How 'Paranormal Activity' became the scariest, most successful DIY horror movie ever

Talk about your ultimate home improvement project. In 2006, software programmer Oren Peli started renovating his two-story San Diego house, tearing up all the carpeting to put in hardwood floors, giving the place a paint job and even adding new bannisters to the staircase. Peli wasn't looking to flip his home, though. Instead, he was transforming it into a movie set for a horror film he'd had kicking around in his head for years. Having set aside $15,000 of his own money, the novice director — who had never made a movie before — hired a small cast and an even smaller crew for his DIY production, which he kept under wraps from his friends and family.

"I didn't tell anyone except for the people who were involved in the making of the movie," Peli tells Yahoo Entertainment now. "I wasn't even gonna tell my parents except they came to visit me a few weeks before I started shooting, and they saw me getting stuff ready. But no one at work knew and none of my neighbors knew. At that point, I didn't need anyone discouraging me. I was like, 'If it sucks, then I don't have to show it to anyone!'"

Let the record show that Peli's movie definitely didn't suck. Three years after its unassuming beginnings, Paranormal Activity premiered in theaters nationwide, on Sept. 25, 2009, grossing nearly $200 million at the domestic box office and launching one of the current century's most successful movie franchises — horror or otherwise. And while Peli didn't direct any of the subsequent installments, he was always invited to be in the creative mix, even after he officially retired from the filmmaking game. "It was something that changed my life," he says of his grand gamble. "I mean completely changed my life."

But all that success came later. Fifteen years ago, audiences got their first look at a very different version of Paranormal Activity that screened at the 2007 Screamfest Horror Film Festival, held annually in Los Angeles. That never-released "festival cut" of the film was the initial result of Peli's DIY project, and that point he had no idea what lay ahead. Speaking from his current home in New Zealand, Peli walked Yahoo Entertainment through how he built Paranormal Activity from the ground up, and created a found-footage horror movie that still scares audiences silly.

The activity begins

By his own account, Oren Peli is used to betting on himself. Born in Israel in 1970, he left school at age 16 to launch his own software company, against the advice of many of his peers and mentors. "I busted my ass for about a year, and I wrote a paint program for the Commodore Amiga that ended up being very successful," he remembers with a laugh. "And then [those same] people said, 'I guess you did a nice job.' So I learned my lesson!"

That memory was at the forefront of Peli's brain years later when he decided he was going to act on his desire to make a guerrilla horror movie in the style of The Blair Witch Project. That independently financed 1999 blockbuster had come out of nowhere to popularize the "found footage" format that tried to blur the lines between reality and fiction. "I loved Blair Witch, and they laid out the formula for how to make found footage movies. I couldn't wait to see all the movies that would follow in the footsteps of Blair Witch, and they never came."

So Peli decided to make the next Blair Witch himself. A movie lover since childhood, he already had an extensive DVD library in his San Diego home and devoured bonus features ranging commentary tracks and making-of documentaries — anything that could teach him the nuts and bolts of filmmaking.

He was also fortunate to be in the right place at the right time with the right idea. By 2006, the days of bulky home camcorders were coming to an end, replaced by lighter, cheaper digital cameras. Meanwhile, paranormal reality shows like Ghost Hunters were bringing real-life haunted houses into people's homes on a weekly basis. "People got used to seeing what real footage looks like, and they loved it," Peli says. "They knew the difference between something that was scripted and something that looked real."

With that in mind, Peli deliberately avoided writing a script for what would become Paranormal Activity. Instead, he focused almost exclusively on the technical side of production, experimenting with different lighting set-ups, visual textures and camera placement. One early masterstroke came when he rearranged his bedroom, revealing the ideal angle to capture the scares he hoped to execute onscreen.

"Before that, I didn't even have a bed!" he confesses. "It was just a mattress on the floor. And originally, the bed was facing the other wall, so I tried to make that work and it didn't feel right. So I said, 'Let's move it to this wall, and so I can put the camera here and also look down the hallway.' That made a big difference."

"There were two things I had to commit to, to really make the movie," Peli continues. "One was to figure out how to do it from a technical standpoint, so I got the camera and did a lot of filming trying to get the right look. And the other was, 'Can I do the visual effects? Can I get the door to open and close or have someone getting dragged out of bed?' So I had to teach myself had to do editing and visual effects, when I had that figured out, it was time to get the cast."

With no script in place beyond a general blueprint of the film's big narrative beats, casting was a key step in the process as the actors would be "writing" the film as they went. Out of an open casting call, Peli found newcomers Katie Featherston and Micah Sloat, who play the central couple whose home is inhabited by an angry spirit that's been pursuing Katie since childhood. "In order for the movie to work, I needed to find actors that could improvise everything and be absolutely authentic. It was only when I saw Katie and Micah together and saw their chemistry that I was like, 'Wow, this can actually work.'"

