Eastman Kodak (NYSE: EK) is still in the midst of a transformation. It's been hard to move beyond traditional film, the product that created so much value for the company. But yesterday, Kodak took another step away from the past and further into the digital revolution.
Kodak and Barco, a Belgian firm, announced a strategic partnership aimed at picking up the pace of digitizing the big screen. Barco makes digital movie projectors. In fact, it has outfitted 200 screens with digital projectors. Two hundred screens make for a nice toehold, but they barely scratch the surface in terms of worldwide screen penetration.
Kodak's announcement comes on the heels of a deal in which Access Integrated Technology (AMEX: AIX) and Christie Digital Systems decided to get together and roll out their own digital movie projection system. Barco, Christie, and NEC are the only firms licensed to use Texas Instruments' (NYSE: TXN) DLP (digital light processing) technology. So it looks as if the race is on to see who can be the big winner.
The alliance calls for Barco to bring the projector to the customer and for Kodak to bring the systems, software, and service. In addition, Kodak brings its wealth of imaging-technology knowledge to the table. Together, Kodak and Barco want to create even better products going forward. To me, partnering up sounds like a good strategy. Each company fills a need to make a stronger competitor that can establish a first-mover advantage. And cinemas get one-stop shopping and service for their needs.
First-mover advantage in a market estimated to be $5 billion is the clearly the goal. For theaters such as Regal (NYSE: RGC), AMC, and Loews (the last two recently decided to merge) to make the move to digital, the value proposition has to be very good to justify changing out the old systems. Sure, capital costs have to be attractive, and the change is inevitable, but to overcome the switching costs, maintenance costs have to decrease at the same time that quality and reliability increase. Kodak and Barco believe that together, they can create a more compelling argument than either can alone.
Before getting too excited, note that these partnerships are very far out in front of the transformation. In fact, they do not expect customers to begin making serious changes until around 2007. But kudos to Kodak for getting a product ready for customers to buy well ahead of when they actually need it.
The digital revolution will not be stopped. And this is a great example of Kodak's getting out in front instead of playing catch-up.
Fool contributor David Meier does not own shares in any of the companies mentioned. The Motley Fool has a disclosure policy.
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