"So you become very conscious of every little sound you hear because you don't have any neighbors above the walls, basically you're not supposed to hear anything.
"When you do hear little creaks and knocks and stuff like that, you wonder what's going on. I'm sure most of it was natural sounds of the house settling, but every once in a while you would hear things that would be weird and you couldn't figure out where they are."
"That's kind of what made me think how I would go about trying to figure out what's going on and being the techno-geek that I am, my initial inclination would be to get video cameras and set them up around the house to see what was going on.
"I didn't actually go ahead and do that, but that's what started making me think how freaky it would be if you had cameras running at home while you sleep and actually did catch something."
Despite his clear fascination for the topic of unexplained noises and spooky happenings, Peli also confesses that he's long been terrified of ghosts and spirits, to such a degree that he can barely watch Ghostbusters.
He channeled those terrors into the tale of a regular suburban couple who experience strange goings-on in their otherwise ordinary San Diego home…
Next: Shooting Scares
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2. Shooting Scares
Before getting started on the film itself, Peli threw himself into reaching the topic of things that go bump in the night: "The pre-production period involved a lot of research. That was a year before we started physical photography. I read a lot of books on the subject. Many interviews, accounts of exorcisms and stories about haunted homes.
"I looked at all accounts on the topic, so now I have a large library about every angle of haunting, possessions and exorcisms. There are even some good TV shows. So, yes, I got my hands on everything. From my research, I learned the more violent entities are demonic. We wanted to be as truthful as we could be."
Spurred by the material he'd read and his own nocturnal worries, Peli dreamt up the idea for a Blair Witch-style shocker that uses "found footage" and purports to be the chronicle of what happened to Katie Featherston and Micah Stoat in their home during one month in 2006.
The sparring pair are confronted with what appears to be a demonic presence haunting them at night, and it is their differing reactions - Katie is fearful, Micah concerned yet stoked about capturing anything on film - that drive the simple narrative.
"The movie plays on people's primal fears about what happens when you think you're in the safety of your own home, in your own bed while you're asleep and most vulnerable."
And it was in 2006 itself that Peli finally decided to get moving on the movie project. He didn't have deep pockets, and he hadn't approached a studio for backing. He essentially decided to make the film at home, dredging up between $11,000 and $15,000 (reports differ on the budget) for a swift seven-day shoot.
"Basically the entire crew for the original shoot of the movie was myself, my best friend Amir that I've known since I was 13 and my girlfriend I was living with at the time, and she became a reluctant helper because we didn't have a set and were shooting the movie at home, but she did help a lot in every aspect of production.
"The only thing I couldn't figure out how to do on my own was make-up, so I did hire a make-up artist."
It wasn't only the crew that was tiny - Peli's cast is a handful of people, with the focus on Micah and Katie, played by actors who used their own names to give it that extra credibility.
"We did a couple of casting calls and went through a few hundred people. Called in a few to meet them in person. Kate and Micah we auditioned individually and instantly they blew us away. We called them back and put them together for another audition.
"They showed such an amazing chemistry 30 seconds after meeting each other. We started asking them questions about their characters and they just knocked it out of the park.
"If you saw the footage, you would've thought they had known each other for years. They had to have the guy and girl next door feeling and they got it."
The cast also got dragooned into the other side of filmmaking, to boost the reality. "Micah was shooting most of the movie, though in a few scenes Katie was actually operating the camera. Most of the rest of the time, the camera is either stationary on the tripod in the bedroom or sitting on the kitchen counter etcetera."
Keeping the cameras rolling meant that Peli ended up with a lot of footage. "Probably close to 70 hours; it was a lot," he says. "There were also some nights we just had the cameras rolling non-stop. It took about 10 months to edit."
Peli still lives in the house used for the shooting - though it is with a mixture of relief and disappointment that we have to report nothing scary has happened since then.
Next: Festival Find
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Next: Spielberg's Encounter
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Next: Lost In Limbo
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Next: Dusted Off
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Next: Viral Terror?
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7. Viral Terror?
Just about every movie gets marketed online these days. It used to be the studios stumping up for a basic official site, then interactive content crept in, and things have evolved even further in this techno-savvy era.
Now, the likes of Twitter and Facebook, though their final impact has yet to be accurately measured, are being plumbed for their benefits.
Paramount set about capitalising on the word-of-mouth buzz by ramping up the film slowly.
In September, the movie was screened simultaneously in seven cities across the US as part of Fantastic Fest. That was quickly followed by a college town tour.
Midnight screenings began to sell out - as the old saying goes, an impossible ticket is a hot ticket - and the legend of the film spread. Paramount cannily put webcams in several cinemas so audiences could record their shellshocked impressions.
And the smartest move? Using a piece of web technology usually associated with smaller music acts, where fans can "demand" a gig - or in this case, a screening - take place in their town.
The studio ramped up the tension by announcing that should 1 million "demands" be registered, the film would be released wide across the US.
There are differing opinions on whether it would actually have gone through with a muted release should the counter have fallen short - cinema owners have reported that the plans were in place for a wider October schedule before the demands began coming in.
If it's not quite as grassroots as truly public-generated movements (some have sneered that it's "astroturf" - an entirely invented strategy with little concern with how the Demand experiment turned out), it does seem to have worked.
"It's very rewarding to see the fans embracing the movie. This is totally a fan driven movie, because if it wasn't for the fans, we wouldn't be talking right now.
"This movie was launched by Paramount in a way that really allows people to decide whether or not they want the movie to be released and where.
"So if it weren't for them demanding the movie and saying, 'We want it to play in our home town' and if it weren't for the fans spreading the good word online in forums or on Twitter, the movie probably wouldn't have gotten anywhere," says Peli.
Finally, it was time for Paranormal Activity to occur on a wider scale…
Next: Teasing And Terrifying
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8. Teasing and terrifying
The film won't be trying to scare UK cinemagoers until next month, but it's already going gangbusters across the pond.
Following on from the viral campain's initial release, the movie's expansion has been very successful. In its third weekend - the first on wide release - the film made more than $20 million. Not bad for something that cost a few thousand to produce.
It may never quite reach the heights of the Blair Witch's $250 million worldwide success, but it's already profitable.
Peli, meanwhile, has moved on to another project, with Area 51 about ready to shoot. It sounds distinctly sci-fi, but he won't say much about it until it's finished.
Suffice to say however, it won't be as under the radar as Paranormal Activity.
As for how you react? We're guessing a few people will be sleeping with the lights on after their first exposure…
Next: The End?
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Like This? Then try...
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