When the five largest theater chains in the United States said they would not show Sony's (NYSE:SNE) The Interview on their screens, the company had little choice but to cancel the film's Christmas Day release.
The theater owners, including AMC Entertainment (NYSE:AMC), Regal (NYSE:RGC), and Cinemark (NYSE:CNK), were responding to online threats from hackers of attacks on theaters if the film, a comedy centered around the assassination of North Korean dictator Kim Jong Un by bumbling journalists, opened as planned. Those threats come after Sony fell victim to computer hackers who made a number of sensitive emails public. The U.S. government has since connected the hack to North Korean sources, the Associated Press reported.
Without the major cinema chains on board, it's impossible to launch a major movie in theaters. The change in plans, however, could give Sony the perfect movie for an online/video-on-demand release, and that could ultimately show theater owners they are no longer the only game in town when it comes to releasing a major motion picture.
If The Interview received a VOD release, which has previously been reserved for smaller films the theaters had little or no interest in, it could prove whether a market exists of people who would pay theater-like prices for the ability to watch big-budget movies in their living rooms (or anywhere else they chose to watch),
Sony has said no
Sony, though, has said it has no plans for a VOD release.
"Sony Pictures has no further release plans for the film," a spokesman said Wednesday, Variety reported.
Not having any current plans is very different than ruling out a VOD release ever. Such a move, though it would have financial risks, is far safer than placing people in danger of a potential terrorist attack if the film went to theaters. By making the film available digitally, Sony could mitigate its losses while also gaining valuable data about the moviegoing public.
The challenge with most VOD releases is that they involve smaller films that struggle to get any sort of publicity. Even if a movie released in this manner features major stars, VOD carries the same stigma as what used to be known as direct-to-video movies. In almost all cases, these were movies the studios either made cheaply, having never intended a theatrical release, or films that cost a lot of money but were seen as so bad that spending the dollars to release them would be a waste.
The Interview is none of those. It's a major film with a big budget, big stars, heavy anticipation, and largely good buzz. Because of the pulled theatrical release and the news coverage, it also has garnered an enormous amount of publicity. It also won't hurt that spending money to see it might be seen as an act of patriotism and a blow against terrorism.
While Mitt Romney's suggestion to make the movie available for free online might be a little extreme for a film that Variety estimated cost $42 million to produce, selling it digitally would make up some of the lost money and also show whether theaters are a necessary part of distributing movies. While there would be technical expenses and challenges in doing a VOD release on the company's own, since Sony has relied on partners for VOD releases before, it's not impossible.
Comedian Louis C.K. in 2011 bypassed the pay television networks that traditionally buy and release comedy specials in favor of selling his show "Live at the Beacon Theater" directly on his website. C.K. charged $5 a download and grossed over $1 million in the first 10 days, he said in an interview with O.Canada.com. That's well more than he would have made selling it to HBO or Showtime, and the special continued to sell after the initial flurry.
With The Interview, Sony could either go with a low-cost model designed to make the film as widely available as possible, or it could charge theater-like prices -- perhaps $49.99, which would equate to four or five tickets sold (depending upon the market). In either scenario, if Sony did it without a partner, the studio could sell the movie without sharing the receipts with theaters.
How to gauge success?
Unlike many in Hollywood, The Interview co-director and co-star Seth Rogen has prided himself on being careful with money when he makes movies. The Interview is not a $200 million action film, though it does have some major action scenes for a comedy. In many ways the movie is comparable to another Rogen/James Franco pic, 2013's This Is the End. That movie grossed $126 million globally on a $32 million budget, according to Box Office Mojo, making it a hit and a moneymaker for Sony.
For a digital release of The Interview to be a success it would have to perform roughly as well as End. That would make it the most successful VOD film ever by far, but it's not an unprecedented figure for home viewing: A Floyd Mayweather Jr.-Saul "Canelo" Alvarez boxing pay-per-view in 2013 grossed over $150 million in a single evening, ESPN reported.
A digital release of a film that a lot of people are now curious about at pay-per-view-like prices might be equally as successful.
Sony won't make a dime by refusing to release the movie, and putting it out digitally could give the studio powerful leverage over theater owners going forward. It would also thwart the bad guys who used threats of violence to stop a silly comedy.
Daniel Kline owns shares of Apple. He probably would have waited until cable to see The Interview because he's only mildly enjoyed Rogen's past work. The Motley Fool recommends Apple, Google (A shares), Google (C shares), and Netflix. The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), and Netflix. 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.