Deadline: As Exhibs Snub ‘Paranormal Activity 6’ & ‘Scouts’ Guide’, Is Paramount’s Early VOD Experiment Bad Business?

by Anthony D’Alessandro

Tonight there are several rival distribution chiefs in town who believe Paramount is leaving money on the table in its release of back-to-back horror films Paranormal Activity: The Ghost Dimension on October 23 and the R-rated Scouts Guide To The Zombie Apocalypse on October 30.

The current tracking for Paranormal Activity’s sixth installment suggests it could see a $20M opening given its strong total awareness of 72% among under-25ers — that is if it was released in 2,500-plus theaters. But that’s not the case. Instead, Paramount is expecting $10M-$12M from 1,350 estimated theaters, a booking that’s less than half the number of 2,897 theaters that played the franchise’s previous chapter Paranormal Activity: The Marked Ones which opened to $18.3M in January 2014. Some rival studios think that Ghost Dimension‘s opening will be even lower, despite the fact the film will have the added benefit of 3D pricing, a first for the series.

Such low-balling for Ghost Dimension stems from the fact that major theater chains including Regal, Cinemark and Carmike are refusing to play the movie due to Paramount’s shortened VOD window agreement that it conceived during the summer, making Ghost Dimension and Scouts Guide available 17 days after they drops below 300 theaters; a distribution plan that may be just as wacky as Universal and Sony’s respective large-format platform release of Everest and The Walk, a rollout that stunted their grosses. Those agreeing to Paramount’s shortened VOD window include No. 2 chain AMC, Canada’s Cineplex, National Amusements and Alamo Drafthouse.

Scouts Guide is also getting a similar smack by exhibitors with a less-than-spectacular run at 1,400 theaters.

In July, Paramount announced that AMC and Cineplex were agreeing to the studio’s plans to release Ghost Dimension and Scouts Guide on VOD six to seven weeks after their opening date instead of three months. In exchange, Paramount, per industry sources, is giving participating exhibitors an estimated 2%-4% share of their digital revenue made between the time the film drops below 300 engagements and 90 days after its opening date. Many theater chains turned up their noses on those terms including Marcus Theatres and Harkins Theatres. Said one rival studio distribution chief about the VOD deal given to exhibs: “I don’t think there’s enough money involved.” Some believe that with the right split, say a 35% share going to the exhibitor, that some of these theater chains might have been seduced.

But there’s a bigger concern here: Breaking a theatrical window’s run will only spell doom for exhibition in the long run. Not to mention, the model runs counter to the old movie business adage: A solid theatrical result at the B.O. can only increase the value of a film’s life in broadcast, cable and premium TV.

“Exhibitors decided not to play Ghost Dimension because it’s a short-term gain; it’s not working for them in the long term. Once you go down the road of breaking a window, it sets a precedent: If they’re doing it for a small film like Paranormal Activity, what’s next? Spectre?” griped one distribution suit. If audiences know a theatrical film will be out on VOD sooner than anticipated, they won’t even bother to drive to the theater. With Canada nearly booked at 100% for Ghost Dimension, one Paramount insider says, “If Canada underperforms significantly, we’ll know it is because the customer stayed at home.”

However, for Paramount, there is a method to its madness. The reason why it is experimenting with these two-younger demo genre movies — which many believe to be quick burns at the B.O. — stems from the theatrical failure of MGM’s Hot Tub Time Machine 2, which stayed in 2,000-plus theaters for two hot tub 2weekends last February before dropping tremendously, ending its stateside run at $12.3M, 76% lower than the first film’s $50.3M. MGM controlled the digital rights and rushed Hot Tub 2 out to the home market, a brilliant move yielding a digital haul that was 3 times the film’s domestic B.O. The takeaway from Hot Tub 2: The 90-day window, through prime for animated films and tentpoles, isn’t ripe for smaller, genre films. If a film fails at the box office and is pulled from theaters promptly, it doesn’t make the title more desirable by hibernating it for two months due to a windows agreement, not to mention there’s the added marketing expense of having to re-introduce the film to the consumer. “A film deserves to monetize the (VOD/home) window without this break,” said our Paramount source. Given theater chains’ access to their devoted consumers via ticket websites and email lists, such exhibitors have the opportunity to plug the digital release of a title as its exiting theaters, thus giving a further boost to their VOD revenue share.

A few agreed with Paramount’s P.O.V. in this distribution quagmire: The experiment allows the studio to cut their P&A on two genre films (the average P&A for a horror film is $14M-$16M) which may not likely perform theatrically with the added plus of not having to throw down dollars when they cross over to the digital market. To date, the five Paranormal Activity films have made close to $812M for Paramount, however, the last two sequels recorded new lows for the series in regards to openings and final cumes. Ghost Dimension carries a budget in the mid-teens and its total marketing spend is apt to be within the low-teen realm of its predecessors. Scouts Guide will see a decent amount of its P&A spent in the digital ad space.

Over the past year, distributors have had an interesting dance with horror films. Radius scrapped its plans for a day-and-date release of its $650K Cannes Film Festival acquisition It Follows in favor of a platform theatrical release after observing its strong play at art houses in March. It Follows ended its domestic run at $14.7M. During the film’s theatrical run, then-Radius co-topper Tom Quinn told Deadline, “VOD really doesn’t draw in an under-25 audience for horror.” Quinn cited stats that young moviegoers prefer to watch horror films primarily in the theater. The second preferred way to watch one was by stealing it, followed by DVD, with VOD ranking fourth.

Eli Roth’s Green Inferno, another Blumhouse title like Ghost Dimension, was also part of a frosh distribution method three weeks ago via genre label BH Tilt. Unlike Paramount’s methods with Ghost Dimension and Scouts Guide, quickly segueing to VOD wasn’t part of Green Inferno‘s plan. Its m.o. was to target horror fans with a minimal digital P&A spend and to open a title in no more than 1,500 engagements, vying for a $4M-$5M opening, a model similar to many faith-based films. Green Inferno fell short of hitting those projections with a $3.5M opening and a current cume near $7M. Roth’s theatrical fare in the past has made three-to-seven times that amount at the B.O.

When asked whether there was a silver lining to Paramount’s experimental model — if there was any means by which it could be perfected down the road by another distributor — one major studio honcho just shrugged, “It’s hard to say. I don’t think anyone is going to learn anything from this. That’s the bottom line.”