While nobody ( I hope) believes that Paranormal Activity is a true story, when thinking back on the found footage films that worked such as Cannibal Holocaust and Blair Witch I have to wonder why anyone ever believed these films were documentaries.
I found the answer way back in the back of my mind as I realized I did actually learn something in college. American Lit was dominated until the 19th century by non fiction in the form of letters. Being a harsh and wild land, America was filled with the descendants of Puritans who had to struggle just to survive. It was considered frivolous to spend time writing fiction because, frankly, there was too much work to be done.
Therefore, early American fiction writers often framed their fiction as a story they were merely recounting by another author. Examples include Nathanial Hawthorne’s story “Rappacini’s Daughter” and Washington Irving’s “The Legend of Sleepy Hollow.” Later, Henry James, an American living in England, used the technique in Turn of the Screw. Pretending to recount a story heard elsewhere got the writer off the hook for being a lazy dreamer type and simultaneously gave the story a bit of credibility: it may have been written/witnessed by this other rapscallion but it is being retold to you by your trusted and sober author’s voice. This could also be the origin of the modern urban legend; people always claim that the events happened to a friend of a friend because they think it sounds more believable.
Similarly, the found footage film is a story within a story, rather than a straight narrative. The place of the narrator in the classic American short stories is taken by the filmmaker/person who finds the footage. The filmmaker, by presenting the film as found, is acting as if they are a step removed from the making of the film. They are now merely presenting this totally true tale. You can believe that the filmmaker is the observer, just showing you the results of what happened to those other nutjobs who went off into the woods to find a witch, or allowed themselves to be locked into a haunted asylum, or rounded up a bunch of psychics and chased a demon to an abandoned village. This is what makes it believable, based on the short story tradition.
Well done found footage movies are terrifying, and that is what we are hoping for when watching a horror movie. The actors tend to be average looking, amateur “everyman” types with whom we can identify. Even if you don’t believe the events of the film did happen, the informal acting and style of film making causes the viewer to feel a sense of “this could happen to me” much more so than a slick high budget production. I believe we can look forward to many more found footage movies in the immediate future.