Sony Will Recover Half Its Investment in ‘The Interview’

AP Photo
AP Photo
Los Angeles, CA

Sony Pictures Entertainment’s The Interview debuted on Christmas Eve at number 1 on YouTube Movies, Google Play, and Microsoft’s Xbox Video. With horrible reviews, the movie would have been a financial dud if the Sony hack never happened. Sony will recover about half its investment by moving the first release of The Interview directly to Internet distribution. But Google’s savvy move may revolutionize movie industry distribution and doom the theater chains that refused to screen the movie.

The Interview, which both President Barack Obama and Republican Party National Chairman Reince Priebus encouraged Americans to buy as a patriotic civic duty to spite North Korea’s Supreme Leader Kim Jong-un, was downloaded as paid media approximately 650,000 times at rates of $5.99 for rental and $14.99 for purchase in the first 24 hours.

The big screen theatrical release of the film began showing on about 300 independent U.S. theaters on Christmas day. The initial sales have been strong, despite high-quality copies of the not-very-funny comedy already turning up on multiple piracy sites.

My back of the envelope estimate is the digital release of The Interview will generate about $50 million in revenue. That would offset over half the $90 million write-off Sony projected when they scrapped the original release, according to The Wrap.

Before the tumultuous hacking scandal, Sony Pictures expected a domestic theater revenue of $80 million and $130 million worldwide for the film. At such a poor income rate, the movie would definitely have been about a $40 million loser for Sony.

The Interview production cost was $45 million, domestic marketing was set at $35 million, and the overseas marketing budget was another $12 million. Because most of the marketing for movies is pre-paid, the studio might be able to recover $6 million in trade-out for Sony’s other Christmas release: Annie. Sony will book about the same $40 million net loss on The Interview they would have suffered without the turmoil.

YouTube’s business model has allowed anyone with medium Internet speed connection to set up their own channel and post videos. With 84% market share of the online video industry according to comScore, YouTube gets over 1 billion unique visitors each month who watch about 6 billion hours of video worldwide. But YouTube viewers do not spend money on the site like Amazon, Netflix, and iTunes customers.

YouTube is already the distribution channel of choice for small and independent artists who survive because of ads on their homemade videos. But Google’s decision to air the controversial film on their site appears to be a brilliant opportunity to revolutionize YouTube beyond the Internet go-to place for dancing babies, grumpy kitties, and K-Pop singers and their crazed dancing.

Google and YouTube are much more prepared than Sony to protect content from third world cyber-terrorists. Viewers who choose to watch The Interview on YouTube will be required to enter their credit card information and make the purchase through Google Wallet. Once viewers have set up a charge account and made an initial payment to Google Wallet, they will be much more likely to spend money on YouTube in the future.