Fuji confirms Lucky plans

By Alex McMillan
CNN.com Senior Editor

BEIJING, China -- Fuji Photo Film Co. confirmed Tuesday that it is in discussions to buy a stake in Chinese film company Lucky Film.

A spokesman for Tokyo-based Fuji, Japan’s largest maker of photographic film and paper, said the talks were ongoing.

“There is not any concrete decision,” said Hiroshi Watanabe, Fuji’s manager of corporate communications. But, he added, “We want to increase our presence in mainland China.”

Minority stake to take on Kodak

Watanabe said Fuji was also in talks to buy into other Chinese film companies. The Lucky Film deal was first reported in the Financial Times, which said Fuji was looking for a minority stake, perhaps 49 percent.

Watanabe said Fuji’s efforts stemmed in part from moves by its chief competitor, Eastman Kodak, which has opened a plant in mainland China.

Fuji is in a virtual dead heat with Rochester, New York-based Eastman Kodak for world dominance of the photo market.

A potential end run

A Fuji-Lucky Film alliance could run afoul of an agreement that Kodak made with the Chinese government, according to the FT.

In 1998, Kodak agreed to invest $1.2 billion in China. In exchange, non-Chinese companies were frozen out of producing film in China until the end of 2002.

Fuji said it has been making conventional, digital and disposable cameras, as well as instant film, at its old facilities in China. It said the Beijing-Kodak deal only covers color film.

Lucky Film makes color film. Since Fuji would reportedly leave key business decisions to Lucky Film, it may hope to circumvent Kodak's agreement by buying a minority stake.

Analysts said Fuji might be also hope to use China’s proposed entry to the World Trade Organization, expected later this year, as a bargaining tool. They expect Fuji to argue that Kodak’s exclusive deal runs contrary to WTO principles.

Jessica Chan, Kodak public relations manager for greater China, said Kodak’s deal means only local companies can make “sensitized equipment,” such as film, paper and photochemicals, in China. She declined to comment on whether Fuji taking a minority stake in Lucky Film would violate that agreement.

“It is a little bit premature,” she said. “The final details have not been disclosed.”

Eastman Kodak has cornered close to 50 percent of the Chinese market, the FT reported, quoting a Chinese government source. Fuji has only 30 percent market share, according to the same source.

Fuji stated that market share is hard to track in China, given a lack of reliable research. The company said it did not know its exact market share. But it did not contest the FT’s figure.

Only 15 percent of Chinese households own a camera, according to the FT.

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