5 Key Questions Facing Sony in Wake of Hack Attack

The fallout from “The Interview” didn’t end with the R-rated comedy’s debut on-demand and in a few hundred arthouse theaters this Christmas. For Sony Pictures, which has spent much of the tail end of 2014 buffeted by a digital-era catastrophe, cleaning up the wreckage will continue well into the new year. Sony’s leaders must mend fences with top talent and theater chains, and convince the corporate brass in Japan that they are still fit to lead the studio amid all the collateral damage.

“The brand has been tarnished,” says media analyst Hal Vogel. “They look a bit incompetent in the way they handled this. They fumbled about like they had a loose football.”

As the studio digs out from what likely will be millions upon millions of dollars in damages and an endless array of leaked documents, emails and other confidential information, here are five key questions facing Sony and the movie business.

1) Who’s in Charge Here?

Sony Pictures co-chair Amy Pascal and Sony Entertainment CEO Michael Lynton are battling for their professional lives. At first blush, Pascal is the more damaged party. Her racially insensitive email joking about President Obama’s preference for African-American films has her trying to make amends with civil rights leaders, while her uncensored musings about A-list stars has made her a master at apologizing. Pascal also was responsible for ensuring “The Interview’s” depiction of North Korea dictator Kim Jong-un wasn’t too inflammatory — an effort which was apparently not successful.

Likewise, Lynton’s finger-pointing at exhibitors as the ones responsible for pulling the plug on “The Interview’s” release have put him at odds with the major circuits. As the studio’s two top execs twisted in the wind, their boss, Sony CEO Kazuo Hirai, made no public endorsement of the leaders, though an individual close to Sony says the corporate topper was supportive in private conversations.

2) Studio for Sale?

The hack attack has kicked up longtime speculation that the parent company would rethink its long-stated reluctance to sell Sony Pictures. Since the debacle began, there’s been little indication from Sony HQ of any attitudinal shift toward the future of the studio, which remains one of the most valuable assets in the corporation’s otherwise challenged portfolio. While cheap debt and robust equity markets are currently conducive to M&A activity, Pivotal Research analyst Brian Wieser believes the studio’s status is unaffected by the hack.

“Sony seems devoted to owning the business,” he says. “It seems reasonable to presume that the parent company would not want to be seen as having sold due to this incident.”

3) Will ‘The Interview’ Pave the Way for More Online Film Releases?

Sony’s last-minute simultaneous on-demand and theatrical release of the film may have helped explode a business model that’s served Hollywood for a century, and replaced it with something new and uncertain. In the past, VOD releases have been reserved for arthouse films, not midbudget comedies with two major stars. Now that audiences have gotten a taste, will they demand more?

“This is a huge moment in film distribution,” says Jeff Bock, a box office analyst with Exhibitor Relations. “We live in an age where easy may not be only preferable for consumers, it may be the only thing that’s acceptable.” While “The Avengers” and “Star Wars” won’t skip theaters, it’s not hard  to imagine the next Seth Rogen-James Franco bromantic comedy becoming instantly accessible with a click of the cursor — if exhibitors agree.

4) Will Exhibitors Forgive and Forget?

Major theater chains maintain that Sony all but begged them to cancel “The Interview” in the wake of hackers’ threats of violence. Yet, in interviews, Lynton suggests the studio was ready to release the film, but was forced to reconsider when exhibitors got cold feet. Privately, the studio chief has tried to make amends, but the decision to make the film available digitally while pursuing a theatrical release rubbed more salt in the wounds. Theater owners are considering pushing back on the financial terms it strikes with the studio, limiting the number of screens they commit to Sony titles and working less aggressively when it comes to promoting those films in their theaters.

Some analysts think the anger is real, but the threats will prove ephemeral. Just wait until Sony is distributing the next James Bond or “Spider-Man” sequel.

5) Where was the MPAA?

At one point during the crisis, Lynton said to CNN, “You would expect the industry to rally around and support you.”

He was right. Rival studios didn’t step into the fray, and their mouthpiece, the MPAA, was curiously low key until the FBI concluded that North Korea was behind the attack. Only then did MPAA chairman Chris Dodd issue a strongly worded statement condemning the attack as a work of cyber terrorists.

In the weeks after the attack, Dodd worked behind the scenes trying to organize a letter of support for Sony, but it never materialized; studios had their own fears of becoming a target of the hackers.

And then there was a desire to wait until the FBI released its findings. The bigger impact for the MPAA may prove to be turning up the heat on its already chilly relationship with Google. The release of Sony emails triggered a harsh war of words, with Google accusing the studios of trying to revive failed antipiracy legislation via a “secret, coordinated campaign,” and the MPAA calling the search giant’s tactics “shameful.”

So is the whole incident.

Andrew Wallenstein and Ted Johnson contributed to this report.

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