Tag Archives: growth

How Paranormal Activity Started a New Category in Horror

I recently resurrected an old presentation I gave at Twitch and shared a new version with students in Justin Winter‘s AI Producing class at LMU. This post is a recap!

15 years ago, Paranormal Activity was released, just in time for Halloween in 2009. It was a viral phenomenon and the highest grossing horror movie of the year. The momentum was so powerful that Paranormal 2 and 3 became the highest grossing horror films in 2010 and 2011. 

This was an industry-shifting movie for many reasons (the beginning of Blumhouse’s low-budget model and the marketing campaign1 among them), but I want to focus on one unexpected upshot you won’t see unless you dig into the data like I have: Paranormal Activity met very unique conditions in the market which caused a new genre to emerge. It’s a case study in how niche content can go mainstream…and how sometimes, it doesn’t. 

PA was originally made for just $15,000 as a “found footage” horror movie. The premise is that we’re viewing “real” home video footage of an event that has been edited together after the fact. This masterful style gives the film creative license to have all the warts and imperfections which come with something user-generated. The low budget made it outrageously profitable. PA appeared in film festivals in 2007. It was scooped up by Paramount for only $350,000, who invested another $200,000 and widely released it in 2009, earning $601M (a phenomenal 1000x ROI for Paramount). 

Highest Grossing Horror Films by Year: 2009-2011

That’s all great for the individual franchise. But it’s even better for the film community because it kickstarted a new genre. Right after after PA comes out (2007 in festivals, 2009 wide release), independent filmmakers and major studios began creating hundreds of new found-footage horror movies. Have a look at this data I pulled from IMDb, charting the number of found footage horror movies since the 70s: 

Number of Found Footage Horror Movies Released per Year

As you can see, >80% of all found footage horror was made after PA. Why? Because PA helped people clearly see the template for this content: do away with high-cost talent, lighting, music, production value – don’t even invest in visual effects and gore. It conveyed a formula for the genre which others copied. 

You’re probably already getting ahead of me though… why am I giving all this credit to Paranormal Activity? There’s one more bump on this graph. 

Indeed, 10 years prior, The Blair Witch Project debuted. But only a handful of found footage movies come out after this disruptive original indie. So Paranormal Activity inspired countless imitators and a whole new genre while Blair Witch does not. Why? 

Oddly, popularity has nothing to do with it. Nor do economics. It’s smart to expect those drivers: popularity drives the zeitgeist which drives filmmaker inspiration. And economics compel producers and studios to invest in new genres. But in reality, Blair Witch was more popular and economically successful than PA. Nominally, Blair Witch made $604M in the box office, which is a little more than PA. And if we adjust for inflation, Blair Witch made $1.3B by today’s standards. So it’s unlikely that economics or viewership made the difference. 

At two different times, very similar movies are released, both to very large audiences, both extremely profitable. But the second one has a knock-on effect of inspiring copies and the other does not. When I give this lecture IRL, we stop here and mine for different theories from the class (and I’d be curious to hear yours too!). There is no right answer. However, my hypothesis is that one macro theme captures many of the drivers: technology lowered the barrier of entry for this type of filmmaking. 

In the 10 years between 1999 and 2009 there were multiple technological developments in entertainment which make copy cats of PA far more viable. DV cameras spread with the Panasonic DVX100 and Canon XL2 introducing a “prosumer” category (and eventually DSLRs like the Canon 5D). Non-linear and prosumer editing software like Final Cut Pro gains rapid market share and becomes available to consumers at a lower price point (accelerated with piracy as distribution) plus iMovie is bundled with Macs in 1999. HD video becomes widely adopted which doubles the resolution of a home movie. Online distribution and promotion become possible through YouTube and crowdfunding platforms. I’d even argue that software and websites for staffing/coordination hit more of a stride around 2009 (craigslist, Celtx, MySpace). Even the more qualitative cultural changes (like normalization of UGC and shaky cameras) are dependent on these technologies’ proliferation. 

Imagine trying to make Blair Witch before all of this. Editing a movie required a special combination of Avid software and hardware rented from a post house on a per-hour basis (the creator of Blair Witch had access to these computers through his day job). The Blair Witch filmmakers found their cast through an ad in a physically printed magazine. Even in its simple, “home movie” form, Blair Witch was intimidating to replicate. 

Paranormal Activity’s impact isn’t just a story of creative inspiration; it’s an example of how technological accessibility plays a parallel role in trendsetting. In the years between The Blair Witch Project and Paranormal Activity, it took dozens of technologies across the filmmaking supply chain to unlock a new genre. As we consider AI’s potential in entertainment, I like to consider possibilities like this one. AI is poised to do for fringe content what DV cameras and non-linear editing did for found-footage. Yes we’ll lose some jobs but in those particular areas (VFX, stock footage), barriers to entry will come down and enable new talent. I predict we’ll see many more new genres proliferate, inspired by innovative boundary-pushers with the right timing. Just as we saw with found footage, by reducing production costs and creative limitations, AI will enable niche formats tailored to diverse audiences.

Thanks to Scott Brooks and Ryan Latchmansingh for reading drafts of this!

