Seattle FilmWorks, Inc. History

Address:

1260 16th Avenue West
Seattle, Washington 98119--3401
U.S.A.

Telephone: (206) 281-1390
Fax: (206) 285-5357

Public Company
Incorporated: 1976 as American Passage Marketing
Employees: 608
Sales: $84.15 million (1996)
Stock Exchanges: NASDAQ
SICs: 5961 Catalog and Mail Order Houses; 7384 Photo Finishing Laboratories

Company Perspectives:

Seattle FilmWorks, Inc., is a leading direct-to-consumer marketer and provider of high-quality amateur photofinishing services and products. The company offers an array of complementary services and products primarily on a mail-order basis under the brand name Seattle FilmWorks. Since 1978, the company has been an industry leader in the introduction of value-added photo-related services and products.... Since 1994, the company has been a pioneer in providing digital-imaging technologies which enable photofinishing customers to creatively enhance and share personal photographs with friends, family, and business associates.

Company History:

Seattle FilmWorks, Inc. markets film and photofinishing services to amateur photographers through the mail. The company maintains a photofinishing laboratory in Seattle, Washington. The lab has the potential to process 160,000 rolls of film weekly, with 24-hour turnaround from receipt of film to production of finished photos. In 1996, 450 employees worked at the lab in production areas; 70 held positions in administration; 23 held jobs in marketing; 53 in customer service; and 12 in research-and-development activities. Approximately 95 percent of Seattle FilmWorks's sales come from direct-mail activities, although the company also maintains 12 retail stores in the Seattle area. The company's imaginative leadership excels at adding value to its products and services through innovation and the adaptation of new technologies for computer-savvy customers.

In addition to its direct-mail photofinishing services, Seattle FilmWorks offers its customers photo reprint and enlargement services, as well as private-label photofinishing services on retail and wholesale basis. The company also wholesales 35 mm rolled film, single-use cameras, and photofinishing supplies to photofinishing mini-labs, retail stores, and commercial users. Such supplies are packaged by the Seattle FilmWorks and sold under the company's OptiColor Film and Photo brand name; film and single-use cameras, however, are sold on private labels. Seattle FilmWorks also licenses digital technology to photo finishers outside of the United States. Seattle FilmWorks reorganized in 1996 when the company formed two subsidiaries: Seattle FilmWorks Manufacturing Company and OptiColor, Inc.

Origins in Direct Marketing

The company known today as Seattle FilmWorks was founded in 1976 as American Passage Marketing by Gilbert Scherer. The company offered primarily media and marketing services, but also initiated photofinishing services as a secondary area of operation. The photofinishing services did well, so during the 1970s the company began offering innovative products and services to enhance this area of operation. It introduced its own brand of film and offered customers both prints and slides from the same roll of film.

American Passage Marketing became a public company in 1986. Two years later the photofinishing segment of the business accounted for 90 percent of the company's activities. In 1988, American Passage Marketing split into two distinct organizations. Scherer left the company, taking with him all operations not related to photofinishing. Gary Christopherson replaced Scherer as the leader of the photofinishing business.

A Visionary Leader

Formerly a public-policy researcher, Christopherson joined American Passage Marketing in 1982 as the director and vice-president of operations. In 1983, he was promoted to senior vice-president and general manager. As the manager of the company's film operations, Christopherson eventually assumed responsibility for refining its direct marketing operations. As Piper Jaffray analyst Robert Toomy told Forbes: "Gary is a marketing genius." During the 1980s Christopherson focused on customer service, encouraging innovations that ultimately would be copied by other photo finishers. When Seattle FilmWorks established itself as a separate company from American Passage Marketing, Christopherson became the new company's chief executive officer and president. By 1990, Christopherson had created a steadily growing mail-order business in an industry known for little or no growth.

