Small-Budget Horror is the Winning Ticket These Days

Even if you are not a horror fan, chances are you have heard about this summer’s two surprise hits: “Backrooms” and “Obsession,” low-budget films by Gen Z directors who first built audiences on YouTube.

Both made headlines after opening to major box office returns. “Backrooms” earned more than $80 million in North America on a budget of less than $10 million, while “Obsession” brought in more than $17 million.

“Backrooms” is directed by Kane Parson, a 20-year-old first-time filmmaker whose videos have generated 342 million views on YouTube, according to The New York Times. “Obsession” comes from 26-year-old YouTube creator Curry Barker.

Anthony Palomba’s research examines the intersection of entertainment, analytics and business strategy. (Photo by Matt Riley, University Communications)

The Darden Report spoke with Anthony Palomba, assistant professor of business administration at the University of Virginia Darden School of Business, to understand what is driving these films’ success — and what Hollywood should learn from it.

Why does horror continue to resonate so strongly with audiences, and why is it such a reliable business?

The horror genre taps into our primal instincts for survival. It fires up adrenaline that our civilized and relatively predictable modern lives rarely demand. It also offers simulations — the “what if” scenarios we quietly learn from. Research suggests that the people most eager to learn from their environments may be the very people who enjoy horror the most.

Humans are wired to surveil. One of media’s primary uses and gratifications is the chance to monitor our surroundings. Horror lets us discover how we might react in these situations by noticing how we feel, all while safely removed from the threat unfolding on screen.

As in business, horror is unusually reliable. Horror films often draw smaller audiences than other genres, especially across multiple installments, but they also require far less to succeed. They do not need expensive celebrities, massive sets or elaborate special effects. They need fear — and the ability to generate fear and sustain it for 90 minutes, or often less.

We relate to fear on countless levels: losing a spouse, a child, a home or our savings; wrestling with our mental illness; confronting our mortality. When a horror film resolves cleanly, it can deliver a deeply cathartic release, the moment the fear finally lets go of us. But horror does not always oblige. Sometimes it leaves us a little unsettled, still pinned to the edge of our seats long after the credits roll.

What do the successes of “Backrooms” and “Obsession” reveal about what audiences want today?

There is something here reminiscent of “Easy Rider” in 1969, which helped usher in New Hollywood and a wave of younger, more author-driven filmmakers. I think a similar effect is at work with Kane Parsons and Curry Barker, both of whom were already known to their YouTube audiences before entering theaters.

The success of “Backrooms” and “Obsession” proves that authentic ideas can still drive consumers to theaters. Horror is especially powerful because it can be made cheaply. “Obsession” was produced for roughly $750,000 and has now grossed around $225 million worldwide. “Backrooms” was made for under $10 million and has grossed about $213 million worldwide so far.

The key is a novel yet familiar idea — something that blends recognizable elements into an unfamiliar, never-before-seen cocktail.

Think of “Stranger Things.” It leaned on “E.T. the Extra-Terrestrial,” “Stand By Me,” “The Goonies,” “It,” “A Nightmare on Elm Street,” “Carrie” and the “Alien” franchise, among many others. Audiences had already seen children and teens battle bad humans, monsters and demons; form tribes to save one another; and face entities the adults around them could not understand. What made “Stranger Things” remarkable was the combination: familiar ingredients brought together in a fresh form for streaming and television, fronted by a superhero in Eleven and adults who, once they understood what was happening, actually worked alongside the children and teenagers.

“Backrooms” carries clear “Blair Witch” and “Cloverfield” energy. There is a looseness to the cinematography, an unease that never lifts and a sense that the audience’s gaze has been handed over to unpredictable, nonlinear camerawork.

“Obsession” works the “Monkey’s Paw” trope — the careful-what-you-wish-for logic — and it pairs it with the slow tension and release A24 helped make famous with films like “Midsommar.” Have we seen some of these elements before? Of course. But both films take familiar pieces and shake them into something new.

