w/ what I understand were hefty retirement and health care packages for the employees.

 

[BMbikerider]

I don't think however much the margins were reduced, there would still not be a terrific change in the progress of digital. It has become all too easy and to be honest people get better results from a digital card on the computer than they ever did from a mini lab where most of the film was processed. Plus, that method is a damn sight cheaper too.

Film users will battle on with a few more cuts in what is available until the companies sense that they have reached the bedrock of what is being used and can estimate what they expect the projected sales will be. I only hope tht slide film lasts a good while longer.

 

[Prest_400]

I just read this article, which some here might find interesting.

http://betanews.com/2013/12/12/how-kodak-and-polaroid-fell-victim-to-the-dark-side-of-innovation/

The author has some quotes from Kodak and Polaroid executives that discuss the margins that they used to get making film. The numbers quoted are quite high. Margins of 70% are off the charts! I work for a specialty chemical company and we are doing EXCELLENT work if our margins are 40%. If we hit 45% we would get an enormous bonus.

Why are film margins so high? Since the volume of film sold used to be enormous (billions of rolls!), couldnt Kodak sacrifice some of that margin to keep customers from switching over to digital? Or is the overhead so high making film that enormous margins are needed just to make an average profit?

I wonder what margins are like on film today.

I too wonder how the margins are nowadays. I could guess they are decent but quite far from those values. It was striking to read that it was comparable or higher than drug, trafficking and prostitution activities. Anyhow, I bet everyone in other industries would have loved such a hefty margin and for sure, being a big candy, it should have been a factor for the immobility of the company.

I read a very interesting article back in August, which was linked from the "Perez" topic IIRC and I think it was this one:
http://www.thestreet.com/story/11991488/1/kodak-the-end-of-an-american-moment.html

However, I agree with margins not being a factor to a switchover. They might affected the management as it was a comfortable position but the customers would have moved anyways.

 

[AgX]

I too wonder how the margins are nowadays. I could guess they are decent,...

So, why so many companies stopped? There are companies that can be happy to make a profit at all.

 

[markbarendt]

Actually for a wedding and portrait studio here in the United States the normal Gross margin is about 60 to 80% based on cost of goods sold (COGS). (Source is Professional Photographers of America) It varies based on film vs digital and home vs store front.

Considered by itself a gross margin number doesn't mean much because we don't know what costs are in it and it may not reflect any of the other costs involved like rent, electricity, transportation, paying your helpers, paying yourself, marketing, replacing broken and worn-out tools...

For example a film based storefront studio has a COGS of about 30% according to PPA. Digital store front, 20%. That film studio though has a depreciation cost of about 1%, while at the digital studio depreciation costs about 10% (gotta keep up with PS and the like). Even though the digital studio looks like it makes more based on COGS margin, it doesn't.

The actual profit for a well run studio after all the costs, including paying the photographer (which may or may not be the owner) a reasonable wage is normally closer to 10%.

 

[AgX]

Maybe someone could define the term "margin". That would help the discussion.

 

[markbarendt]

Margin is simply the difference between a certain set of costs and revenue.

It is not a measure of profitability.

In the studio example I used a film based storefront studio may use the COGS to determine the selling price of prints or services. If for example the cost of a roll of film, mailing to and from the lab, processing and proofs is $40 that means $40 should be 30% of the fee charged to the client, $133.

The 70% margin or $93 in this case pays all the other bills.

Margin is measured differently in every type of business.

 

[benjiboy]

Oh, you mean profit margins, you threw me because "film margins" in a photographic context usually means something else

 

[ic-racer]

Maybe someone could define the term "margin". That would help the discussion.

Yes, I though this would be a thread about printing the rebate...

 

[ic-racer]

Maybe someone could define the term "margin". That would help the discussion.

Yes, I though this would be a thread about printing the rebate or processing defects...

 

[Truzi]

Yes, I though this would be a thread about printing the rebate or processing defects...

So did I.

 

[MattKing]

The problem with high margins and a publicly traded company is that there is enormous pressure from the shareholders to maintain those margins, even if the company's industry is changing.

The last few years of Kodak flailing around were the result of those pressures.

The shareholders (such as large pension plans) were not likely to let Kodak just downsize to something that would make a modest profit. They were more likely to demand that the profit stream be replaced with something like they were used to.

One of the reasons Kodak used to be so successful was that they plowed a lot of those profits back into maintaining a happy, well paid and well benefited workforce. Unfortunately, like just about every one else in the world, Kodak under-estimated the long term costs of the retirement benefits that accrued.

 

[benjiboy]

As a financial illiterate I don't know the answer to the question, but it's amazing how many people can become instant financial and business experts and know the answers to all of Kodak's problems, most of them without any economic education or training, when some of the Worlds best economists and business consultants have failed.

 

[RattyMouse]

As a financial illiterate I don't know the answer to the question, but it's amazing how many people can become instant financial and business experts and know the answers to all of Kodak's problems, most of them without any economic education or training, when some of the Worlds best economists and business consultants have failed.

My post is asking questions, not claiming to be an expert. I see no need for your cheap shot.

 

[benjiboy]

My post is asking questions, not claiming to be an expert. I see no need for your cheap shot.

It's not your question that I have issues with, but the certitude of the answers by the instant experts that internet forums produce.

