Sony Executive Judgment Under Scrutiny As Hack Fallout Grows (Analysis)

Michael Lynton - H 2014
Courtesy of Sony Corporation of America

Michael Lynton - H 2014

Following CEO Michael Lynton's interview with CNN, in which he criticized President Obama for chastising his studio, Hollywood has begun to question his strategy

Anyone who has ever met Sony Pictures Entertainment CEO Michael Lynton or even passed him while driving on the freeway, really, could see at a glance that his style has been defined by caution to the point of near invisibility. That’s why senior executives and producers in Hollywood were so completely stunned by the sight of Lynton on CNN on Friday saying that President Obama had erred in chastising the studio for pulling the Seth Rogen-James Franco comedy The Interview in response to the devastating hack attack attributed to North Korea.

An A-list producer shot a typical reaction to me in an email with the subject line, “OMG” that read: “Is this surreal or what???”

“U see cnn interview?” the head of one company texted. “What a day!”

Lynton’s argument--that no theaters were willing to play the film and that Sony had no “direct interface with the American public” to enable the release of the film--drew immediate skepticism from executives who believe a slow rollout of the film in theaters had, in fact, been an option. And even some members of the public know that Sony has the online video service Crackle and its Playstation platform in million of homes, which suggests that where there was a will, there might have been a way.

Not that anyone could blame Sony for desperately wanting to bring a halt to the devastating attack that has paralyzed the entertainment company and exposed it to embarrassment and untold millions in damage. Maybe Lynton should have made that argument. Regardless, his remarks were soon undercut by the comments of Sony attorney David Boies on Meet the Press. “It will be distributed," Boies said of the film. "How it's going to be distributed, I don't think anybody knows quite yet, but it's going to be distributed." (Sony dismissed a New York Post report that it would use Crackle to release the film.)

“It’s like the Keystone Cops--except kind of tragic,” says one of the industry’s most prominent executives. I've spoken to some of Hollywood top execs, and many believe that Sony, the corporate parent in Japan, must have ordered Lynton to speak out, and with that, the calculus has changed regarding the extent of management upheaval that will result from this horrifying episode. Industry observers had already concluded that studio co-chairman Amy Pascal (spending the holidays in New England after a punishing month) is at great risk and now it seems that Lynton is, as well. It has been noted that Sony Corp. has condemned the attack but has yet to express public support for its beleaguered studio executives.

Hollywood’s executive elite has spent a great deal of time second-guessing virtually every element of Sony’s strategy since the hack attack began in November. But the original sin, for a great many of top executives observing the unfolding fiasco, remains the decision to allow the film to be made in the first place without demanding that Rogen use a fictional character who might have strongly resembled Kim Jong Un but wasn’t a real person, in this case the unpredictable head of an isolated, paranoid and nuclear-armed nation.

“It’s irresponsible!” snapped the head of one studio. More than one top executive expressed the opinion that no other studio would have allowed it and even Sony would not have done it in the past. “I don’t think this would have ever happened on Howard Stringer’s watch,” says an A-list producer of the former Sony Corp CEO. Emails released by the hackers show that current Sony CEO Kaz Hirai expressed concern about the film, even stepping in to tweak a gruesome scene involving Kim Jong Un. But Hirai allowed the film to move forward. raising questions about his fate, as well.

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A few industry observers and even members of the public have noted that this ongoing saga would make a perfect sequel to the 1996 book, Hit & Run: How Jon Peters and Peter Guber Took Sony for a Ride in Hollywood, that I co-authored with Nancy Griffin. (And no, I am not angling for a book deal.)

That book told the story of how hard Sony stumbled early on in its run into Hollywood with its 1989 purchase of Columbia Pictures, starting with expensively breaching producers Guber and Peters’ contract at Warner Bros. as it hired them to run the studio. Guber and Peters--especially the former hairdresser Peters--were two unusual characters never regarded within the industry as having credentials or experience that would make them candidates to be studio co-chairmen.

