The Interview: just one subplot in Sony's troubled big picture

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On the day that Sony Pictures decided to cancel the release of The Interview – a comedy about the fictional assassination of the North Korean leader, Kim Jong-un – the firm’s employees were advised to cover their keyboard with a cloth when logging into email “so that hackers can’t see what you are typing”.

The instruction came via a spoof Twitter account using the name of the parent company’s Japanese chief executive, Kazuo Hirai. Yet given the ignominy Sony has suffered in the fortnight since it was hacked, allegedly by a group connected to North Korea, parody is beginning to mirror reality.

The schadenfreude that followed the leak of compromising emails by Sony Pictures executives, as well as withering reviews of The Interview by South Korean employees, are unlikely to worry Sony’s CEO as much as the fiasco’s financial impact and the damage it has inflicted on the firm’s reputation.

While executives in Los Angeles handle the immediate fallout, Hirai, who replaced Welsh-born Sir Howard Stringer almost three years ago, is contemplating a bill that could run into hundreds of millions of dollars when the cost of withdrawing the movie is added to the technology bill to repair the hacking damage.

Executives at Sony in Tokyo have yet to speak publicly about the controversy while authorities in the US are still conducting their investigation. The firm’s headquarters declined to respond to the Guardian’s request for comment.

In The Interview, which had been due for release in the US on Christmas Day, Rogen and James Franco play celebrity TV journalists who secure an exclusive interview with Kim but are then recruited by the CIA to assassinate him.

The cost of its cancellation, which came after the advertising and marketing campaigns were in full flow, could hit US$80m, according to one estimate. Variety, meanwhile, quoted insiders as saying the firm stands to lose $75m, including $44m dollars it spent producing the film and $30m in promotional costs.

Some analysts said the financial costs of the movie’s cancellation would not match the hit that Sony took in 2011 when hackers leaked the personal information of 100 million users of PlayStation Network. That incident cost the company 10 billion yen ($83m). Eiichi Katayama, a research analyst at Bank of America Merrill Lynch in Tokyo, believes that total losses from The Interview ’s withdrawal are likely to be in the range of “several billion yen”.

Katayama added: “Uncontrollable incidents like this are clearly negative for the share price. However cancellation of the movie’s release is likely a step towards resolution of the incident. Even in terms of costs, this case does not approach the scale of the [PlayStation Network] event, and we think profit will recover strongly in 2015.”

The hacked emails and in-house bickering over the film’s artistic merits are a far cry from the “One Sony” vision Hirai espoused when he became chief executive in April 2012. Hacked emails reveal that he was concerned about the film’s treatment of Kim months ago but his requests for the content to be toned down met with resistance from the co-director and Seth Rogen, one of the stars.

And there were other very explicit warning signs. Pyongyang reacted angrily when The Interview’s plot first became public and promised a “resolute and merciless” response if it went ahead. The North Korean ambassador to the UN, Ja Song-nam, called the movie “the most undisguised sponsoring of terrorism as well as an act of war” in a letter to the UN secretary general, Ban Ki-moon.

The saga that has unfolded since is an unwanted addition to Hirai’s already packed in-tray.

While Sony spent years dabbling in non-traditional areas as diverse as financial services and, for a while, chemicals, its rivals played to their innovative strengths. Samsung is now the world leader in high-end TVs, and despite giving the world the Walkman, Sony never came close to producing a music player to rival the iPod.

The Japanese conglomerate is heading for its fifth net loss in six years, prompting calls for the firm to ditch under-performing businesses, including its TV manufacturing unit.

The firm has failed in its attempt to become the third-largest mobile phone maker after Apple and Samsung, and recently said it would abandon plans to make handsets exclusively for the Chinese market.

Its struggling mobile phone business resulted in a net loss of 136 billion yen for the three months to September, although that figure was smaller than analysts had predicted.

“When this whole Interview thing started Hirai was otherwise occupied getting Sony’s core businesses back on track,” said film reviewer and expert on Japanese cinema Mark Schilling.

“That has still got to be his priority, since he and his people in Tokyo can’t repair the damage done in Hollywood. Sony made the decision many years ago to be hands off vis-a-vis Sony Pictures and I don’t see that changing much. The big question is whether Sony Pictures will become a Sony asset or a liability. One thing Hirai definitely does not need is another money-losing division.”

While Sony Pictures handles the fallout from The Interview, the parent company’s focus remains on achieving Hirai’s goal of returning its electronics business to profit by the end of March 2016 following years of painful restructuring involving thousands of job losses.

But it remains a dominant force in the game console market. The PlayStation 4 has easily outsold Microsoft’s Xbox. The Sony console broke even within a year of its release in late 2013, a feat that took its predecessor, the PlayStation 3, four years to achieve.

For the time being, though, any bright spots will be blotted out by the catastrophe surrounding The Interview – and the feat of the hackers, whom Sony accused of seeking to “destroy our spirit and our morale, all apparently to thwart the release of a movie they did not like”.

While Sony claims to have been the victim of a sophisticated cyber attack that many firms would have struggled to prevent, the damage to its reputation could be lasting, said Schilling.

“The public doesn’t care what studio label is on a film, but Hollywood talent and the people who represent them do care about who they’re dealing with, and Sony Pictures has abused their trust, to put it mildly,” he said.

“Some valuable properties and important relationships have been damaged and even though Sony was a victim, it was also responsible. How soon can it again become a studio people want to work with?”

Powered by Guardian.co.ukThis article was written by Justin McCurry in Tokyo, for theguardian.com on Saturday 20th December 2014 05.32 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010

 

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