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Sony Could Lose $75 Million on ‘The Interview’ (EXCLUSIVE)

Sony Pictures Entertainment could lose $75 million over the cancellation of its planned Christmas release “The Interview” after theater owners refused to play the picture amid threats of violence from cyber-terrorists who hacked the studio.

That figure includes the $44 million that Sony spent producing the film, as well as the $30 million it shelled out to promote it, according to two people with knowledge of the matter. One of those sources said that Sony had originally planned on spending $36 million to market the picture domestically and was eight days away from premiering it in theaters when it was shelved. That meant most of its billboards, posters, other promotional materials and TV ad spend were already in place.

Insurance will cover a portion of the costs, but not the full amount, these people said.

The studio might eventually succeed in selling off the picture to another party that could release it via video-on-demand or through a subscription streaming service like Netflix. But, at this juncture, it seems unlikely that any company would touch the film out of fear of getting hacked as well.

It is widely believed that “The Interview” may have prompted a sophisticated cyber-attack on Sony that resulted in leaked emails, film budgets and the personal information of thousands of employees. Most major theater chains opted not to screen the film this week after hackers evoked the memory of 9/11 and threatened violence on exhibitors who screened the film and moviegoers. “The Interview” is a comedy starring Seth Rogen and James Franco about an assassination attempt on North Korean dictator Kim Jong-un.

North Korea has been linked to the hack, and an official announcement on the source of the attack is expected in the coming days.

As it became clear that releasing the film posed enormous legal liabilities for both exhibitors and Sony given the possibility that either the hackers could make good on their threat or inspire copycats, a theatrical release became impossible.

The studio may be partially covered by cyber-liability or terrorism insurance coverage, according to Kent Hamilton, president of Front Row, an entertainment insurance broker. If  North Korea is shown to be involved in the attack and the threats of violence that led to the picture’s cancellation, that coverage would help stem some of Sony’s losses.

“At this point they’re probably trying everything they can to recover some of the money,” said Hamilton.

One option that will not be available to Sony is any kind of completion bond, experts say. Those bonds ensure that studios get money back if filming is forced to stop because of the death of a star or another disaster, but “The Interview” finished filming and was safely in the hands of its distributor. Moreover, completion bonds are more common with independent film productions than with studio projects.

“I’ve never heard of a policy that covers a film all the way to when it gets delivered to exhibitors,” said Jeff Steele, a film finance expert. “This is more of a force majeure type of thing where things got out of control,” he added. “It’s more akin to an act of god.”

Sony explored the idea of releasing the picture on-demand and even though analysts believe it would have been among the top-selling titles in the format’s history, it would not have replaced the money lost theatrically.

“In a way it’s the perfect premium VOD title, because there’s huge visibility and people want to see it, but not necessarily in theater,” said Tom Adams, a media research analyst.

But he adds, “As a premium VOD title without a theatrical run it would be almost impossible to make the money back.”

Of course, the true cost of the past few weeks will escalate beyond the money that Sony spent and ultimately will lose on “The Interview.” Repairing the company’s cyber-defenses will cost tens of millions of dollars, and the Japanese-owned studio already faces lawsuits from former employees upset over their leaked personal data.

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