One major reason was a clash between two of the producers of the movie, Scott Rudin and David Ellison about how the movie should be edited.

The studio is finalizing a deal with Netflix to take over the international distribution of the film [...].

While the move is partly reflective of the concern studios now bring to releasing challenging midbudget movies, one impetus has its roots in a clash between two of the movie’s powerhouse producers.

In one corner is Scott Rudin, whose many credits include The Social Network and Lady Bird, and in the other sits David Ellison, the head of Skydance Productions, the company that made Geostorm and Terminator: Genysis. Skydance is also a major co-financier of Paramount’s slate.

[...]

The movie, which wrapped shooting in July 2016, had a poor test screening this summer that sources say was the root of the conflict. After the screening, Ellison became concerned that the movie was “too intellectual” and “too complicated,” according to sources, and wanted changes made to make it appeal to a wider audience. They included making Portman’s character more sympathetic as well as tweaking the ending.

Rudin, who executive produced Ex Machina, sided with Garland, defending the movie and refused to take notes. Rudin was able to hold his line, according to a source, because he has final cut.

Things got testier from there, with Paramount caught in the middle. The studio ultimately decided that finding another distributor, preferably a streamer, could be the best fit for the movie which was deemed to have certain box office ceilings.

With Ellison not wanting to lose money after the poor performances of Geostorm, the billionaire producer is seeking to avoid a worldwide release and hopes that a digital release may be a better fit. The deal calls for Netflix to cover a good chunk of the production budget, which is in the $55 million range.

It’s also a win for Paramount, which limits its exposure in a deal made by a previous regime.

Studios making a distribution deal with Netflix may be coming more commonplace and replacing old rivalries. Earlier this year, New Line made a deal with the streamer to co-finance and take certain rights to its reboot of Shaft which will star Jessie T. Usher and Samuel L. Jackson.

Source: www.hollywoodreporter.com

Why Paramount did not give a chance to the international public and based its decision solely on the North American Box Office?

Because they didn't want to take the chance.

As you say, the movie bombed...hard and the studio lacked the confidence that it would continue to earn back any money invested in distributing it internationally...especially when they have a guaranteed buyer in Netflix.

The studio has suffered a string of financial flops recently and, in that sense, this was a sound business decision.

Studio execs hate gambling and faced with a pretty sure fire money-loser they did the sensible thing and made the best deal they could.

Many angry fans may not realize that the deal was made following one of the worst financial years in Paramount’s history. Nearly every Paramount release in 2017 was a financial loss, from “Ghost in the Shell’ to “Baywatch,” “Transformers: The Last Knight,” and “Suburbicon.” “The Last Knight” was the studio’s top grosser in the U.S. but it made a franchise low with $130 million. Along with “Daddy’s Home 2,” it was the only Paramount film to break $100 million domestically. Paramount suffered a similar fate in 2016, with few hits outside of “Arrival,” “Fences,” and “10 Cloverfield Lane.” The studio’s top 2016 grosser, “Star Trek: Beyond,” was also a franchise low in the U.S with $158 million.

In the case of “Annihilation,” the box office failures of “mother!” and “Downsizing” had to have made a lot of executives even more scared. “mother!” tapped out at $17 million domestically opposite a $30 million budget. “Downsizing” couldn’t even pass $25 million in the U.S. despite a $68 million budget. To be fair, Paramount’s marketing for “Downsizing” was virtually non-existent, but it’s not like the studio was going to pump even more money into the film after those disastrous “mother!” results.

...

All of these auteur studio bombs left Paramount with no choice but to sell the international rights to Netflix. It was the smartest decision from a business perspective, albeit a depressing one. The studio would have surely released “Annihilation” in theaters around the world had it known with confidence it could make its budget back. However, after the failures of “mother!,” “Downsizing,” and “Blade Runner 2049”, that logic just doesn’t hold up. Not to mention Paramount had closed out the previous year with a bomb from none other than Martin Scorsese (“Silence,” which earned only $7 million in the U.S.). Any studio executive would be rightfully terrified about releasing a film like “Annihilation” in 2018, and moviegoers have to take accountability for causing this kind of panic.

The key takeaway here is a self-reflective one. Audiences around the world should be mad they have to watch “Annihilation” on Netflix, but they should be more upset with their fellow moviegoers than with Paramount. If viewers are going to demand a studio release a film like “Annihilation” in theaters, then they’re going to have to show studios that films of similar makeup are not financial risks.

^Source