How This $15,000 Horror Hit Became the Most Profitable Movie Ever Made

There are some ideas that are so frustratingly simple that they can be both inspiring and infuriating to filmmakers.

Take 2007’s Paranormal Activity , which has become a lodestar in both low-budget filmmaking and the found-footage genre.

Writer/director Oren Peli made Paranormal Activity for $15,000 in his San Diego house over seven days. Then it grossed nearly $108 million domestically and over $193 million worldwide.

And it’s all just home security footage as a family is tormented by the supernatural. Simple and so effective.

Let’s get inspired by this filmmaker’s journey.

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Start with What You Can Control

Peli had zero film experience when he decided to make Paranormal Activity. His background was in video game design and software programming.

In an interview with Chris Jones, Peli said, "I have no film background— Paranormal Activity was the first thing I did in film."

His house became the set, but not immediately.

Peli spent a year preparing. He ripped up carpeting, installed hardwood floors, painted walls, and added new banisters. The renovations cost him money up front, but eliminated location fees entirely and gave him unlimited access to his shooting space.

According to Yahoo Entertainment, Peli experimented with his bedroom layout, especially before shooting. He discovered a camera angle that could capture both the bed and the hallway.

You probably know this shot from the film’s marketing materials. Because it is horrifying.

Budget Can Help with Style

The found footage format was the only viable option for someone making their first film alone with a consumer camera.

Peli bought a simple digital camera at a big-box store. It was the Sony Handycam HDR-FX1.

He kept that camera locked off on a tripod for most of the shoot.

“I wanted to make it look as real and natural as possible. I've always been drawn to this storytelling style,” he told Shock Till You Drop. “It breaks the mental barrier when audiences see a regular film and become aware of the camera movements, they know a crew is there, and there are stars. When you strip all of this away, the audience thinks they are seeing something with a higher degree of plausibility.”

When the film did require handheld shots, Peli deliberately made them worse.

In Home Theater Forum, Peli said he told actor Micah Sloat, "You have to close the viewfinder on the camera and just not look at the camera, and just point it in Katie's general direction so that the footage will look not as good."

The amateur feel ends up being part of the film’s visual calling card.

Paranormal Activity Credit: Paramount Pictures

Eliminate the Script

Paranormal Activity had no screenplay. Peli created a treatment (basically an outline of what happens in each scene) and let the actors improvise everything.

This technique, called "retroscripting" (also used in The Blair Witch Project), served multiple purposes.

Without fixed dialogue, actors could react naturally to situations. It also saved pre-production time.

The improv approach did create challenges. Peli shot roughly 70 hours of footage. He'd let the camera roll while actors made dinner or had conversations.

He told Chris Jones that editing took about a year.

“I did all the editing on Sony Vegas. I chose Vegas because I use PCs, not Macs. Also, I read that Vegas is the easiest to use and very intuitive. I downloaded a trial version and found that I could move blazingly fast with it. It really helped when I got a page of notes from the studio, as I could go through it in about an hour. I bought a dedicated editing machine and put all my 70 hours of footage on the internal hard drive. I didn’t want to use external hard drives because they slow everything down. I had so much footage because I would let the camera just roll while Micah and Katie were making dinner, plus tape is cheap. And if I got a minute of useable footage from that, then great.”

Build Your Crew From Your Life

Peli's entire crew consisted of himself, his girlfriend, his best friend, and a makeup artist.

That's it.

He directed, shot, edited, mixed the audio, and cast the film himself, per Wrapbook.

The actors essentially lived at the house during the shoot. They'd improvise daytime scenes during the day, then shoot the nighttime sequences after dark.

Night shoots can be brutal. So why'd they opt for that?

Peli told Yahoo Entertainment, “It seemed like too much work to film those during the day. We'd have had to cover all the windows. Plus, we needed the day to rest and so that I could edit some of the scenes so Katie and Micah could see them.”

Paranormal Activity Credit: Paramount Pictures

Sound Carries Everything

Audio creates atmosphere, and if it had flopped, the movie probably would have, too.

He told That Shelf, "I heard while I was making the first Paranormal Activity that sound was 70% of what you end up seeing, and I believe that a really collaborative use of sound can be way more effective than anything you see. So you have these moments where you don’t really see anything—it’s darkness—and you hear a noise far away."

The fact that something is making a sound when no one else should be there creates dread.

Peli spent considerable time on audio design despite the tiny budget. He did the audio mixing himself during that ten-month post-production period.

If you can invest in good sound equipment, do it.

What This Means for Filmmakers

The biggest lesson from Paranormal Activity is to be resourceful.

Peli looked at what he had—a house, some time, $15,000, and some technical skills—and built a story around it.

He spent a full year in pre-production, typically longer than most micro-budget films spend on production and post combined.

He accepted technical limitations and incorporated them into the aesthetic. And he did almost everything himself, which meant no one could tell him his vision wasn't viable.

Paranormal Activity made Peli's career and launched Jason Blum's Blumhouse Productions into the major leagues.

Many call the indie "the most profitable movie ever" relative to budget, surpassing The Blair Witch Project.