[co-author: Rebecca Rosen - Law Clerk]

Usually, horror movies scare the audience, but the latest installment of Paranormal Activity gave theater houses something to fear: a new distribution model. Paranormal Activity: The Ghost Dimension is the sixth installment of the successful horror franchise and an important experiment in film distribution.

The Horrifying Experiment

Typically, films stay in theaters for 90 days before going to video, but Paranormal Activity is following a different trajectory. Paramount struck a deal with AMC and Cineplex, offering them an “undisclosed amount” of digital revenues from the film in exchange for narrowing the theatrical window. Paranormal Activity will go to video on demand (VOD) 17 days after the theatrical showings dip below 300 screens, which is likely to take six to seven weeks.

Why Start with a Horror Film?

Horror films usually make the majority of their revenue from opening weekend, and their audiences drop dramatically in the following weekends. Even a successful horror movie loses its theater audience quickly from opening day to the following weekend, meaning that horror films would benefit the most from an early VOD release date.

The Monstrous Results

Paramount attempted to offer the AMC/Cineplex deal to other theater chains, but was rejected over concerns that the proposal was not financially feasible. As a result, Paranormal Activity opened in only 1,656 theaters. Compare this release to installments 2, 3 and 4, which opened at 3,216 theaters, 3,321 theaters and 3,412 theaters, respectively.

The result was truly horrifying. Paranormal Activity made only $8.2 million, a measly sum in comparison to the roughly $40 million, $52 million and $29 million earned by installments 2, 3 and 4, respectively, in their opening weekends.

Saving or Slaying the Film Industry?

Studios say the new distribution model will save the film industry in a changing era, whereas exhibitors claim that the new system will cause an early death. Studios lose money as these films play to empty seats or exhibitors remove the films altogether. Still, studios must wait 90 days before recouping costs from digital sales. Studios want the ability to sell films closer in time to the theatrical release. Studios suggest that the theatrical advertisements will be fresher in the consumer’s mind, and this recentness would drive an increase in digital sale rates.

Theaters, on the other hand, argue that the new distribution model would cut into their profits. They argue that filmgoers know that a film will be in theaters for a 90-day window. This is a long enough time period to dissuade individuals from waiting for a movie to come out on DVD. However, if the theatrical window were shortened, those same individuals would wait a few weeks to get the movie on DVD rather than pay for a full-price movie ticket.

Significance

Megan Colligan, Paramount’s president of worldwide marketing and distribution, stated that “[w]e knew we were very likely to take a hit on the grosses, but we thought it was worth it to get some hard data and be transparent about it so that our exhibitors, our competitors and customers can take a look at it and render some informed decisions.” 

The data is still coming in. The box office revenues are low, but the digital revenues will help complete the picture. Until then, we will just have to see how the plot unfolds.