  1. The guerrilla marketing campaign for Paranormal Activity could be its own case study. In trailers and on social media, ads asked fans to “demand” online that the movie come to their local theater. Then, as the movie spread to more screens, the ads showed off the number of new screens and proclaimed “you demanded it!” Trailers even utilized night vision footage of folks’ shocked reactions in theaters. Most likely, distributors had to commit to rolling out the movie nationwide months in advance because of the complexity of P&A– so the social proof of “you demanded it” was as much a hoax as the footage in the movie.  ↩︎

Why Netflix Needs a Mobile Content Strategy

Netflix is killin it and I continue to be bullish on their future. There’s one corner of the business I’m afraid they’re being just a little too pensive about: mobile.

This year, they’ve launched some of their first short-form programming and some new native portrait features in their mobile apps. But I’m afraid this won’t stop other mobile competitors — Google and Facebook — from locking them out of this critical piece of the entertainment pie. Now is the time for them to begin spending in the mobile content space and here’s how they should begin.

Why mobile is critical to Netflix

Let’s start with why Netflix should care.

There’s an obvious massive market of short form video consumption, well-proven by YouTube and Facebook. 34% of global internet video traffic is shortform. So, when Netflix says they’re competing with all forms of entertainment, this seems like an obvious adjacent area to pick up some additional engagement — whereas interactive, live and sports are much more of a moonshot.

But I think all of that frames this as a business expansion opportunity when I actually think this is a threat to Netflix’s stranglehold on the streaming market. Have a look at this graph, which explains the userflow of new subscribers to the service.

When this slide first broke, a lot of emphasis was put on the fact that after 6 months, 70% of Netflix subscribers were watching on a big TV. What stands out to me is that 10% are STILL watching on a mobile phone. Just 1 month in, more than 15% are still struggling to watch long form TV shows and movies on a tiny mobile screen. And right from the getgo, a full THIRD of Netflix’s new users start on a mobile device.

We are in a mobile world and who cares that people watch more content on their mobile phones — people TRANSACT more on their mobile phones. Enough people subscribe to Netflix straight through iOS that they’re trying to bypass Apple altogether — another sign of just how many folks sign up on mobile. Given that Netflix’s model is dependent on one giant transaction at the top of the funnel (their subscription), many more of their new customers are entering their ecosystem through mobile phones. And this user flows shows just how long it takes that mobile customer to begin finding big-screen-TV-type-value in their subscription. Were Netflix to actually provide valuable mobile content during that couple-month transition, they’d reduce churn among new users. (Still another strategy would be a freemium model of mobile-only content to lure users through the paywall when they realize the app’s value on another screen.)

What Netflix is already trying in mobile

Netflix is not completely blind to this. They’ve launched a few new short-form originals and mobile products this year. For those trying to reverse-engineer their mobile content strategy, here’s a recap of their short form content:

  • The Comedy Lineup (15 minutes) – Mini stand-up comedy specials
  • Explained (14-18 minutes) – Newsmagazine (Vox)
  • Follow This (16-18 minutes) – Newsmagazine (Buzzfeed)
  • Comedians in Cars Getting Coffee (12-25 minute) – Celebrity interviews with Jerry Seinfeld
  • Marching Orders (12 minutes) – Docuseries
  • Cooking on High (14 minutes) – Competition reality

In the scheme of Netflix’s $6 billion content spend, I’d call this an extremely modest beginning — it’s really just a test. It’s heavy on news and unscripted, there are no filmmakers, high-value talents or standout IPs. I estimate their 2018 spend on short form around $20MM at most. To make a meaningful move into mobile, they’ll need to spend 5-10x that.

How Netflix could form a mobile content strategy

It’s clear that Netflix needs to get into the mobile content game ASAP. But how? So many short form content platforms from go90 to Watchable have flamed out because of a lack of distribution.

Broadly, I’d approach this similarly to the rest of Netflix’s business:

  1. START FAST with a mountain of inexpensive mobile content that’s easy and fast to launch.
  2. PIVOT TO PREMIUM – Use the analytics gathered from starting fast to inform a mobile Originals strategy and finance exclusive new series.

Why this two-part strategy always works is the subject of a whole other blog post. But Netflix is in a unique position to build a war chest of start-fast mobile content at a low cost-per minute without sacrificing their premium values. Step one of fast/easy/quick mobile content — pretty obvious — is licensing. Now is a fantastic time to cheaply license premium mobile content. Every mobile content studio is clamoring to work with Netflix which earns them outrageous leverage. Plus, many of them were gifted back go90 or other mobile series that they have no place to distribute. The second source of start-fast content is probably less obvious: the content they already have. Netflix outright owns a lot of their shows and by getting creative, they’ll find a new life if they’re re-cut for a shorter runtime or carefully cropped for a vertical screen.

When audiences coalesce around their start-fast mobile content, they can decide where it makes sense to pivot to premium, maintain licenses or trim back.

In sum, I think mobile is a crucial growth area for Netflix and a place they have some natural competitive advantages. They could quickly turn a source of churn into a new source of revenue and expansion. I predict they’ll make some dedicated moves in this space but it’s going to take a larger commitment to realize the potential mobile content has in Netflix’s future.