Innovation and Technological Advancements

Photo finishers traditionally competed fiercely for their shares of a stagnant market. For example, Photo Marketing International Association statistics from 1990 through 1997 showed that people took roughly the same number of pictures at the start of the decade as near its end. When supermarkets and drug stores began offering photo services--including services such as inexpensive onsite and one-hour photofinishing--competition in the industry increased further. But a strong plan, innovation, and value-added products and services were at the heart of Christopherson's operating strategy, which differentiated Seattle FilmWorks from its competitors. "What separates us," explained Christopherson in Chain Store Age Executive with Shopping Center Age, "is we're not a price cutter. We add value to photofinishing. We specialize in developing 35 mm photographs, and there are more and more people today who appreciate quality processing."

Indeed, the company's dedication to innovation and technology secured its place in the photofinishing industry, for&mdash Smith Barney's Peter Enderlund told Chain Store Executive Age with Shopping Center Age-- "Seattle FilmWorks has been one of a few of its kind of business to have a solid growth plan that they meet year after year. The company has a commitment to research and development to bring forth innovations that separate it from the competition."

At first, Seattle FilmWorks took modest steps toward innovation. In 1978, the company launched its own brand of film and offered customers photo prints and color-corrected slides from one roll of film. During the 1980s, the company initiated a special introductory offer to film-processing customers: Each received two rolls of Seattle FilmWorks film for $2.00 or less. Seattle FilmWorks advertised the offer in newspaper supplements, magazines, and package inserts.

A Decade of Changes

Mail-order turnaround time haunted Seattle FilmWorks throughout the 1980s. Average time from the customer sending film to receiving finished pictures took seven to 10 days--far longer than the one-hour service of some competitors. So in 1991, Seattle FilmWorks instituted Express Mail pick up and delivery services through the U.S. Postal Service for customers willing to pay an extra charge for more speedy processing. The company also shortened its lab processing time to one day.

That same year Seattle FilmWorks initiated an Easy-Order System for standing orders. This convenience eliminated repeat order forms for customers with standing orders. In 1992, the company began backprinting. The date, roll identification, and print number appeared on the reverse of each photo printed by the company. Such cross-referencing information was included on corresponding negative strips as well.

Seattle FilmWorks also began Professor FilmWorks in 1992. This service offered customers using a toll-free number brief prerecorded photography lessons over the telephone. Backprinting evolved into the Pictures Plus Index by 1993. This innovation allowed thumbnail images of each photo from a roll of film to appear on a single four-inch by six-inch print for easy duplication of prints and convenient indexing of stored photos.

Digital Imaging Technology

Seattle FilmWorks pioneered digital imaging technology beginning in 1994. Recognizing digital technology as a threat to conventional photography, the company took its first steps to compete in this new arena. The company first offered Pictures on Disk in 1994. This service provided customers with digital versions of the images on a roll of film on one floppy disk for use on home personal computers.

Also in 1994, Seattle FilmWorks introduced its PhotoWorks software for MS-DOS and Windows. This software created digitized photos for PC use. A customer could send his or her 35 mm film to the company and receive prints, picture files on a floppy disk, negatives, and a free roll of film for about $14.00 for 24 exposures. The customer could then create digital photo albums or incorporate his or her pictures as digital images into text, slide shows, or screen savers. Of the photo digitizing alternatives available, Seattle FilmWorks's held some distinct advantages: PhotoWorks found a market as the most affordable product of its nature. Competitors such as Kodak, for example, priced their CD-ROM photo software for the high end of the market.

Seattle FilmWorks also recognized digital cameras as an evolutionary leap from conventional photofinishing. Savvy PC users now could purchase digital cameras and "develop" their own pictures stored as bytes on computer chips, ready for downloading on their home computers. So Seattle FilmWorks gave customers PhotoWorks software with their first Pictures on Disk orders. Customers also could download the software from Seattle FilmWorks's web site without charge. PhotoWorks produced excellent thumbnail images for identifying pictures that the user might want, making it the easiest product through which to find images. Maarten Heilbron, writing in Computing Canada, noted: "Whether you are creating graphics for a Web site, or storing interesting pictures from the Web, PhotoWorks is an ideal bitmap image companion."

