Low film budgets cost money

In theory, first-time filmmakers around the world should be celebrating.

The extraordinary box-office success of Paranormal Activity, the $15,000 home-made horror film that went on to make more than $100m in the US alone, suggests that directors can come from nowhere and get their movies into mainstream release.

Everyone remembers the example of The Blair Witch Project, the documentary-style horror film that was made for an initial $20,000 and raked in close to $250m worldwide. However, that was 10 years ago. Since then, the miracle hasn't repeated itself. Films such as Saw and Hostel, sneeringly referred to as "torture porn" by their critics, have done brisk enough business but other low-budget horror pics have remained confined to a twilight world of "straight-to-DVD" and specialist festivals.

Look in more depth at the Paranormal Activity phenomenon and it becomes apparent that this isn't quite as straightforward a tale of the underdog bucking the system as it may first seem. The movie may indeed be a success, but not an overnight one. It's more than two years since Paranormal Activity premiered at the Screamfest Film Festival in 2007. A few months later it was shown at the Slamdance Festival, and reviewed by the trade paper Variety.

"Horror fans who value credible creepiness over the usual splatdom will welcome this [film] in suitable festival slots and niche DVD release," Variety confidently predicted. Dreamworks picked up the US and remake rights to the film – a sign that at least someone had confidence in it – but the idea was that the director, Oren Peli, would work on a remake of his own movie.

Peli's film might never have been released at all if it hadn't been for the hunches and marketing savvy of one or two film executives. Shortly before Dreamworks had pounced, IM Global, a sales and distribution company founded by the former Miramax executive Stuart Ford in 2007, had come in to snap up the international rights.

"My first instinct was that it was too small a film for us," Ford remembers. He and his team watched the film on a TV screen in a conference room. No, they weren't scared witless, but they grasped that "something was there".

At this stage, all the signs were that Paranormal Activity would become a cult film, watched by horror fans but ignored by the cinemagoing public at large. Oren Peli, the thirtysomething Israeli director, who had moved to the US at the age of 19, looked as if he was destined to become just another jobbing b-movie director. It didn't help that Dreamworks was in the process of divorcing itself from its former partner, Paramount; no one seemed to have much time to devote to a tiny little horror film, even if Steven Spielberg was an early admirer.

In Santa Monica last November, a special screening was organized for the international distributor at a downtown cinema. 300 teenagers from "the Valley" were recruited to attend alongside international buyers. The distributors were given seats in the middle six rows of the cinema. The teenagers in the audience were terrified... and so were the buyers.

"All hell broke loose," Ford recalls. "It was obvious to anyone who was in that movie theatre that this movie really works on a visceral level."

The very reason Paranormal Activity has struck such a chord with audiences may make its success that much harder to repeat. In a marketplace increasingly crowded by huge-budget studio "tentpole" movies, spectators relished being scared out of their wits by a pared-down haunted house film. This, though, doesn't mean that cinemas will suddenly be flooded with low-budget fare. It took two years, lots of false starts and an expensive, very intricate marketing campaign for Paranormal Activity to find its audience. The studios are unlikely to have either the will or the means to devote that much tender loving care to the next DIY horror pic that comes their way.

'Paranormal Activity' is on general release