Sony Pictures hack fuels speculation about studio's possible sale

Dec. 20, 2014 7:48 PM PT

Fallout from the crippling cyberattack on Sony Pictures Entertainment has called into question exactly what the future holds for one of Hollywood’s biggest names.

A paralyzed computer system has hampered the studio’s ability to make deals, promote upcoming movie releases and conduct business. Some employees at the Culver City film and television studio still were having trouble accessing their email this weekend.

But, beyond the day-to-day running of a studio, there’s a sense in Hollywood that big changes are ahead.

“Major upheaval will occur at Sony,” said Jeffrey Cole, director of the Center for the Digital Future at USC’s Annenberg School. “This will reset the studio’s relationship with Japan.”

Emails released on the Internet by hackers show that Sony Corp. Chief Executive Kazuo Hirai had been concerned for months that “The Interview” could be trouble, given that the comedy depicted the fictional, gruesome assassination of North Korean leader Kim Jong Un.

Hirai ultimately agreed to the film’s release, but analysts say that may not be enough to save the jobs of Sony Pictures’ top two executives, Michael Lynton and Amy Pascal. They canceled the Christmas Day release of “The Interview” in the wake of terror threats on cinemas. Theater chains had worried about the safety of moviegoers and the impact on box office receipts over the crucial holiday season.

That decision, however, drew scorn from many — including President Obama — that the studio capitulated to a hollow threat from the North Korean hackers who federal officials say launched the cyberattack. This only added to the controversy surrounding the film.

“The current situation is likely to be a strain on relations with the Japan headquarters,” said Jochen Legewie, a crisis advisor and a managing director of the global consultancy CNC Japan.

Sony declined to comment, though it issued a statement Friday condemning the attacks and explaining its position.

The studio is a relatively small part of Sony Corp., which has from time to time triggered speculation that the parent company might want to sell it. Sony, with $75 billion in annual revenue, acquired the studio in 1989 for $3.4 billion, lured by the long-term benefits of crafting a wide-ranging entertainment business — one in which music, film and TV projects could serve as the “software” for Sony’s television sets.

Its financial performance has been mixed. For its most recent quarter ended Sept. 30, Sony Pictures lost $10 million on revenue of $1.7 billion. The damage from the cyberattack — estimated to be in the tens of millions of dollars, at least — won’t help.

“The hacking scandal has underscored the risks associated with owning a film studio,” said Laura Martin, a Needham & Co. senior media analyst.

Martin believes the prospect of future cyberattacks makes it “more likely Japan is going to decide they can’t take this level of scrutiny” and could decide it’s better off without the headache.

Even so, studios remain prized assets.

Leslie Moonves, the ambitious chief executive of CBS Corp., has long wanted to own a major Hollywood studio. His network is the only one not partnered with a bustling film division. NBC is connected to Universal Pictures, ABC is a unit of Disney and the Fox network is under 21^s^t Century Fox.

CBS declined to comment on possible interest in acquiring Sony. Such a deal, however, would enable CBS to add Sony’s vast television holdings. The studio controls a library of syndicated shows, including “Jeopardy,” and produces hits such as “The Blacklist” for NBC, “The Goldbergs” for ABC and a forthcoming spin-off to “Breaking Bad” called “Better Call Saul” for AMC.

Wealthy Chinese investors also have made no secret of their interest in buying a Hollywood film studio.

Alibaba Group, China’s largest e-commerce company, has been on the hunt to buy a film studio to expand its distribution of films to customers. Chief Executive Jack Ma, who led the company to the largest initial public offering ever this year, met with Hollywood executives in October to scope out potential partners.

Billionaire Wang Jianlin, who owns China’s biggest cinema chain, Dalian Wanda Group, said last month that he was interested in a studio deal. He expressed interest in Lions Gate Entertainment, the $4.7-billion studio behind “The Hunger Games” films. He also held discussions about investing in Metro-Goldwyn-Mayer, the independent producer of James Bond films.

The discussions so far have not led to a deal.

Another potential buyer could even be Lions Gate, according to emails that came out in the Sony leak.

Last summer, activist shareholder Daniel Loeb, whose firm Third Point then owned about 7% of Sony, tried to broker a deal between Sony and Lions Gate. Loeb talked with a top Sony USA executive about arranging a meeting with Hirai in Japan, according to emails reviewed by The Times. Third Point declined to comment.

Sony Corp., of course, may have no plans to sell the studio. During a conference with investors in Tokyo last month, Hirai said the company expects to increase revenue at Sony Pictures to $11 billion annually in three years. That is more than a 35% increase over this year.

But if it takes that course, there would be much rebuilding ahead, industry observers say.

The disruption to Sony Pictures’ business could lead it to miss out on near-term business opportunities such as closing a deal for a hot new spec script. What’s more, a loss of faith by industry operators in the studio’s ability to protect its data could hurt efforts to attract top talent, according to entertainment industry analysts.

Relationships with actors who were disparaged in Sony executives’ emails could be irreparably damaged. Among those denigrated in leaked messages were Kevin Hart, Adam Sandler and Angelina Jolie. One of those most hurt by the emails was Pascal, who met with civil rights advocate Al Sharpton last week to apologize for her racially insensitive comments about President Obama.

“There are going to be repercussions,” said longtime media analyst Harold Vogel. “They are going to lose momentum. This will be a big hit to Sony’s earnings performance for quite awhile. It could take at least two years to recover.”

As Sony Pictures begins the cleanup in the wake of the cyberattack, it also must press on with prep work for next year’s slate of films.

Perhaps the surest bet among its planned releases is “Spectre,” the new James Bond film. The Daniel Craig-starring picture, a joint production of Sony and MGM Studios, will premiere Nov. 6, 2015.

Other forthcoming projects include the Robert Zemeckis-directed “The Walk,” which stars Joseph Gordon-Levitt as French tightrope walker Philippe Petit; “Chappie,” from “District 9” director Neill Blomkamp; and comedian Sacha Baron Cohen’s “Grimsby.”

Some believe Sony will eventually get back on track as the studio turns to its next slate of films. One thing in its favor, at least with Hollywood’s creative community, is its reputation for making edgier films that other studios would pass on.

“Sony will bounce back and some of these relationships will be restored,” said Peter Sealey, a consultant and former marketing executive at Columbia Pictures. “After all, Hollywood would have dealt with Osama bin Laden if he could have greenlighted a movie.”

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Times staff writers Joe Bel Bruno and Richard Verrier contributed to this report.