Crisis-hit Sony studio sends for rewrite

Sony management structure Five months after Sony Pictures Entertainment was paralysed by the worst cyber attack yet against a US company, the movie studio has embraced the maxim popularised by Rahm Emanuel, the Chicago mayor and former White House chief of staff: "You never want a serious crisis to go to waste".

In November, suspected North Korean hackers broke into the studio's networks, deleting data and ruining internal systems in revenge for The Interview, the Sony comedy about an assassination attempt on Kim Jong Un. The hackers also published employee records, new movies and thousands of confidential emails.

As the last of the damaged systems have come back online, people close to Sony say the company has tried to turn the turmoil into an opportunity. The management and operations of the Los Angeles studio have been restructured to reverse a period of underperformance at the box office. It has adopted a leaner, more cost-conscious approach and there are hopes that it can forge closer ties with its Japanese parent.

Key to these ties is the relationship between Kazuo Hirai, Sony's chief executive, and Michael Lynton, chief executive of Sony Entertainment - which oversees the film studio as well as Sony's television, music and music publishing businesses.

The two men share a vision about the need to produce and market movies in a more cost-effective manner, according to people close to the company. This is reflected in the appointment two months ago of Tom Rothman, the former chairman of Fox Filmed Entertainment who was behind smash hits such as Titanic and Avatar, to run Sony's Motion Picture Group.

Hired by Mr Lynton with Mr Hirai's backing, Mr Rothman replaced Amy Pascal, the Sony executive most damaged by the hack, when embarrassing and racially charged emails she wrote were leaked online.

The studio has had an underwhelming two years at the box office and long-time Sony watchers say the hack gave Tokyo executives an "excuse" not to extend Ms Pascal's contract and to concentrate power in Mr Lynton's hands - without giving the impression that head office was "intervening in Hollywood affairs".

Mr Hirai has been keen for the studio to keep its creative independence, but its best chance of keeping Tokyo happy is to keep costs down. Mr Rothman was known at Fox for keeping a lid on costs, which should fit Sony's company-wide aspiration to be a leaner organisation.

"It's difficult to control the Hollywood business from Japan," says Yasuo Nakane, an analyst with Deutsche Securities. "So it's positive that there is a new chairman [of the motion picture group] who can work more closely with Tokyo management."

Sony has cut $300m in costs from its studio in the past two years, partly in response to criticism from Dan Loeb, the activist investor. No further cuts are planned but Mr Rothman's appointment signals that it will be more cost-conscious in the deals it strikes with big stars and the money it spends on its movies, according to people close to the company.

"Bringing in Tom was a clear change in the direction and character of the studio," says one. Under Ms Pascal the studio had a reputation for signing lavish deals.

Mr Rothman, highly regarded for his creative abilities, has an artistic temperament, say people who have worked him. This is reflected in an endorsement given to Sony by Rupert Murdoch, his former boss at Fox, who said that Mr Rothman was "a brilliant film-maker - commercial, practical and doesn't waste money." But, he added, "you have to hose him down every now and then," according to one person who heard the remark.

He also has an international pedigree. As the US box office matures, producing new, blockbuster franchises that resonate in fast growing international markets has become more important to Hollywood - and to Sony. It has James Bond and the Spider-Man films but it needs more.

"We want to make sure each of the movies we make has an international appeal," the person close to Sony said. "This is very much Tom's area of expertise. If you look at what he did at Fox, his movies over-performed internationally."

Closer integration between Sony's Hollywood and Tokyo operations is a key goal for Mr Hirai. Even before the hack, he took steps to break down the silo mentality that has separated its various divisions. As a start, he made sure that the Sony logo appeared at the beginning of every movie produced by its studios.

This year, Sony offered its first original TV series - Powers - for its PlayStation platform, a collaboration executives say would have been "difficult" in the past.

But those closer ties will also mean that the film studio will face similar criteria and discipline to that Mr Hirai has put in place at other divisions to reduce Sony's costs and improve its return on equity.

In addition to scaling back its smartphone business, Sony is shrinking its sales and headquarters functions. It revamped its wage system this month for the first time in a decade: underperforming senior managers will be demoted and hit with pay cuts. Will its Hollywood arm cope with such pressure?

Mr Hirai is under no illusions about how important the studio and Sony's other profitable media businesses are to the company. "Sony could have collapsed without the entertainment and financial businesses," he warned in a video message to employees in January. The group expects to book a net loss of $1.4bn for the fiscal year ending in March, its sixth loss in seven years.

There are few other places for Mr Hirai to turn. After trying to turn a crisis into an opportunity, he is banking on his leaner, more internationally focused movie studio for growth.

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