Kodak takes shot at digital currency
Struggling firm tries bitcoin mining push
An eon or two ago, Eastman Kodak was a bleeding-edge technology company. It hired the smartest engineers and put them to work racking up patents, pioneering new chemical processes and building a globe-spanning camera and film business that, at its peak, employed 145,000 people.
But the digital photo age passed Kodak by, and today, the company exists mostly in the past tense. Many of the patents have been sold, buildings have been rented out or demolished, and the company has continued to shrink since it filed for bankruptcy in 2012.
Now, the 130-year-old company is trying an unlikely sort of comeback — by betting on cryptocurrency. It’s a bold gamble that has excited some investors, perplexed others and raised questions about how closely Kodak vetted its cryptocurrency business partners, which now include a paparazzi photo agency, a penny-stock promoter and a company offering what has been called a “magic moneymaking machine.”
Kodak recently lent its name to KodakCoin, billed as “a photo-centric cryptocurrency to empower photographers and agencies to take greater control in image rights management.” The basic idea is to use blockchain to help photographers manage their collections by creating permanent, immutable records of ownership. The company also struck a licensing deal for a bitcoin-mining computer called the Kodak KashMiner, which allows users to generate their own cryptocurrency.
Kodak’s stock rose more than 200 percent after the announcements, but stumbled late in the week after it postponed the offering for several weeks.
Blockchain — the mathematical ledger system that forms the basis of digital currencies — has a kind of talismanic effect in today’s stock market. As investors seek to capitalize on the popularity of currencies like bitcoin and ether, a number of struggling companies have reversed their fortunes, at least temporarily, simply by adding “blockchain” to their names or announcing a cryptocurrency venture unrelated to their previous line of work. (The most notorious example is Long Island Iced Tea Corp., a beverage company that tripled its value overnight after it rebranded itself “Long
Blockchain Corp.”)
These sudden, brazen moves have also attracted the attention of regulators. In a recent speech, Jay Clayton, chairman of the Securities and Exchange Commission, said that the agency was “looking closely at the disclosures of public companies that shift their business models to capitalize on the perceived promise of distributed ledger technology.”
Kodak is the most prominent old-line company to enter the cryptocurrency game so far, and maybe the most controversial. Almost immediately, critics characterized the plans as a desperate money grab.
“It feels like a publicly traded company issuing a token to raise its stock price from the grave,” said Kyle Samani, a partner at the cryptocurrency trading firm Multicoin Capital.
Jill Carlson, a blockchain consultant, said, “I would not be sleeping very well if I was involved in this.”
Kodak CEO Jeff Clarke said the company’s blockchain ambitions are genuine. He began looking into blockchain technology last summer, he said, and realized that it could solve a perennial problem for photographers — proving ownership of their images, tracking down copyright violators, and getting paid.
“This is not a dog food company that’s creating a currency,” Clarke said. “This is a real solution around digital rights management that Kodak has been involved in for many years.”
In theory, photographers will be able to upload their images to a service called KodakOne, create a blockchain license for each image, and use Web-crawling software to scour the Internet looking for copyright violations. Instead of using dollars, photographers can have clients pay them in KodakCoins.
KodakCoin’s initial offering is expected to raise as much as $20 million. (Last week, KodakCoin’s website said that it would delay the offering by “several weeks” to verify the credentials of potential investors.) But there are few details about what that money will be used for, or why a similar system could not be built without blockchain. There is also a more obvious question: Why would photographers want to be paid in digital tokens, rather than cash?
In several calls with KodakCoin leaders, straight answers to these questions were scarce. And KodakCoin’s white paper, a technical document that details the plans for the currency, is a 40-page mishmash of marketing buzzwords and vague diagrams.
Make no mistake: Digital rights management is a real issue for photographers, and blockchain does, in theory, offer a compelling solution. But the specific attributes of KodakCoin present some red flags.
First, despite the name, KodakCoin is not actually a Kodak project. The company behind the offering, Wenn Digital, is a California affiliate of a British agency specializing in paparazzi photo licensing. Under their agreement, Kodak will not receive any direct revenue from the public offering. It will receive a minority stake in Wenn Digital, 3 percent of all KodakCoins issued and a royalty on future revenue.
You might think that a digital currency that is trying to “democratize photography and make licensing fair to artists,” in Clarke’s words, would be easily accessible. But because of regulatory requirements, KodakCoins will be available only to accredited investors in the United States. An accredited investor is defined as a person with a net worth of $1 million or more, or an annual income above $200,000.
How many cryptocurrency-obsessed millionaire photographers do you know?
Even if photographers do meet the requirements to participate, they could have a hard time spending their KodakCoins, or redeeming them for cash.
Cryptocurrency experts also do not seem impressed with the KashMiner, a bitcoin-mining machine advertised at this year’s CES electronics trade show. According to the ad, users will pay $3,400 to rent the machine, a Kodak-branded computer that solves complex math equations to unlock new bitcoin, for two years. Half the bitcoins successfully mined with the KashMiner will go to Spotlite, the company licensing Kodak’s name, and the user will keep the other half.
Kodak hasn’t shared many details about its KashMiner deal. In its CES ad, KashMiner estimates that each renter will earn $9,000 from mining bitcoin over the two-year contract. Experts said in interviews that the figure was most probably inflated, because bitcoin mining gets harder over time. And they pointed out that the KashMiner appears to be simply a rebranded version of a popular bitcoinmining machine that can be purchased outright for less than the rental cost.
All of this — the origins of KodakCoin, the currency itself and the lofty claims about the KashMiner’s moneymaking potential — points to the possibility that Kodak may be in over its head.
“The best-case scenario is that they believe that the technology will eventually be able to deliver what they’ve pitched,” said blockchain consultant Carlson. “The worstcase scenario is that they are just being very opportunistic.”
CEO Clarke characterized the blockchain projects as a small part of the company’s overall strategy, and said it was “ironic” that critics were faulting Kodak for embracing a young technology like cryptocurrency, given that its past problems were caused by a failure to innovate.
“This isn’t speculative,” Clarke said. “We’re taking an emerging new technology in blockchain, and we’re using it to solve a real problem.”