Hell week

The bulk of Paranormal Activity was shot over the course of one week, with Featherston and Sloat essentially living at Peli's house alongside his skeleton crew, which included his then-girlfriend, a longtime friend and a makeup artist. During the day, the actors would improvise scenes for the camera, while the after-dark hours were reserved for the scarier set pieces. "It seemed like too much work to film those during the day," Peli recalls. "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."

Thanks to all of his pre-production trial-and-error experiments, Peli says the stuntwork required for the scary sequences proceeded relatively smoothly. Furthermore, the footage indicated that now-memorable moments like Katie getting dragged out of bed by an unseen hand or ghostly footprints appearing on the hardwood floors were genuinely scary. But some planned scares had to fall by the wayside.

"There was one thing I tried to do with the sheets that worked great when we practiced it," Peli remembers. "I had sewed the sheet up in five different places and connected it to a main point. When I pulled that point, the sheet crunched up like a hand was picking it up. It looked awesome and creepy in rehearsal, but when I tried to do it with Katie laying in bed, we spent 45 minutes trying to get it to work. After a while, we realized it didn't look right and moved on. We did end up doing some stuff with the sheets moving, but it would have looked even cooler if that had worked."

Another lost scene involved the actor that Peli cast as the psychic who Katie and Micah consult about their haunting. Unlike Featherston and Sloat, that performer was decidedly not adept at improvising, forcing the director to reshoot the role with Mark Fredrichs — his original choice for the part. "Mark wasn't available that week, and we ended up shooting with a different actor who didn't work at all. I called Mark again a few weeks later, and he was available, so we were able to reshoot those scenes."

Funnily enough, Fredrichs's big scene in Paranormal Activity later proved to be one of the movie's most divisive moments. Returning to the house towards the end of the film, the psychic immediately tries to leave, claiming that he can't be of any help. His intense desire to escape never fails to set off a wave of laughter when Paranormal Activity screens for a crowd, something that Peli admits bothers him to this day.

"My whole goal with that scene is that the audience would be terrified," he explains. "Here's this guy who does this stuff for a living, and he's so scared by this entity that he runs away! I thought the audience would be really scared, but every time we played the movie, it would get a laugh. For awhile, I was like, 'We have to take that scene out!' But people said, 'No, no it plays great and people get the point. It's still just kind of funny. So we kept it in, and I do think it plays great."

Peli did lots of additional shooting after that main week of production, calling his stars back at regular intervals to film additional material to help flesh out the film's story. "I would watch a cut of the movie with Katie and Micah, and we would go, 'Hmm, that's not working right' or 'We need a plot element here,'" he says of how he wrote and re-wrote the film with the actors. "Then I'd ask them, 'Are you guys available next weekend?' and we'd shoot a scene here and a scene there and then watch it again to see how it flowed. Sometimes we'd fix one problem and then create a new problem! We just kept doing a lot of reshoots until we were like, 'This seems to work.'"

In the process of creating all those different cuts, Peli hit upon the narrative device that hooks the audience's attention — the on-screen time code that ticks away the midnight hours. The director says that his earliest versions of the film only featured the time code in one scene were a possessed Katie is stands swaying next to the bed while Micah sleeps. "I figured we only needed it there, so that people had a sense of how long she was standing."

"But when I started showing the movie to people, half of them kept saying: 'How come you're not showing the time code?'" Peli continues. "They wanted to know, and couldn't get over it. So I started adding time codes everywhere. The same thing with the dates: people wanted to know how many days it had been. I made the days all up, but as long as they had something they were happy. And that's one of the things that I didn't know going in to making the movie: how important it was to get feedback from people. Whether or not I ultimately took their advice, I also knew it would be foolish to ignore it."

The first cut is the deepest

By 2007, Peli had a version of Paranormal Activity that he felt was strong enough to send to film festivals... most of which rejected the movie. But Screamfest added it to their line-up and the film had its first-ever public showing on Oct. 14 of that year. It's also one of the only times that a general audience saw that specific cut of the movie, which Peli thinks may only exist in his archives.

"I maybe have a copy of it somewhere," he says laughing, adding that there was an early cut of the movie that once got leaked online. "It was a really bad version that I think I cut after the Screamfest version. I experimented with the film and cut out some of the key scenes, like the moment where Katie and Micah's picture gets broken among other things. There were also extra scenes that were not in the festival cut, so it was badly paced. But it got out on the internet and a lot of people watched and reviewed it based on that cut. That's one thing that annoyed me: If you're going to pirate the movie, at least pirate the right version!"