After buying the studio at a price that was seen as far too rich (the deal was valued at $5 billion), Sony founder Akio Morita paid a visit to Keiji Shima, then the powerful chairman of the Japanese broadcast company NHK. “Morita-san, you’re making a big mistake,” Shima reportedly said, shocking the Sony chairman. “Making movies is different. It’s a special kind of business. You don’t understand Hollywood. It won’t work. You’re asking for big trouble. You’re getting into a business that you won’t be able to control.”

Those words now seem prophetic. From the start, the industry buzzed with the excess that was the hallmark of the Guber-Peters era: the lavish compensation packages; the Sony jet loaded with flowers that Peters sent to court Swedish supermodel Vendela; the spare-no-expense refurbishment of the lot and decoration of offices; the outrageously expensive movies that flopped, from Radio Flyer to Last Action Hero and beyond. And the studio notoriously became entangled in the Heidi Fleiss call-girl scandal, too. It made for pretty good reading.

Read more North Korea Claims U.S. "Deeply Involved" in Making 'The Interview,' Vows Revenge

As Shima had warned, executives in Tokyo never seemed to grasp what was happening at its studio in Los Angeles. What must have seemed like typical Hollywood excess to Sony bosses was known in the industry to be in fact beyond the pale. Even after Sony rid itself of Guber and Peters, finally taking a $3.2 billion writedown, it seemed the company didn’t comprehend what had befallen it. After Hit & Run’s publication, Norio Ohga, CEO at the time of the studio acquisition, made his first comments on the book to the Japanese magazine Keizaikai. Calling Guber and Peters “geniuses of the film industry,” he added, “We have never spent extravagantly at all.” Noting as one example the book’s description of heavy spending on florists, Ohga said, “It is common sense to decorate an actress’ room in the studio with flowers.” He concluded, “We will never give up or dispose of Sony Pictures.”

Since then, new people have had their turn at running both “big” Sony and the studio. But while the motivations have certainly changed dramatically, spending at the studio continued to be known throughout Hollywood as well above what was common elsewhere. To give Amy Pascal her due, she is widely liked and known for her passionate support of serious films and filmmakers. But even on movies without much pedigree, such as the 2005 Jim Carrey vehicle Fun with Dick and Jane, the studio allowed outsized expenditures that seemed to serve no purpose other than the indulgence of filmmakers and actors. A more recent example was the 2010 James L. Brooks dramedy How Do You Know, which cost about $100 million after tax breaks. Dissident shareholder Dan Loeb in July 2013 cited White House Down and After Earth as evidence of what he called Sony’s “perpetual underperformance.”

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Sony clamped down on spending in the wake of Loeb’s assault but the decision to allow Rogen's wish to depict Kim in the film, despite concerns raised about the potential fallout, looks like another instance--more costly than all the others--of giving in to talent. Again, still--top Sony Corp. executives have seemed disengaged; the company reactive, back-footed response to the hacking crisis is consistent with its longtime behavior.

Now there is a question about the future of the studio itself. Rumors have swirled periodically about a possible sale though Hirai has maintained that he’s not interested in parting with the asset. While certain analysts on Wall Street remain skeptical, some industry insiders believe the studio will attract a flurry of interest from potential buyers and Sony could change its tune.

“I don’t think it’s a long-term hold for Sony,” says one top industry executive, speculating that even Paramount or Fox might be interested. A studio buyer “could pump up the volume of movies and save a lot in costs because you save on overhead,” this person says but adds, “It’s a very tricky acquisition right now because you really don’t know exactly what you’re buying other than the existing library and television operation. How many lawsuits are you buying into? They’ve got to get through the next couple of months of `What really happened here? What’s it going to cost?’ ”

The liability goes beyond the high cost of mopping up the company’s cyber-security and dealing with litigation. The studio also appears to be at least partly hobbled with respect to the business of making movies. While work is proceeding on active projects, one producer says there’s so much uncertainty now that he would avoid bringing any new material to Sony. “You don’t want to set up a new project with a regime that could change drastically within six months,” he says.

Change may be inevitable but one veteran Sony insider thinks nothing will happen fast. “This is a Japanese company and they are much slower and more deliberate to act than Comcast or Time Warner or an American company,” he says. “And they don’t like to look like they’re being bullied.”

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