Paramount’s home video release plan is panned by theater chains

A much-ballyhooed plan by Paramount Pictures to release movies into homes earlier than usual isn’t gaining much traction among the exhibition industry’s largest players.

The studio recently touted a potentially groundbreaking partnership with the nation’s second-largest theater chain, AMC Theatres of Kansas, and Canada-based Cineplex Entertainment to make two of its upcoming films available via digital home video 17 days after they exit most theaters. The deal was billed as paving the way for a new model of movie distribution.

So far, however, other big chains aren’t ready to sign up.

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The largest U.S. theater chain, Regal Cinemas, has publicly rejected the proposal as a new distribution model for circuits. Cinemark, the nation’s third-largest theater chain and based in Plano, Texas, also has thrown cold water on the idea.

“We appreciate Paramount’s willingness to seek exhibitor input and provide for exhibitor participation in certain ancillary revenues as they evaluate alternative distribution models,” Regal Chief Executive Amy Miles said in an earnings call. “However, the parameters of the current proposal, both economic and structural, simply do not make sense for us given the potential risks to the long-term health of our business.”

Cinemark said it notified Paramount that it would “not be playing the two movies.”

The cool response underscores the challenges studios confront as they seek to evolve their business at a time when consumer habits are rapidly changing and fewer people are going to the multiplex to watch movies.

Nonetheless, analysts expect other studios will continue to experiment with early releases because they have little choice.

“Given how consumers are using content these days, you have to try to evolve and adapt to how things have changed,” said Eric Wold, a senior media analyst at B. Riley & Co. “Someone has to take the first step. If it does work you will likely see other studios follow their lead.”

Paramount Pictures Chairman Rob Moore echoed the point.

“We have a generation growing up who consume entertainment in a very specific way and they aren’t making plans for six weeks from now. They are making their plans for six hours from now and we in the motion picture industry have to adapt,” Moore said.

He said five other smaller chains have agreed to screen the upcoming movies, including National Amusements and Alamo Drafthouse. Carmike Cinemas, the nation’s fourth-largest chain and based in Columbus, Ga., declined to comment.

Under the terms of the agreement, Paramount’s low-budget horror movies “Paranormal Activity: The Ghost Dimension” and “Scout’s Guide to the Zombie Apocalypse,” set for release in theaters in October, will be available to buy 17 days after the films are being shown in fewer than 300 North American theaters.

That’s a significant departure from the traditional model, in which films have not become available for home purchase until 90 days after their theatrical debut.

Theater owners have feared that shortening the traditional window will hurt ticket sales by discouraging consumers from going to the multiplex.

By giving theaters a stake in the home video business, Paramount was hoping to mollify those concerns. As part of the deal, AMC and Cineplex will get a portion of Paramount’s revenue from iTunes and other online stores within 90 days of the initial U.S. theatrical debut.

For their part, many studio executives have argued that the long gap between theatrical and home video release can cause an increase in piracy and is out of step with changing consumer behavior.

Some films generate virtually all their ticket sales in the first few weeks of release, and holding them back from the home video market prevents studios from capitalizing on the demand.

That’s especially important at a time when growing numbers of consumers are watching movies in their home, thanks to streaming services, and far fewer people are buying DVDs, once a mainstay of studio profits.

As theatrical attendance has fallen, consumer spending on streaming services such as Netflix and Hulu has surged. Total revenue for subscription video-on-demand services grew to $1.9 billion in the first half of 2015, up about 25% from the same period a year earlier, according to a report this week from research firm Digital Entertainment Group.

Despite the changing landscape, studios have been cautious about following Paramount’s lead because past attempts to shorten the window have sparked a backlash.

For example, Universal Pictures faced a boycott from theaters in 2011 when it announced plans to release the movie “Tower Heist” on home video three weeks after it debuted in theaters. Universal dropped those plans in the face of heavy opposition.

Analysts said the move could be effective with less expensive movies. But it’s unlikely that the model for the bigger, potential blockbusters will change any time soon. Paramount’s franchises include “Star Trek,” “Mission: Impossible” and “Transformers.”

“I think it can work,” Wold added. “It’s never going to be an option for a movie like ‘Avengers’ or ‘Star Wars,’ but for a lower-budget film like ‘Paranormal Activity’ that is going to have a pretty short run in theaters, it makes sense to try something like this.”

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