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'The Interview' online release: Industry revolution or total fluke?

By releasing the controversial film on the Internet before it hits theaters, Sony has turned the comedy into Hollywood's first mainstream testbed for delivering movies straight to your home.

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"The Interview" was available to rent or purchase online a day before its theatrical release. It went on to gross $1 million so far at the box office. Sony Pictures

With "The Interview" now online and available in a small handful of theaters, Sony managed to save face after a month of harsh criticism. But it may have also lit the fuse on a conversation Hollywood has been dreading for years.

The company on Wednesday released the film on YouTube, Google Play, Xbox and through its own dedicated website, SeeTheInterview.com, after pulling it from a wide theater release last week due to threats of violence against movie chains. The controversial comedy about bumbling journalists trying to assassinate North Korean dictator Kim Jong-Un has been at the center of an ongoing debacle following devastating hacks on Sony's film division in late November.

While critics have mostly panned the movie, "The Interview" is notable as the first major film that moviegoers were able to watch online ahead of its theatrical release. At $7 to rent and $15 to purchase, you can see it online for less than on the big screen at one of the 331 small to midsized theaters showing it in the US.

The weird, winding path this film has followed in the past few weeks makes it anything but a normal distribution experiment, and we shouldn't expect other studios to follow suit anytime soon. Yet the impact of a Hollywood film arriving online a day before its release and in a tiered pricing model that is consumer-friendly is raising the question: At what point will Hollywood be forced to face its dysfunctional relationship with the Internet?

"It's definitely unprecedented," said Eric Wold, a media analyst at B. Riley & Company.

But unprecedented doesn't mean profitable, and that's where Wold thinks the film industry will place its attention. "The Interview," which had a $44 million budget, grossed only $1 million at the box office on Thursday, and is expected to make $2.8 million over the course of its opening weekend.

"It's definitely going to be a money-losing movie for them," Wold added, noting that Sony was backed into a corner and had no other option but to try and recoup its costs. "I don't think you have anyone in Hollywood seeing this and saying, 'Wow, we can do this.'"

Yet online revenue from "The Interview" is showing promise. Sony said Sunday that the film has been rented or purchased online more than 2 million times in its four days of availability, earning $15 million. The company also struck a deal Sunday with Apple to make "The Interview" available on iTunes after negotiations with the iPhone maker fell through to include iTunes on the December 24 online release.

Web wariness

Video-on-demand and streaming services remain a bridge the film industry is unwilling to cross. Television, music and nearly every other entertainment medium has begun addressing the realities of on-demand and same-day releases thanks to services like Netflix and Spotify. Yet mainstream film has been defiant, even as it has struggled to keep theater attendance high and grown heavily reliant on viral marketing campaigns and social media to trump up hype on the Web.

In 2013, the American movie industry attracted fewer viewers to physical movie theaters than in previous years, according to a report released in March by the Motion Picture Association of America. Ticket sales have fallen 11 percent between 2004 and 2013, according to the report. Meanwhile, sales of television shows and movies on the Internet jumped by 47 percent last year to $1.2 billion, and rentals by 5 percent to $2 billion, according to the Digital Entertainment Group.

It's easy to see why the film industry and theater chains are staunch in their position about same-day releases. A family of four may spend $40 to $60 on a film like "The Interview" in a theater versus $6 at home.

"Not every movie is an 'Avatar,' but is Netflix going to pay a couple billion for an individual movie?" Wold questioned. "A studio would shoot themselves in the foot," he added, by distributing over the Internet because theater chains would refuse to show a film if it has a same-day release elsewhere.

That's not to mention the piracy problem. "The Interview," after getting the green light for an online release, has now been downloaded illegally more than 750,000 times, according to estimates from file-sharing news site TorrentFreak.

Experimentation is on the rise, but still rare when so many of the industry's largest players, like theater chains, movie studios and production companies, avoid risky choices that may prove unprofitable.

The Weinstein Company struck a deal with Netflix in September to bring next year's "Crouching Tiger, Hidden Dragon II: The Green Legend" to the streaming video service, marking a first for both Hollywood and Netflix.

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Sony has yet to disclose online revenue from "The Interview" making the film available on YouTube, Google Play, Microsoft's Xbox and its own dedicated site, pictured here. Screenshot by Nick Statt/CNET

But just days later, AMC, Regal and other leading US theater chains soundly refused to carry the film in solidarity for their business models. The film is going forward with its Netflix release, with IMAX holding out for a successful theater run in foreign countries like China, where the display technology company has hundreds of screens and Netflix has not launched its streaming service.

The Weinstein Company also spurred a video-on-demand experiment with Snowpiercer, a dark South Korean action film that was made available online during its theatrical run. The company acquired the rights to distribute the film in the US, only to demand the director cut 20 minutes of footage. Director Bong Joon-Ho refused and the dispute led to a more limited release in the US. The film eventually grossed $6.45 million online in two months compared with $4.5 million at the US box office this past summer.

In terms of the revenue split for "The Interview," BTIG analyst Richard Greenfield said on Twitter Wednesday that the split between studios and video-on-demand providers like YouTube in this case is likely more favorable for film creators, giving theater chains reason to worry. Traditionally, he said, film studios split revenue down the middle with theater chains, whereas a video-on-demand owner would likely only take 30 percent or less for "The Interview," with the rest going to the studio.

At those rates, Sony's online gross through sales and rented copies rented has earned the company around $10.5 million, while its nearly $3 million run in theatres has netted Sony only half that.

The major theater chains are still reportedly irate over Sony having done such a staggering about-face regarding "The Interview," according to The New York Times. There's no telling how they'll perceive this latest move, in which Sony told chains they did not have to show the film and then asked they strip down all marketing materials -- only to watch small art house cinemas get the OK to show it. And now, it's all over the Internet.

Sony is clearly concerned about protecting its public image. The company has suffered blow after blow this past month, notably for President Barack Obama who called capitulating to the hackers' threats "a mistake."

"It has always been Sony's intention to have a national platform on which to release this film," Sony Entertainment CEO Michael Lynton said in a statement. "This release represents our commitment to our filmmakers and free speech."

The hackers, who call themselves the Guardians of Peace, have yet to respond to Sony. It's important to note, however, that only a small fraction of the 100 terabytes of data the group stolen from Sony has been released on the Web.

So what's next for Hollywood now that its first major film was forced out of theaters and put online?

"I don't know if it will ever get to the point where you'll have a major movie -- a 'Hobbit' or 'Star Wars' -- and release it simultaneously theatrically and digitally," Wold said. As long as the theater industry is still generating $11 billion a year at the box office, he added, and people still enjoy seeing a flick on the big screen, simultaneous release remains a serious obstacle.

"It's just impossible to do," he said.

CNET's Donna Tam contributed to this report.

Update at 4 p.m. PT: Added Sony's most recent online revenue figures from "The Interview."