For the most part, the festival cut of Paranormal Activity resembles the version that eventually found its way to theaters. "There were a few extra scenes of Katie and Micah hanging around the house during the day, drinking coffee and talking about how life sucks now," Peli remembers. "It was all stuff where we realized, 'We kind of get the idea.'"

That version of the film also featured a radically different ending that was jettisoned after Screamfest. In it, a possessed Katie kills Micah and is then killed herself by police officers who show up to investigate his disappearance. "I tried to think of what would be the realistic scenario," Peli says of that downbeat finale. "Some of the audience loved it, but others felt like it needed to have a bigger ending."

Among those insisting on a bigger ending were executives from DreamWorks and Paramount Pictures, who sought the film out after its successful Screamfest launch. Peli says that he had also been approached by distributors offering decent paychecks for a straight-to-DVD release, but he opted to align himself with the two major studios ... even though they were upfront about wanting to reshoot the entire movie. Ultimately, subsequent test screenings — plus the advice of none other than Steven Spielberg — convinced them otherwise, and Peli spent the next two years refining Paranormal Activity into the theatrical sensation it eventually became.

Asked whether he thinks the festival cut could have been as big a hit had it been released without any changes, the director says that the reaction of the Screamfest crowd told him he was onto something. "I will admit I was not a fan of the idea of the theatrical ending," he admits, referring to the finale where Katie throws Micah at the camera and then lunges into the lens to reveal a demonic face. "I kind of moaned the whole time we were shooting it. I was like, 'This is not consistent with the movie! We're not about jump scares!'"

"I was so against it, but I didn't have a choice," Peli continues. "It was either: 'You do it, or we not releasing the movie.' Then when he had test screenings and I saw the audience's reaction, I knew I was screwed. I thought, 'They're gonna go with that ending, because it plays so well." And you know what? At the end of the day, the movie still works. It's not my preferred ending, but if the audience loves it, I can live with it." (For the record, Peli shot an alternate ending, where Katie slices her throat on camera that test audiences also rejected.)

The activity continues

Of course, the other benefit to the theatrical ending is that it opened the door for Paranormal Activity to become a franchise — something that Peli says never crossed his mind when he started his DIY project in 2006. The series now encompasses seven films, all of which built on the mythology that he casually sketched out in the original movie. "We did want to have a solid backstory for Katie and Micah, because it would help with their performances," he says. "But Katie came up with a lot of stuff on the fly, and that provides ideas for the sequels. But we had none of that stuff in mind when we were making the first one."

Having already grabbed the brass ring by helming a smash horror hit, Peli immediately vacated the director's chair on the subsequent Paranormal installments, instead focusing on other projects that included a Spielberg-produced found footage TV series, and the sci-fi film, Area 51. "I didn't have any interest in being a director on the sequels," he says now. "I tried to get a few new directing projects off the ground, but for a variety of frustrating reasons they never happened. Then my girlfriend and I were expecting a child, and I realized that what I'm really meant to do is retire. I've been done with filmmaking for seven-and-a-half years now and I've been very happy ever since."

At the same time, Peli knows he'll never be able to fully sever his connection to the Paranormal Activity cinematic universe. "The first one is my baby: it's as much my movie as any movie can be, because I financed it, directed it and filmed it in my house," Peli remarks candidly of his relationship with the franchise. "The other ones were more done by committee. It was a lot of cooks in the kitchen, and I was just one of them. They may listen to my opinion, they may not — and usually they didn't. I still care about them, even though I don't have a sense of creative ownership over them. If I did, some of them — especially The Ghost Dimension — wouldn't get made in the first place."

Released in 2015, The Ghost Dimension ended the first run of Paranormal Activity films, and the franchise lay dormant until 2021's Next of Kin, which bypassed theaters to premiere on Paramount+ and received mixed-to-negative reviews. Peli says he's not sure what the future holds for the series, although he expects that Paramount will find a way to reboot it within the next few years. In the meantime, he's hopeful that another enterprising director will come out of nowhere to reinvent the found footage approach to horror in the same way he did fifteen years ago.

"There's so much more technology now," notes Peli, who names Bodies Bodies Bodies and X as some of his favorite recent horror movies. "Found footage movies have tried using laptops, dashboard cameras, and Zoom. Some of them work, and some of them don't. As a found footage fan, I'm looking forward to the next big thing."

Paranormal Activity is currently streaming on Paramount+ and a Blu-ray box set of all seven films is available at most major retailers