Paranormal Activity is a film like no other. It was shot in seven days by a first-time filmmaker, starring unknown actors, on a camera bought at a big box store. It then went on to become the most profitable horror film in history. By keeping Paranormal Activity’s budget lower than even that of The Blair Witch Project, director/producer Oren Peli secured his place in the pantheon of mega-successful indie film directors.
He also happened to make one of the most realistic and frightening haunted house movies viewers had ever seen.
How did Peli pull it off? And what can we learn from the choices he made about Paranormal Activity’s budget?
Let’s find out.
Incredibly, Oren Peli didn’t come to California to make films.
The Israeli-born Peli was living comfortably as a video game designer in San Diego when he started hearing noises in his home at night. He decided to set up some cameras to see if he could capture the culprit on video. He wasn’t successful, but he couldn’t shake the feeling that his experience might make for a compelling movie.
Though he had never made so much as a short film, Peli was determined and got to work crafting what would become his debut feature. It would tell the story of a young couple whose home was invaded by a demonic presence, and it would do so in a way that relied on suspense and shadows more than gore and monsters.
Films like Cannibal Holocaust and The Blair Witch Project paved the way for the found footage genre, but Peli planned to take things a step further. His movie wouldn’t be shot by characters approaching their subjects as filmmakers, as in Cannibal Holocaust and Blair Witch. An everyday couple would shoot it with little technical knowledge.
Leaning into this amateur aesthetic was the first decision that helped Peli keep Paranormal Activity’s budget lower than most indie films. The second decision that kept the Paranormal Activity budget extremely low was Peli’s determination to do almost everything but star in the film himself.
According to Peli, “The pre-production period involved a lot of research. This was the first film I ever made so I directed, edited, audio mixed and did the casting – basically everything including getting the house ready, which took about a year.”
By the time Peli started casting, he knew he wanted the dialogue to be improvised around loose ideas for scenes to capture as authentic of a dynamic as possible. This meant auditioning actors without a script.
According to actress Katie Featherston (who was cast before her character, “Katie,” even had a name), “I walked into the room and [Peli] said, ‘Why do you think your house is haunted?’ Just like that. Boom! So I just threw myself into the character.”
At the end of the process, Peli had his leads in Katie and an actor named Micah Sloat. Their chemistry was natural and Peli felt an audience could get invested in their story.
The group retreated to Peli’s home in San Diego to shoot for a single grueling week in 2006. The process often saw Peli editing and doing visual effects at night for his actors to watch on camera the next morning.
While difficult, shooting this way both upped the feeling of authenticity and cut down the budget for Paranormal Activity. It limited the number of days Peli needed to pay his actors, cover food costs, and incur any other daily or weekly expenses associated with the shoot.
Because Peli cut the film himself, post-production took 10 months. Peli wasn’t ready to share the film until 2007.
It was roundly rejected from most festivals, with the exception of Screamfest in Los Angeles. A CAA mailroom worker named Kiril Baru was at the screening and was so impressed by what he saw that he brought it to the attention of his bosses.
CAA jumped on board to represent Peli, but most studios passed on his film. They didn’t see a path to Paranormal Activity profit, citing its lack of stars and lo-fi visuals.
Enter Jason Blum. The founder of then-nascent Blumhouse Productions had but one professional regret: he was Vice-President of Acquisitions at Miramax in 1999, the year The Blair Witch Project debuted at Sundance.
Jason passed on the now infamous found footage masterpiece and missed out on one of the biggest horror successes in history. He was determined not to make the same mistake with Paranormal Activity’s box office potential.
Blum spearheaded an effort to find a home for Paranormal Activity, ultimately getting a copy into the hands of Steven Spielberg. Spielberg apocryphally was so frightened by what he saw that he brought the DVD back to the office in a trash bag and declared the film to be haunted.
This was enough to get DreamWorks to agree to distribute the film, but there was one more hurdle on the path to Paranormal Activity’s box office triumph. No one was sure how to market such a non-traditional movie.
The decision was made to roll it out slowly, starting in college towns and building good word of mouth. This, combined with an early social media campaign that let fans “demand” the film come to their town, created a tidal wave of anticipation.
That anticipation was well-reflected in Paranormal Activity’s box office haul.
Week after week, the Paranormal Activity gross receipts crept ever upward. By the end of its world-wide theatrical run, Paranormal Activity’s box office total was $194.2 million. This represents a massive return on investment - as much as 645,000% by some sources.
But what was the budget for Paranormal Activity?
It’s public knowledge that Peli financed the film himself, but there is no available breakdown of the entire Paranormal Activity budget. Still, some information about the film’s costs have emerged over the years.
An early interview from Slamdance states that the Paranormal Activity budget was a mere $11,000, but most sources put the number closer to $15,000. Still an unbelievable feat considering Paranormal Activity’s box office performance.
Where did the money in Paranormal Activity’s budget go? Each of the lead actors - Katie Featherston and Micah Sloat - were paid $500 each. It’s also been revealed that Peli spent $3,000 of Paranormal Activity’s budget on the camera he used to shoot the film.
That accounts for almost one-third of the Paranormal Activity budget - but what about the rest?
While we may never know exactly how the remaining $11,000 of Paranormal Activity’s budget was spent, we can learn a lot by looking at what Peli wisely didn’t spend money on.
Peli cleverly made sure he didn’t have to spend Paranormal Activity’s budget on locations by setting the entire film in the house he lived in. Not only that, but the cast and crew slept in his house for the entire week of shooting, so he didn’t have to spend money on hotel rooms.
Peli’s decision to make the film look and feel as realistic as possible also allowed him to save on a lighting and camera crew. He shot the movie the way his characters would - handheld and on tripods.
He also decided to lean into lead actor Micah Sloat’s life experience as a camera operator in college. Since Micah’s character is the one trying to document the haunting, Peli asked Micah to shoot most of the handheld sections of the movie himself.
The rest of the crew consisted of a man named Amir - Peli’s best friend since he was 13 - and Peli’s girlfriend at the time. This created a family-like atmosphere on set, with everyone sharing responsibilities. It also kept Paranormal Activity’s budget for crew set to $0.
Peli further saved on Paranormal Activity’s budget by editing on his personal computer and doing the visual effects himself. This further amplified the feeling that the footage was cut together by an amateur, and it only came at a cost of Peli’s time.
Perhaps the biggest take away from Peli’s experience making Paranormal Activity is the way he chose to budget his time versus his money. Because the budget for Paranormal Activity wasn’t much more than a day’s worth of catering costs on a bigger film, Peli found ways to save by doing jobs himself.
By the end of production, he served as director, producer, writer, casting director, cinematographer, production designer, editor, VFX artist, and sound mixer. It resulted in the film taking more than a year to complete, but the results were worth it. The Paranormal Activity box office run continues to this day and future films are already in development, ensuring that Paranormal Activity’s profits will continue to grow.
Even when working with a bigger budget, finding ways to trade time for money is a smart move. Whether it’s Steven Soderbergh serving as his own cinematographer on many of his projects or the Daniels doing their own VFX work, taking on multiple jobs can stretch the dollars a production has to spend.
By cleverly matching a low budget aesthetic and realistic tone to his available resources, Oren Peli was able to craft a film that changed the way horror films were made.
The budget for Paranormal Activity was so low that it may be impossible to ever top Paranormal Activity’s budget-to-profit ratio. However, that doesn’t mean you can’t learn valuable lessons from how that money was spent.
For more tips on how to keep your budget scarily low, check out our article on more ways to save on your indie film payroll!
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