What is Hollywood missing about where successful IP originates today?

Hollywood can be a remarkably conservative place to do business, despite its reputation for liberal leanings and artistic milieus.

The first lesson is to know where your IP lives and where it gets validated. Think hard about the best form in which audiences encounter your property. There is a lively conversation about whether younger viewers may now see “Star Wars” as a television series rather than a film franchise. That matters because IP can originate far from the studio lot, particularly when it is authentic to Gen Z. Think “Minecraft.” Think Markiplier’s “Iron Lung.”

There is a structural reason for this shift. With only five to seven major studios, there is an inherent bottleneck around talent, greenlights and production itself. YouTube has no such bottleneck. Anyone can upload anything at any time. That makes it not merely a distribution channel, but a place where creators brand their work, build a following and prove a concept for free. YouTube has become not a hub for culture, but the hub for culture.

Granted, the year’s biggest movies are still likely to be “Minions & Monsters,” “Spider-Man: Brand New Day,” and “Toy Story 5,” all installments in massive franchises. But authenticity to Gen Z is now the price of admission. Gen Z and, probably, Gen Alpha, will go to theaters if the IP feels genuinely theirs.

Writing off young audiences because of their media habits makes little sense when so much of the IP being greenlit was never built by them or for them. It has become harder for executives to follow a culture that is fluid and no longer dictated by a handful of firms, celebrities or television channels like MTV.

In other words, the studio executives are no longer setting the tone for culture. They are responding to it. That should also shape how they think about weathered franchises like “Jurassic Park.” The question should not be, “How do we make another one?” It should be, “What about this would feel authentic to a younger generation, and who do we trust to find it?” That is more art than science.

What should studios learn from creators who have built audiences on platforms like YouTube?

Hollywood has a habit of copying ideas, and I am hopeful it will study YouTube IP more carefully from now on and take real risks on talent already proven there, even knowing that some bets will fail. Reviving a franchise is not the same act as xeroxing a formula. The bet is not only the property. It is the voice you hand it to.

A proven young auteur, like Barker, who is set to direct and reinterpret the next installment of “Texas Chainsaw Massacre,” is doing something different from a studio churning out a ninth sequel.

That raises a larger question: Will directors emerging from YouTube go on to take the reins of bigger, traditional IP? Is YouTube becoming the new Sundance or TIFF model for discovering directors? The difference, of course, is that YouTube has virtually no gatekeeping.

If you were advising studio executives, how would you rethink content investment and theatrical releases?

Run each genre like a venture content portfolio. Be less precious about reserving every major budget for another installment of proven IP.

“Obsession” returned roughly $225 million on a $750,000 budget. “Backrooms” returned about $213 million on a budget under $10 million. Those are extraordinary returns.

That math should change Hollywood’s conservative calculus. Instead of spending $200 million on a single proven franchise, a studio might spend $100 million on somewhat proven IP and use the other $100 million on 10 or so more original content ideas from YouTube or other independent sources.

Of course, horror is the asset class best suited to that model because it is the cheapest to make, which is precisely why it is underweighted. You do not need a hit rate. You need one “Obsession” to cover a hundred misses, and the misses barely cost anything.

Word of mouth still fills theaters when something is genuinely new. There is a lazy assumption that the theatrical window is dying and that audiences only show up opening weekend before the algorithm moves on. “Obsession” broke that assumption. It grew in its second and third weekends, the first film to do that since “E.T.” in 1982, and posted the best fourth weekend hold ever recorded for a horror movie.

That does not happen through marketing spend alone. It happens when an audience decides, on its own, that something is worth telling other people about — and then does the studio’s marketing for free.

The lesson is not simply that theaters are back. It is that originality remains the only reliable engine of word of mouth, and word of mouth is still what turns a strong opening into a phenomenon. Studios should carefully sift for original ideas that feel both novel and familiar, give them room to develop, and trust audiences to carry the best of them forward.