On 9th January 2018, Kodak (NYSE:KODK) and WENN Digital announced that they will be launching the KODAKOne and KODAKCoin in the near future. The announcement stated Initial Coin Offering (ICO) for the KODAKCoin would begin on 31st January 2018. This announcement skyrocketed Kodak’s shares, which has increased the price from $3.13 per share to $12.75 in a matter of hours.
Image 1: Share price of Kodak (Morningstar)
This article would cover the following few components:
- What are ICOs?
- A brief history of Kodak.
- Dynamics between Kodak and WENN Digital.
- Future potential of KODAKOne and KODAKCoin.
What are ICOs?
Initial Coin Offerings (ICOs) are used by companies to raise funds for a new cryptocurrency. Companies that are developing a new cryptocurrency would often sell a portion of their new tokens in exchange for fiat currency or other more established cryptocurrencies such as Bitcoin (OTCQX:GBTC). The funds generated are often used to fund research, infrastructure development, operations, etc. ICOs are often used because there is currently a lack of regulations, which can be used to circumvent the many red-tapes associated with other forms of capital-raising processes.
History of Kodak
In recent history, Kodak was once a behemoth, dominating the printing and photography market. At its peak in 1996, Kodak was held more than two-thirds of global market share, with the company valued at $31 billion. The second largest company in that industry at that time was Fuji and it was far behind Kodak. However, Kodak started to shrink from 2004 onwards, unable to generate enough cash to sustain its operations. This ultimately led to Kodak filing for bankruptcy in January 2012. Many people attributed Kodak’s downfall to its lackluster adoption of digital photography. However, during the rise of digital photography, Kodak had invested a sizable amount of resources into developing digital photography technology.
Another major disruption in the photography industry is the rise of online photo sharing and cell phone photography. Kodak, once again, invested money in developing online platforms, such as the purchase of Ofoto, an online photo-sharing site. So, what went wrong? Kodak anticipated that these new technologies were a major disruption to its business; however, it did not realize that these new platforms were the new industry. Kodak viewed them as a supplement to its original photo printing business and failed to account for the changing tide in the photography industry.
In 2013, Kodak returned with a new focus on commercial and packaging printing. In these few years, Kodak has been licensing its brand to other companies, allowing its name to be used on other companies’ product. The name “Kodak” still holds “great significance and value”, and Kodak takes advantage of that by using its name to hand out licenses. In fact, most commercial products that consumers see are not manufactured by Kodak, but by other companies. This licensing creates a mutually beneficial relationship as Kodak can promote its brand name and gets profits from licensing. Companies that use the license can take advantage of the Kodak brand name to increase the perceived trustworthiness of their products. There are many such collaborations between companies such as with JK Imaging, Prinics, Twindom, Paper Trade Network, etc. In this article’s case, the licensing of the KODAKOne platform and the KODAKCoin was between Kodak and WENN Digital.
KODAKOne and KODAKCoin
According to the press release by Kodak, KODAKOne is a platform that can create a digital ledger that helps photographers register their work and can license their photographs using that platform. KODAKOne would also scour the internet to identify any unlicensed images and manage all the licensed photos on the platform.
KODAKCoin is a digital cryptocurrency that is to be used in conjunction with the KODAKOne platform, and photographers are able to receive payment using KODAKCoins.
WENN Digital’s purpose for creating KODAKCoin and KODAKOne
World Entertainment News Network (WENN) Digital is a new company which has bought over a paparazzi photography firm called WENN Media. According to the Kodak website:
“WENN Digital leverages the market position of its 30-year old subsidiary WENN Media, which works with approximately 2,500 professional photographers.”
However, before this licensing partnership between these two entities, WENN Digital tried a crowdfunding for a project called RYDE on a crowdfunding site called Get Started Engine. However, the project only attracted a meager 10 backers with a total of $875 raised.
Image 2: Screenshot of RYDE crowdfunding page (Source)
This is where Kodak comes in. As stated above, by partnering up with Kodak, it gives the project a sense of credibility. This would propel the project past its minuscule $875 to potentially thousands and millions of dollars.
Benefits for Kodak
As for Kodak, it gives the company the exposure that it desperately needs to promote its company, potentially increasing its share price. This could, therefore, attribute to the names being KODAKOne and KODAKCoin, which essentially plasters the Kodak name to increase the brand presence. Furthermore, with the increasing hype for cryptocurrencies, this gives Kodak the perfect spotlight in the media. Even the CEO of Kodak, Jeff Clarke, acknowledges that words relating to cryptocurrencies are “hot buzzwords”.
Image 3: Kodak CEO Quote (Kodak Website)
From these points, it is relatively certain that Kodak’s purpose in partnering up with WENN Digital is to gain the exposure that it needs, especially when its share prices have been on the downhill since its comeback in 2013. This is a perfect opportunity to raise its share prices, especially when other companies experience huge jumps in their stock prices after they announced partnerships with cryptocurrencies.