Seattle FilmWorks issued an upgrade to PhotoWorks for Windows--PhotoWorks Plus--in 1994. The company sold this version directly to customers or through selected software retailers. In 1995 a Mac version of the software became available. That same year, Compaq installed PhotoWorks software on its Presario personal computer models as a pre-loaded feature. In August 1996, Seattle FilmWorks published a 260-page reference guide to the software: PhotoWorks Plus--How to Use Every Feature.

To complement PhotoWorks and to speed turnaround time, Seattle FilmWorks launched PhotoMail in 1995. Basically, PhotoMail provided customers with the private delivery of digitized images over the Internet. The customer would mail his or her film to Seattle FilmWorks with a downloaded order form. The company then would send the customer an e-mail message alerting him or her when the pictures were ready for downloading, including a special access code to ensure privacy for downloading. Twenty-four exposures&mdashout 1.3 MB of data--would take about seven or eight minutes to download with a 28,800 bps modem. The cost of 24 four-inch by six-inch prints was about $15.00.

Seattle FilmWorks also introduced multimedia e-mail in 1995. Like some of the company's other products and services, multimedia e-mail provided pictures from 35 mm film as digitized images and on floppy disk. Using PhotoPlus software, a customer could convert digitized photos to a common format for sending pictures online; for example, JPEG files. Then the customer could attach a photo and audio clip to an e-mail message in a Windows WAV file and transmit photo, text, and sound to friends and family through Prodigy's online network.

In 1996 Seattle FilmWorks made a related service--FilmWorks Net&mdash…ailable. This free service allowed customers to create photographic home pages uploaded to the company's web site. Guest passwords admitted family and friends to the customers' home pages.

Computer Users and Other Customers

As extensions of the Pictures on Disk service, these Internet-based services appealed greatly to PC devotees. Beginning in 1995, Seattle FilmWorks successfully targeted home computer users as a customer base. When announcing the company's eighth consecutive year of record revenues and earning in a 1996 news release, Christopherson noted that "we attribute these strong results to the continued expansion of our core business, largely by targeting users of home computers. Our Pictures on Disk, PhotoWorks, and Internet services and products give customers exciting new ways to use and share their photos."

Identifying customers with a common characteristic--such as personal computer users--had long been a tactic employed by Seattle FilmWorks, and the company proved to be very good at acquiring customers. "We're a direct marketing company that happens to do photofinishing," explained Case Kuehn, chief financial officer of Seattle Film Works, in the Puget Sound Business Journal. "We're sort of tight-lipped about how we get our names. The industry has been scratching its head wondering how can it grow, but we've been able to figure out ways to increase market share." One method of adding customers included a referral program by established customers. In a 15-year period, the company managed to compile a massive database that profiled and identified existing and potential customers, as well as commanded 24 percent of the mail-order market share by 1994.

As one of Consumer Reports top-rated companies, Seattle FilmWorks worked for customer loyalty throughout its history. The company delivered 99.8 percent of its orders without loss or damage and attracted new customers when competitors' could not. For instance, Seattle FilmWorks's net revenues grew at an 18 percent compound annual rate from 1991 through 1996 when the rest of the industry saw little--if any--growth. In order to maintain this momentum, Seattle FilmWorks planned to increase its sales to customers through bigger average order sizes, by increasing the frequencies of orders, and by using more digital-imaging products and additional Internet-related services to attract new and keep established customers. As Christopherson explained in the 1996 annual report: "We have continued our company's growth by marketing differentiated products that represent added value to our customers.... These advances add further value to Seattle FilmWorks's photofinishing product, differentiating us from the competition. By creating products that combine the digitization of photographic images with traditional processing technology, we have strengthened our product line. That has helped us acquire a record number of new customers during the year as we have been able to focus our customer-acquisition efforts on computer users."

Principal Subsidiaries: Seattle FilmWorks Manufacturing Company; OptiColor, Inc.

Seattle FilmWorks, Inc. History

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