You don't mess with Kim Jong-Un. That was the message North Korea sent to the Sony (NYSE:SNE) movie studio, and it was heard loud and clear.
After the cyberterror group Guardians of Peace threatened to launch 9/11-type attacks on theaters that dared showing it, Sony Pictures Entertainment told theater operators they didn't have to run its comedy The Interview, which depicts the assassination of the North Korean leader.
Reportedly AMC Entertainment (NYSE:AMC), Carmike Cinemas (NASDAQ:CKEC), Cinemark Holdings (NYSE:CNK), Cineplex, and Regal Entertainment (NYSE:RGC) -- five of the largest chains in the country representing more than 1,600 theaters and over 21,000 screens -- all decided the Christmas Day premiere of the movie won't happen.
Because theaters are more often than not multiplex operations these days, the theater owners were also concerned about the fallout on other films running at the same time. Fear of an attack might have kept moviegoers away from seeing those flicks, too. Sony has since cancelled the movie release, including via video on demand.
These recent threats followed up a direct attack to Sony corporate in which computers were wiped clean of data and files. The attack is being labeled as one of the most insidious instances of state-sponsored cyberterrorism, and also involved leaking unreleased movies, employee information, and embarrassing emails where studio executives bad-mouthed stars.
The effects of the attack, however, are still rippling outwards as movie studio New Regency abruptly dropped plans to produce its own film set in North Korea, called Pyongyang, starring Steve Carell.
What is the damage to Sony?
Sony Pictures has been left paralyzed by the attack. It reportedly suspended production of all movies because its computer network was crippled leaving it unable to process payments, though Sony denies there are problems. And the unauthorized leak of films such as Fury and Annie are likely to eat into the studio's profitability. It was reported Fury was downloaded more than 1 million times in the days following the cyber attack.
While Sony no longer resembles a deer-in-the-headlights, the hard-line stance it's taking with news media publishing the "stolen" emails won't contain the damage of those already released revealing how studio executives really feel about some actors.
Studio head Amy Pascal can be sure her days are numbered after bridges to stars like Kevin Hart (he was called a "whore"), Angelina Jolie (a "minimally talented spoiled brat"), and Leonardo DiCaprio ("despicable" for dropping out of the Steve Jobs biopic) were burned. It's unlikely they'll want to work with the studio anytime soon.
In the weeks before the hacking event, Sony Pictures Entertainment anticipated generating some $8.1 billion in revenues this year, with as much as $11 billion projected by 2018 as profit margins run to 7% or 8%. By intensifying its focus on blockbuster movies, greater TV production, and programming, Sony's CEO Kaz Hirai even crowed at its investor day presentation its entertainment businesses were "a steady source of income for Sony."
That's now called into question. Analysts estimate the attack will cost Sony tens of millions, but that may be a bit myopic. The studio is seemingly in disarray and might not be able to attract star talent. Projects could also be shopped to competitors instead. It seems probable the figure will run much higher in the long run.
... and the industry?
Hollywood often conducts its finances in a black box. Making these details public threatens to expose the real financial inner workings of studios and the publication of star salaries could have wide-ranging implications for future movie negotiations.
As for filling the scheduling vacancy, with The Interview being pulled, one theater operator in Texas decided to call in the troops. No, not the U.S. military, but rather the marionette paramilitary force from Team America: World Police, which saved the world from a violent terrorist act launched by the North Korean dictator's father, Kim Jong-Il. Amid all the geopolitical tension, The Alamo Drafthouse in Dallas will be screening Paramount's cult-classic for anyone needing a laugh.
Rich Duprey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.