Sony’s conundrum: Whether to release ‘The Interview’ online

December 21, 2014, 11:00 AM UTC
Cast members James Franco and Seth Rogen pose during premiere of the film "The Interview" in Los Angeles
Cast members James Franco (L) and Seth Rogen pose during premiere of the film "The Interview" in Los Angeles, California December 11, 2014. REUTERS/Kevork Djansezian (UNITED STATES - Tags: ENTERTAINMENT) - RTR4HPIA
Photograph by Kevork Djansezian — Reuters

Seth Rogen and James Franco’s cancelled comedy film The Interview has caused Sony Pictures one of the biggest headaches this side of the DMZ.

Having pulled the film in the face of terrorist threats, the movie studio could still recoup its investment if it chooses to by releasing it online through YouTube, iTunes or though the file sharing service BitTorrent. Sony also owns the little known streaming service, Crackle, which would get a bit publicity boost by showcasing a high-profile Hollywood premiere.

But executives must weigh a number of factors that make the decision difficult. In the end, it may very well make more sense to keep the film locked in a vault – at a huge financial loss – than ever releasing it publicly.

Fortune has weighed some of the studio’s options from an economic perspective after Sony said in a statement Friday that “It is still our hope that anyone who wants to see this movie will get the opportunity to do so.” On Sunday, in an interview on Meet the Press, David Boies, an attorney representing Sony, gave an even more emphatic pledge to release the film: “Sony has been fighting to get this picture distributed. It will be distributed. How it’s going to be distributed, I don’t think anybody knows quite yet, but it’s going to be distributed.”

If Sony lets the film die on the vine, the company could lose up to $100 million in production and promotional costs.

Releasing the film through an online video service may be the best way to salvage the film. That would circumvent the issue of movie goers potentially risking their lives in a theater while still giving the film a wide audience.

Let’s say Sony goes with YouTube. David Burch, a spokesman for online video ad company TubeMogul, estimated that people would have to watch the film approximately 110 million times for Sony to recoup the movie’s production cost of $42 million (albeit that just under half of what the studio has spent). That’s assuming Sony makes the film available for free and collects money from advertising.

Burch based his estimate on viewers seeing 25 ads during the film, with each costing marketers 3 cents every time they appear. It also factors in YouTube taking its typical cut of nearly half the revenue.

How about iTunes? Apple has been known to partner with content creators before. In this scenario, Sony would need to sell more than 4.3 million copies if the film was priced at $10 (typical for a new movie on the service) and assuming Apple doesn’t take a cut for itself.

Sony could also outright sell the movie or its streaming rights to Netflix. Whether Netflix would be willing to pay enough is open question.

Neither Netflix, Apple, or Google, which owns YouTube, would comment or replied to emails about whether Sony has approached them about The Interview. But speaking Friday on CNN, Sony Entertainment CEO Michael Lynton said that his studio had talked with unidentified video on-demand and streaming companies about distributing the movie while adding that none had agreed to distribute the movie. “Those are other avenues and we are actively exploring them,” he said. “To date, we don’t have any takers.”

Another intriguing option is BitTorrent, the file-sharing service and company of the same name that has long been a favorite for sharing pirated entertainment. The company, which has been struggling to ditch its association with copyright infringement, has already expressed interest in the movie. Landing a partnership with Hollywood would be a public relations coup for the company.

The Act Of Killing, an Oscar-nominated documentary released earlier through BitTorrent’s publishing platform, has passed 3.5 million downloads. Assuming—probably conservatively—a similar number of views of The Interview, Sony would have to charge $12 per download to break even (again, assuming BitTorrent would pass on taking a cut).

Strangely, Lynton suggested in his CNN interview that Sony is unable to distribute the movie itself online, ignoring Crackle, the streaming service Sony acquired a decade ago when it was known as Grouper. “We don’t have that direct interface with the American public, so we need to go through an intermediary to do that,” he said.

Burch called Lynton’s comments “baffling” and said that Crackle would be an ideal option. After all, Sony would be giving its service a huge publicity boost that could help it gain traction against its much better known rivals, Netflix and Hulu.

Burch estimated that Sony would break even using Crackle if people viewed the film 84 million times – assuming the service’s standard estimated ad rate of 2 cents per viewer 25 ads over the course of the film. And because Sony owns Crackle, there would be no need to split the money.

Then there’s Sony’s Playstation video game network that people use to connect to various streaming services. There is also a Playstation store where Sony could sell the film for download. Granted, Sony may not want to want to set up its system as the target of another hacking. For the record, the Playstation network suffered a massive breach three years ago and then another attack this summer that took the service offline.

Indeed, Sony has to weigh the very likely possibility that the hackers will return if it decides to release The Interview in any form and any outlet. Those responsible could release additional sensitive corporate data, sabotage other Sony films in production or threaten to attack theater goers watching other films released by the studio.

The same risk is true for any streaming services that agree to partner with Sony. Their computer systems could also be breached or their streaming services shut down by a denial of service attack.

Another potential consideration for Sony is whether it can collect on any insurance related to the hacking or its film production. A policy may cover unforeseen emergencies preventing film’s premiere and releasing such a movie online may preclude getting a check for any financial loss.

Furthermore, the movie studio may be hamstrung by global politics. Sony’s parent company is based in Japan, where the government has been trying to negotiate the release of Japanese citizens imprisoned in North Korea. The company might therefore wish to show restraint. But a government spokesman has said that “it’s unthinkable that this case will have a direct impact on Japan-North Korea negotiations,” according to the Wall Street Journal.

Whatever the case, more than a few people are unhappy with Sony’s decision so far. Actor George Clooney started a petition in which he urged Sony and others not to cave into the hackers’ demands, saying “We know that to give in to these criminals now will open the door for any group that would threaten freedom of expression, privacy and personal liberty.” Rob Lowe tweeted that “Hollywood has done Neville Chamberlain proud today.” (Neville Chamberlain being, of course, the British Prime Minister best remembered for appeasing Adolph Hitler.) Even President Obama has called Sony’s decision not to release the film “a mistake.”

In response, Sony denied that it had capitulated to the hackers. After a majority of theaters pulled out, the company said it “had no choice” but to cancel the film’s planned Christmas debut.

(This story was updated with comments by Sony’s attorney on Sunday)

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