 

[removed account4]

70% sounds about right ...

and then the market dropped
and their golden cow ended up being
made of aluminum foil

 

[jonasfj]

As a financial illiterate I don't know the answer to the question, but it's amazing how many people can become instant financial and business experts and know the answers to all of Kodak's problems, most of them without any economic education or training, when some of the Worlds best economists and business consultants have failed.

If only world-renowned experts were allowed to take part in forum discussions, I believe this place would be rather quiet. Most of us realize that we have to critically value what we read. At least two points that have been made in earlier posts make sense to me:

1. It is difficult to compare gross margins unless the cost structure and business model are similar

2. Lower margins and volumes are negative to any business and will hurt the result unless countered by reducing cost or finding new business opportunities

Best regards,

Jonas

 

[BradS]

Gross margin (aka simply 'margin') is the difference between the revenues from sales and the cost of the materials used to make the goods sold. This is BEFORE anybody gets paid, before any other bills are paid, etc....do not confuse margin with profit. Most companies that produce something (like film) that is capital intensive and requires heavy investment in research and development would be very close to going out of business with margins below 40%. Seventy percent margins are really NOT extraordinary at all for a company like Kodak.

 

[MattKing]

Gross margin (aka simply 'margin') is the difference between the revenues from sales and the cost of the materials used to make the goods sold. This is BEFORE anybody gets paid, before any other bills are paid, etc....do not confuse margin with profit. Most companies that produce something (like film) that is capital intensive and requires heavy investment in research and development would be very close to going out of business with margins below 40%. Seventy percent margins are really NOT extraordinary at all for a company like Kodak.

The best example of this is the software industry - those boxes with discs or downloads cost almost nothing.

 

[BradS]

The best example of this is the software industry - those boxes with discs or downloads cost almost nothing.

Yes. Exactly. The raw materials cost for purely software product that is only available by download, would be zero = so it doesn't really make sense to talk about margins for that type of thing.

 

[jernejk]

There's also the profit margin, which is very much valid also in software/services business.

 

[snapguy]

The author of the very fine article did not mention another consideration -- the billions of dollars Kodak had invested in wet lab facilities. There was a Kodak lab in Palo Alto California that was one mile square. How much money did Kodak have invested in the late, lamented Kodachrome, manufacturing and processing?
If Kodak could make a penny or two from every digital image that is spewed out a cross the globe, and every digital image that posted on the Internet, they would really be filthy rich.
But I am not worried. Analog photography is becoming a niche, a subset in the photographic arts and after the fall to its own natural level many companies will see an opening to market some fine products. Fine film cameras are going up in price these days.

 

[jernejk]

Analog photography is becoming a niche, a subset in the photographic arts and after the fall to its own natural level many companies will see an opening to market some fine products. Fine film cameras are going up in price these days.

It's actually sad. And interesting.

Sad how Kodak totally missed it wasn't a chemistry company but rather memory storage company. Had they understood that, they would now have 1 mile square cloud server facilities, and with a better vision they could easily be what Apple is today (they could probably easily buy Apple with Steve Jobs in 80s, and we could have a Kodak phone today).

But it's not just Kodak. It's also Nikon, Canon and others. These guys are in big trouble. Revenues, profits, forecast, all are pointing down. They jumped on the digital bandwagon and cut Kodak out of the game. Yaay, they suddenly have the complete control. Sell the same bodies they were selling 20 years ago to the same market - but this time digital. No photographic innovation at all. At all!!!

Example, Canon EOS 5 film vs EOS 5D Mk III:
Max shutter speed: the same, 1/8000
Flash sync: the same, 1/200
FPS: 5 (film) vs 6 (digi)
Eye focus: Yes (film) vs No (digi)
AF assist: Built in (film) vs External flash only (digi)
DEP mode: Yes (film) vs No (digi)

Huh, I mean, really? Absolutely no progress, no innovation. Just pixels, pixels, pixels. Yeah sure, it has live view. So does Lubitel. It has video. I don't care, I'm not into motion pictures.

Anyway, suddenly people realised their phones are making pretty good photos. In fact, I much rather use phone than (D)SLR with a kit lens. Again, a mistake. They sell the crappy lenses which really don't differentiate the kit from the phone - other than optical zoom capability. My god. Just ship the camera with 50 f1.8 lens and you can beat the phone - shallow DOF is modern and cool. With the cheap lens people can suddenly make nice family photos. How can you miss this?? Then again, this gap can probably be closed with some clever software algorithms and some new hardware. I'm sure we'll soon have phone cameras capable of detecting distance and produce shallow DOF in software.

At the same time, camera manufacturers have been ignoring resurrection of film. Holga movement is there. Hipsters like to use something which is a bit old school. And more importantly: if you take film photos, you can be pretty sure they are private - you don't need to digitalise them. It's a gamble, but somebody could just buy kodak and start going this way.

The digital market as they knew it is not there anymore, and they desperately need new ideas. Or they will follow Kodak's steps pretty soon.

 

[Alexis M]

Actually from what i've seen, most people dont even use cameras anymore. They have this weird looking flat thing that they talk into. This friend of the family i talked to during the one of the holiday gatherings argued that it was just as good as a camera but the lens on that thing was microscopic...so i laughed...he seemed a little peeved...he seemed to really like that flat thingy, he kept poking at it all the time with his thumbs