When it comes to Sony (SNE) and "The Interview," the absurdist comedy is turning into an all-too real disaster for the studio.
The decision to pull the Dec. 25 release of the film, following threats from hackers tied to North Korea, has come under widespread disapproval from both consumers and those in Hollywood. Among those reacting are actor Rob Lowe writing on Twitter, "Everyone caved. The hackers won," and politician Newt Gingrich chiming in, "With the Sony collapse America has lost its first cyberwar."
On top of the widespread criticism, Sony is also dealing with potentially significant financial losses (most of which aren't likely to be covered by insurance) from its decision to pull the comedy and the preceding hack of its corporate computer system. The studio spent about $80 million to make and market the film, while the cost to clean up the damage to its IT network and reputation may cost an additional $100 million, Bloomberg reported, citing analysts.
Sony was "caught off guard by the amount of negative publicity they have gotten from the cancellation," noted Laura Ries, president of marketing strategy firm Ries & Ries. "The creative community is outraged. As Americans, people think, 'How can we back down?' but at the same time, people are concerned about safety."
Sony is coming under fire after hackers, whom the U.S. says are tied to North Korea, first broke into the studio's computer systems and released private information and emails. Then the hackers threatened employees and moviegoers.
"Those who attacked us stole our intellectual property, private emails, and sensitive and proprietary material, and sought to destroy our spirit and our morale -- all apparently to thwart the release of a movie they did not like," Sony said in a statement. The company said it was "deeply saddened" by the hackers' attempt to suppress the film, which is a fictional account of a TV crew that tries to assassinate North Korean leader Kim Jong-un.
Aside from the loss of revenue from ticket sales, Sony may also be forgoing sales tied to pay-TV, DVDs and streaming, given that the studio said future release plans are on hold. Sony didn't immediately return a request for comment.
To some extent, Sony's decision not to release the film was forced by North American theater chains, which backed out of showing "The Interview" after the hackers threatened 9/11-type violence.
There's some evidence that Sony's brand is taking a hit, although it's unclear how long that will last, according to data from YouGov's BrandIndex. The biggest dip has been seen at the brand-measurement company's buzz index, which asks whether consumers have heard anything positive or negative about a brand during the past two weeks, said BrandIndex Chief Executive Ted Marzilli.
Sony has dropped about 14 points in the buzz index, leaving the brand at about zero, which means consumers are hearing about the same number of positive and negative views about the brand, he added. As for corporate reputation, where consumers are asked if they would be proud to work for a particular company, he said BrandIndex is seeing "a little dip" for Sony.
In essence, Sony is dealing with two separate issues: the initial hack, and the subsequent decision to pull the release of "The Interview." In the case of the hack, "there may be a lot of people who are sympathetic toward the brand, because of the personal information that was released about a lot of Sony employees," Marzilli said.
But the decision to pull the release "could have a potentially bigger impact because people are starting to question what it means for how Sony and American corporations react to these type of attacks that seem to be coming from an outside government," Marzilli said. "It doesn't seem to sit well with people."
Sony's saving grace may that there appears to be a villain to take the blame: North Korea. When brands have a misstep, consumers tend to blame the brand itself, said Claudia Townsend, assistant professor of marketing at the University of Miami's School of Business Administration.
"In this case, even though the reaction has been negative about pulling out of theaters, it's fairly clear there's a bad guy here," Townsend said. "In the long run it's not going to taint Sony, because it's easy to blame someone else. The fact that the U.S. government is responding suggests that this is bigger than Sony."
While some critics are complaining that the terrorists are winning, Sony executives may want to stress that they made their decision in the light of public safety, Townsend added. If the company can highlight that it might not make any money from "The Interview" because of it wanted to keep consumers safe, that could end up strengthening the brand, she said.
While Sony will be taking a near-term hit to its bottom line because of lost ticket sales and the cost of hiring experts to work on crisis management and computer security issues, the conglomerate may not suffer a long-term hit to the brand, experts said. That's partly because consumers usually aren't aware of which studio is releasing a particular movie. Instead moviegoers are more likely to focus on actors, directors and plot.
"In the best-case scenario, there may be 24 to 48 hours of discussion, and then it starts to disappear," said BrandIndex's Marzilli.
If Sony opts to release "The Interview" digitally, the initial fail could turn into a home run, added Ries.
"It's obvious that you have to get this on Amazon or Netflix," she said. For a studio, the publicity is "a dream come true because consumers are dying to see it. What kind of movie would get North Korea so upset that they would do this?"
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