Image 4: Kodak’s downhill share price (Source: Google)
Even though cryptocurrency is the new hype, there is no doubt there are huge risks in going into cryptocurrencies. The following list is some of the reasons why I believe investing in Kodak, or the KODAKCoin, is not the wisest decision:
- Kodak’s purpose
- Kodak’s lack of involvement
- Leadership of WENN Digital
- Unclear roadmap and lack of information
1. Kodak’s Purpose
As mentioned above, Kodak had been using its name as a way of generating profit, especially in the case of licensing. Furthermore, with the advent of the cryptocurrency hype, it gives the company a fantastic opportunity to further broadcast its name, as well as gaining profits from the huge jumps in share prices. However, let’s not forget that Kodak’s purpose. Like many other companies, Kodak’s main purpose is to generate cash, and this is an opportunity that it decided to grasp. However, the factor that sets Kodak apart from other companies that adopt cryptocurrency is that the KODAKCoin and KODAKOne do not directly affect its day-to-day business. Kodak is primarily a company that provides commercial and packaging printing, and these two platforms are not directly related to its everyday operations. However, other companies that adopt cryptocurrencies have a direct impact on its everyday operations. An example would be the adoption of Ripple Protocol and Ripple Token by banks, which would reduce transaction costs and speed up cross-border transactions. As this new technology benefits their everyday operations, it provides an incredibly attractive incentive to adopt cryptocurrencies. However, because the adoption of KODAKOne and KODAKCoin does not affect Kodak’s day-to-day operations, it is more likely that their sole purpose is to generate income through the hype around cryptocurrencies and through licensing.
2. Kodak’s Lack of Involvement
Another issue raised is the lack of involvement by Kodak. As Kodak and WENN Digital have not released details on how their partnership works, it is impossible to provide an exact estimate regarding the level of involvement by Kodak. However, there are some clues that might give an indication that Kodak is not as involved as one might think.
Firstly, from the press release by Kodak, it announced that WENN Digital and Kodak are in a “Licensing Partnership”. This suggests that WENN Digital would be the main workhorse in the development and implementation of KODAKOne and KODAKCoin. It gives a strong impression that Kodak would only provide WENN Digital with the license to use its name and contribute nothing more.
Secondly, from previous licensing partnerships, such as in JK Imaging, the cameras did not include any of the camera imaging technology that Kodak possesses. The lenses used were also not what was used by the previous generation Kodak cameras. This shows that Kodak’s involvement with its licensing projects is minimal, and Kodak would be unlikely to help in the development.
Lastly, it is likely that Kodak does not possess any technology that would assist it in the creation of the KODAKOne and KODAKCoin. This further alienates Kodak from the potential development of these new technologies.
3. Leadership of WENN Digital
The current CEO of WENN Digital, Jan Denecke, was a founding partner of a relatively small German law firm called Denecke Priess & Partner. It is a company that was founded in 2005 that specializes in media, copyright and IT laws. Jan Denecke would therefore be quite well versed in various legal issues regarding internet copyright law. However, that cannot be said about his knowledge about cryptocurrency and the platform it will use. His ability to lead a firm that specializes in entertainment photography would also be in question. There is a possibility Denecke might be able to perform well; however, it is a massive risk to invest in a firm that is led by someone that specializes in a different field. As information is scarce, we are still unable to know who the rest of the team are and thus unable to assess the quality of the team. As more information is released, a more accurate judgment can then be made.
4. Unclear roadmap and lack of information
There is currently a lack of information regarding the progress of KODAKCoin and KODAKOne. Information regarding WENN Digital, its development team and how the system would be implemented is also lacking due to the lack of the whitepaper. Perhaps more information would be released closer to the ICO, and that might give us a better understanding of what investors are getting themselves into.
Future Potential of KODAKOne and KODAKCoin
According to Kodak, these platforms are a fast and efficient way to reduce the unauthorized use of a licensed image. If the system does work, it would provide a great convenience for photographers. One potential appeal of this system is for amateur photographers to upload their image and get paid. However, the amount of data and processing power needed to scan through the entire internet for an unlicensed image could be a potential overestimation of their abilities. Furthermore, even if this technology is effective, new pirating sites and downloading sites would constantly pop up, thus rendering the technology obsolete.
Without the whitepaper, it is very difficult to assess the level of development, the technology and the team at hand. However, from the above points mentioned, it is almost certain that Kodak is in this project just to increase its share price, especially during the cryptocurrency hype. Other benefits that come with KODAKOne and KODAKCoin include greater exposure in the media spotlight and licensing money. WENN Digital, on the other hand, is using Kodak as a stepping stone in order to revive its failed RYDE project. However, there are a few red flags that were raised, including the purpose of Kodak, its lack of involvement, the leadership of WENN Digital, and the lack of a proper roadmap. As mentioned before, Kodak is a dying company, with its share prices continuously dropping for the past five years. It is very unlikely that this project would be able to have a sustained positive impact on the share price. As KODAKCoin and KODAKOne are unlikely to be Kodak’s saving grace, one should not consider purchasing Kodak shares or invest in KODAKCoin’s ICO.
Disclaimer: I am not, and do not claim to be, an expert in cryptocurrencies or stocks. This article is meant to be a guide, and further research should be done before investing in cryptocurrencies, especially in ICOs. There are always risk with regards to investing, especially with regards to cryptocurrencies, where the price fluctuations could be very drastic. One needs to remember to ONLY invest in what they can afford to lose, and should not rely on cryptocurrencies as a dependable source of income.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.