President Obama says Sony Pictures Entertainment was the victim of  “cyber vandalism” — not an act of war.

The topic was the first item in Obama’s sit-down with Candy Crowley – his last interview of the year and her last telecast as host of CNN’s State of the Union. CNN is running the whole interview this morning.

Here is a transcript of that portion of the interview:

CANDY CROWLEY, HOST: First of all, happy holidays. Thank you for joining us.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Happy holidays, Candy.

CROWLEY: Thank you. I want to just start out talking about Sony and North Korea…

OBAMA: Right.

CROWLEY: … because the chairman of Sony which had your news conference…

OBAMA: Right.

CROWLEY:  …and said he didn’t think you understood what actually happened, that Sony was committed to putting the movie out, but the movie theaters came to them and said, yes, we’re not going to run it, that he’s not had a digital entity come to him to ask that, listen, how about putting it on YouTube and he said, maybe.

He said he was kind of disappointed in what you said.

OBAMA: Well, look, I was pretty sympathetic to the fact that they’ve got business considerations they’ve got to make. And, you know, had they talked to me directly about this decision, I might have called the movie theater chains and distributors and asked them what that story was.

But what I was laying out was a principle that I think this country has to abide by. We believe in free speech. We believe in the right of artistic expression and things that powers that be might not like.

And if we set a precedent in which a dictator in another country can disrupt, through cyber, you know, a company’s distribution chain or its products and, as a consequence, we start censoring ourselves, that’s a problem.

And it’s a problem not just for the entertainment industry, it’s a problem for the news industry. CNN has done critical stories about North Korea. What happens if, in fact, there is a breach in CNN’s, you know, cyberspace? Are we going to suddenly say, ‘Well, we’d better not report on North Korea?’

So the key here is not to suggest that Sony was a bad actor. It’s making a broader point that all of us have to adapt to the possibility of cyber attacks. We have to do a lot more to guard against them.

My administration has taken a lot of strides in that direction, but we need Congress to pass a cyber security law. We’ve got to work with the private sector and the private sector has to work together to harden their sites. But in the meantime, when there’s a breach, we have to go after the wrongdoer. We can’t start changing how we operate.

CROWLEY: I wonder if maybe it was fear of lawsuit as opposed to fear of North Korea…

OBAMA: Which is possible.

CROWLEY: …that…there’s that threat right there that… that people are looking at their theater thinking, ‘You know, anything happens here, I’m, I’m done.’

OBAMA: You know, that’s possible. But, look, as I said, you know, the Boston Marathon suffered an actual grievous attack that killed and maimed a number of people. And that next year, we had as successful a Boston Marathon as we’ve ever had.

You know, sometimes this is a matter of setting a tone and being very clear that we’re not going to be intimidated by some, you know, cyber hackers. And I expect all of us to remember that and operate on that basis going forward.

CROWLEY: Do you think this was an act of war by North Korea?

OBAMA: No, I don’t think it was an act of war. I think it was an act of cyber vandalism that was very costly, very expensive. We take it very seriously. We will respond proportionately, as I said.

But, you know, we’re going to be in an environment in this new world where so much is digitalized that both state and non-state actors are going to have the capacity to disrupt our lives in all sorts of ways. We have to do a much better job of guarding against that. We have to treat it like we would treat, you know, the incidence of crime, you know, in our countries.

When other countries are sponsoring it, we take it very seriously. But, you know, I think this is something that we can manage…But that’s something that I think we can manage through, as long as (the) public-private sector is working together.