It didn't go as planned. Lions Gate Entertainment (NYSE: LGF) returned to the world of a witch in the woods not far from Burkittsville, Maryland this past weekend -- Blair Witch was supposed to act like one of those low-budget Blumhouse horror films and capture the imagination of the young movie-consuming public, perhaps grossing as much as $20 million at the box office. Unfortunately, the movie grossed a little less than $10 million over the three-day weekend according to estimates from Box Office Mojo.
At the time of this writing, shares of Lions Gate were down over 4%, with trade volume being somewhat on the strong side. I can understand that; there were big expectations for this film, the studio needs a hit, and the timing seemed right...the summer box office season is over, and people are looking forward to seeing scary movies as Halloween approaches.
Too bad people were scared of Blair Witch and its found-footage cinematic aesthetic. Also, the Sully picture seems to be counteracting any spells that the film attempted to cast.
There's a great essay over at Variety which describes in detail the challenges faced by the movie and the genre of shaky-recording-device fictional documentation. It summons a lot of interesting points, and a shareholder might conclude that management might be at fault for putting a new version of this franchise into production in the first place.
Such thinking would be wrong, however. There is a place for these kinds of films, and Lions Gate should be supplying them. They obviously can be cheaper than something like Now You See Me, and their economy is oftentimes driven by a strong concept that serves as a useful -- and dreadfully needed for some people at this point, perhaps -- counterpoint to the superhero celluloid exercises that count on Comic-Con culture to bring in loads of big-bet profit.
Some pundits might consider the Blair Witch franchise dead. It isn't. It's a name that could serve as a platform for a plethora of fascinating stories told in movies, streaming series, novels, comic books, short video content, and video games; in fact, such ancillary items tied to the earlier picture already exist (although I can't say how much of an impact they made in the marketplace), so a continuation of such merchandising programs going forward is not so unimaginable. As a shareholder of Lions Gate, I know that the company can do well with horror given the right environment, and I also know that more attempts at presenting an expansion on the ideas contained within the original The Blair Witch Project could produce value. As an example, there is Starz and its need for exclusive content. As another example, we all can attest to the fact that, while the younger audiences that make up opening night can just as easily stay at home to interact with their tablets and other forms of video entertainment, a good low-budget horror movie that supplies a unique premise can just as easily change those plans.
What should the company do now in light of the weak box-office performance? Well, it has been pointed out in other forums that the movie only cost $5 million to make, so some of the risk has already been mitigated. However, I've also read that the marketing expenses on this film may have been as high as $20 million.
Lions Gate of course will remain silent on such stats, but the obvious prescription here is to work on reducing marketing expenses. I have to say I am surprised in some sense that selling the film may have required as much money as what has been suggested. It's obviously plausible, but I fell that there is probably room for more efficient, more effective, social-media messaging paradigms for future releases. The $5 million budget also could be a target for reduction, but I have to concede that such an expenditure seems to be the sweet spot for modern horror films, as it strikes a feasible balance between frugality and slick presentation.
There's one more thing Lions Gate must consider. The movie is probably going to fade fast (at least, that's a strong risk at this point), so bringing it to the home market (digital pay-per-view, Blu-ray) by Halloween might help; essentially, the strategy would be to change an exhibition-only release into a hybrid-release. I'd even study the possibility of bringing it to Starz quickly if I were a Lions Gate exec.
Blair Witch didn't do as well as expected, but Lions Gate should continue creating these types of films. Found-footage stories will always have a place at the box office. Use social-media data to better target the intended demo, and use a collapsed-window strategy for purposes of maximizing revenue.
Disclosure: I am/we are long LGF.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.