Oren Peli's film originally appeared at Screamfest in 2007. An agency agreed to help Peli find a distributor for the film and sent out screener DVD's to any studio representatives that would take them. I was able to watch one of those screener DVD's through a random connection. The agency kept pushing for the film and eventually Dream Works was poised to distribute. Spielberg himself had watched the film and was absolutely terrified by it. The studio wanted to remake the film with a larger budget and more recognizable actors, but would still allow Peli to direct.
The director and his cast.
After small test screenings went remarkably well, they decided the original film was good enough for a theatrical run. Somewhere along the way, Paramount acquired Dream Works and the distribution was delayed. It was also somewhere during this time that the studio shot a couple extra scenes and removed a few others. All in all, it's basically the same film. I was surprised to see how little they had changed the movie. The small additions (maybe a couple minutes total) were handled with the same spirit as the original.
For a very interesting L.A. Times article and more details on the distribution of Paranormal Activity, go here.
For my review of Paranormal Activity, go here.
For a detailed look at the differences between Paramount's cut and the original, go here.