Phase One to absorb high-end Kodak photo assets

A new tremor on Thursday traversed a photography world already shaken up by the arrival of digital technology as Phase One, a Copenhagen-based company that caters to professional photographers, announced a plan to acquire some high-end photography assets from Eastman Kodak.

To nobody's surprise, Kodak wound down its 35mm Kodachrome film product on Monday. In the rarefied realm of medium-format photography, where film sizes are much larger, and the demand for quality is much higher, the change to the digital era has been equally jarring.

Phase One, though, was digital from the outset, and it's become a force for consolidation in the digital medium-format photography market. The company announced its plan to acquire technology and hire employees from Kodak's Leaf medium-format brand just months after taking control of Japanese medium-format camera maker Mamiya.

The vast majority of cameras sold today are either all-in-one compact models or higher-end single-lens reflex (SLR) cameras with interchangeable lenses and larger, better image sensor chips. Medium-format cameras are another step up the ladder, costing tens of thousands of dollars for digital models, employing even larger sensors with more megapixels, catering to professionals almost exclusively, and offering not just interchangeable lenses but also sometimes interchangeable viewfinders and "backs," too, where image sensors or film packs are mounted.

Once the Leaf deal closes in about two weeks, Phase One Chief Executive Henrik O. Hakonsson said in an interview, Phase One will continue to develop and sell Leaf's digital backs and photography software through a new Israel-based company, Leaf Imaging. The new company will sell products that use Phase One's image sensor chip technology but that maintain Leaf's user interface approach, he said.

"We do not believe you can box everything together and serve all the pro photographers' needs," Hakonsson said. "One main thing we can get from Leaf is the ability to serve this market through a broader range of solutions than our own current design and engineering is able to offer. Another is, we need to be able to have more critical mass" in designing and manufacturing high-end image sensors.

Terms of the deal weren't disclosed.

The changes illustrate just how complicated the digital transformation is for the high-end photography market, populated by the likes of high-priced photographers who shoot Vogue fashion ads and close-ups of jewelry and watches.

Back in the film era, it wasn't much more expensive to produce larger frames of film for these more demanding photographers than the 35mm film size used by mainstream folks. But in the digital era, with the constraints of processor manufacturing, it's vastly more expensive to produce larger image sensors than small ones. Phase One's top-end camera, the 60-megapixel P65+, costs about $40,000.

That economic reality is behind much of the medium-format market turmoil. Phase One, though, has grown each of the last seven years. "I don't think there's a simple recipe. I think it's equal parts hard work, good thinking, and a little bit of luck," Hakonsson said.

Phase One faces plenty of challenges, though--notably Canon's 21-megapixel, $7,000 1Ds Mark III and Nikon's newer $8,000 D3X. These models benefit from those companies' deep engineering, manufacturing, and marketing experience and from their broad customer bases. Both those companies are aiming their cameras at studio photographers with medium-format expertise.

Will Leaf's camera survive?
Leaf offers both Aptus-branded digital backs and AFi-branded digital cameras. While Phase One has rights to sell both those lines, it has committed so far only to sell the digital backs, Hakonsson said.

That means that Phase One's move will likely reassure Leaf digital-back customers, but those using the AFi camera still face an uncertain future. The Leaf AFi was developed in partnership with two other medium-format brands, Franke and Heidecke's Rollei and Jenoptik's Sinar, which sell their own versions of the camera, but Phase One declined to join that partnership earlier.

That camera partnership's future already is under a dark cloud. Franke and Heidecke, which manufactures the camera system for the trio, filed for bankruptcy protection earlier this year.

Phase One will conduct a "thorough investigation of the product concept," Hakonsson said, "but there is no guarantee that Leaf or Phase One will support the system. We do have product rights to it and are able to do it, but it has to come down to a business decision whether it makes sense to revive the system."

The allies behind the system have made some progress since its inception, but Phase One remains concerned about issues with optics, durability, and service, Hakonsson said.

Digital-back business
Digital backs, on the other hand, are a better business for the company. They can be used with a range of medium-format cameras and with other more exotic models, such as large-format cameras and view cameras--the kind with the collapsing bellows most people associate with 19th-century photography but that still are in use.

In this segment of the market, where photographers are more set in their ways, older camera designs can last a long time. Just selling backs means the image sensor component of the camera can be changed relatively often to keep up with technology, but the rest of the system, which changes more slowly, can be used for longer.

"Six years ago, Contax discontinued production, but we've never sold as many Contax digital backs as we do today," Hakonsson said.

The other major power in the medium-format realm is Hasselblad, whose recent designs such as the H3D-II have favored integrated camera designs rather than interchangeable backs. That integration move deprived Phase One of a lot of potential digital back business and provided motivation for the Mamiya and Leaf deals.

Phase One has about 100 employees of its own and another 150 through Mamiya. The Leaf group is in the process of hiring about 25 employees who lost their Kodak jobs, he said.

Phase One has primarily used Kodak's image sensors, but its more recent models, including the high-scoring P65+, are built by Canadian manufacturer Dalsa. "For maybe the last 18 months, Dalsa has been ahead," he said.

Updated 5:01 p.m. PDT with further details on Phase One competition.