Film still brings in revenues from sunk cost capital, so they'll continue to produce if there is a market. The problem is Kodak has debt, pension, environmental and medical obligations left over from being a much larger company with higher revenues and the borrowing to transition from its film sales cash cow to a digital supplier. That we know. And we know the emulsion market is falling still.
EK financials say they are burning through nearly $650 million/year EBITDA, and they just secured $250 million last year in high cost secured debt. Pension and debt servicing costs alone say they are bankrupt and their earnings in their non-film side are only about 20% replacing their lost revenues (that's a very loose guesstimate). Without pension and debt servicing, EK's print and printer businesses look to be profitable. The film and entertainment side is the big question market because demand is still going south. Part of what is leading to a bankruptcy option is the inability of the company to day-to-day run film ops under this scenario while simultaneously paying obligations. This is causing the liquidity concern.
Today's announcement only streamlines their management, so it's a rearranging the deck chairs. EK has a very complex capital structure because of many diverse product lines. They used to be a vertically integrated company, and now are fractured, so a standalone measure of the whole is not applicable to see the value of various parts. Nevertheless, at this point, all liabilities are inseparable.
I think PE has made some of the most sobering posts about the realities of producing film, and it just doesn't sound good. I'd like to believe that film will continue as a cottage industry, but even if it does, at what expense to the hobbyists without deep pockets? For them, it might as well be the end of life as we know it. So yes, some are going to be pretty upset about things.
I agree. Then inability to scale down production to demand is the second biggest question mark, specific to EK (and to Fuji). The bigger question is what is the aggregate consumer demand (leaving motion picture demand aside)? We know that film camera demand is negative and that darkrooms are going for pennies on the dollar in used markets (or are junked). These are not captured in data points, but I am pretty certain if EK goes bankrupt they will have some market research on the scope of the demand plunge. Regardless, a trustee may have to do this analysis for the sell-off diligence.
If demand falls too far too fast, and EK buying power disappears from the raw material market, and Fuji film production contracts further, then costs for film production could rise as basic microeconomics kicks in. Prices rising substantially will cause more consumers to leave and there's a vicious circle kicking in. This is why I say that Ilford and the other smaller players are going to be deeply troubled if EK film operations cannot be re-capitalized and some value found in its current products and industrial assets. Some bigger players in the motion picture industry may have influence here.
Still, film started from a huge market size and has a passionate following as a medium of creativity. The adherents on the cinema side are also very passionate with professional technical requirements that are no longer much of a factor on the photography side. I hope whoever looks over the film production assets has an eye on that passion and the history behind film and can find a new market model.