We've been seeing a lot of these "found footage" films over the last few years, but what exactly defines a "found footage" movie? There is some dispute on the matter but generally the "found footage" label refers to any film which uses, as the name implies, the approach of being presented as found footage. These films are fictional stories shot in a documentary-like way to look like people actually filming the events as they happen. The "found footage" genre is most commonly associated with horror, but it can (and perhaps should more often) be applied to other genres as is the case with movies like Europa Report (science fiction) and End of Watch (police procedural).
The found footage film has a long and complicated history. A likely precursor (and perhaps also a source of the genre's association with horror) is early gothic literature. Among the best examples of this would be the stories of H.P. Lovecraft, which were often presented as "found manuscripts". Many of his longer, more science fiction-based stories such as At the Mountains of Madness, The Whisperer in Darkness, and The Shadow Out of Time were written in the form of scientific reports describing what the protagonist experienced. His earlier stories The Hound and Dagon were both presented as suicide notes written by an unidentified narrator.
One of the most likely candidates to be an early precursor to the found footage horror film is Lovecraft's The Call of Cthulhu. The story is structured in the form of a "found manuscript" written by "the late Francis-Waylon Thurston, of Boston" (as a note at the beginning informs the reader). Already, the basic setup is reminiscent of the structure of many found footage horror films, where the protagonist's fate is known from the beginning and the story is presented as his record of the events leading up to his demise, similar to The Blair Witch Project or Paranormal Activity.
The Call of Cthulhu even has the narrator using his manuscript to provide a detailed account of his investigation into a series of ancient legends, with the ominous implication at the end that he meets his end at the hands of the Cthulhu Cult that has been referred to throughout. A similar structure can also be found in Lovecraft's earlier story The Temple, which is presented as a message in a bottle chronicling the final days of a German U-Boat crew. Lovecraft was also heavily influenced by Edgar Allen Poe, who used a similar structure for his story Ms. Found in a Bottle, which is precisely what its title implies. The idea of "found footage" is basically a modern update on the "found manuscript" model from early horror literature, with the main difference being that the protagonist is using a video camera to record what happens instead of writing it in a journal.
As a style of film, found footage goes back a long way. The 1913 short The Evidence of the Film centered around a crime being solved when the footage from a camera that was recording nearby is revealed to have captured the face of the culprit. One of the earliest films to use the modern idea of a found footage structure is the 1980 exploitation film Cannibal Holocaust, which centered around a group of characters watching footage recorded by a documentary crew who disappeared and are later found dead. However, the film that is responsible for popularizing the found footage horror film is the 1999 film The Blair Witch Project.
This was a film made with almost no budget, featuring a group of unknown actors acting under their own names. It even lacked a script; instead favoring an outline of the basic plot while allowing the actors to improvise. The "story" was basically that the viewer was seeing the recorded footage (presumably recovered sometime after) of three amateur filmmakers who disappeared while trying to shoot a documentary investigating a local urban legend, similar to The Call of Cthulhu's structure as a manuscript written by a man who died as a result of investigating an ancient legend.
To the surprise of the filmmakers, it proved to be a huge hit at the box office. The film's reputation for instill fear spread quickly, and naturally it was not long before the big studios in Hollywood started to take notice. This led to a short-lived series of attempts to replicate the success of The Blair Witch Project, most of which were unsuccessful. There was even an attempt to cash in by way of a big-budget sequel, Blair Witch 2: Book of Shadows, which was a critical and commercial failure. These efforts died down for a time, until by total chance something similar happened in 2007.
Like The Blair Witch Project, Paranormal Activity was a found footage horror film made with next to no budget and unknown actors. It was also presented in a similar way, with the film being presented as footage recorded by a man living with his girlfriend while both are being haunted by an unidentified but apparently supernatural entity. At first, it was a spectacular failure, until a copy ended up in the hands of Steven Spielberg. The initial plan was to remake the entire film with a larger budget and recognizable stars, but in the end a test screening of the original version was arranged, and proved to be a remarkable success with its audience.
Suddenly, there was a revitalized interest in the found footage genre, and since then there has been a wave of different titles: Cloverfield, Apollo 18, and Chronicle being notable examples. Many of these fit the same template as first established by The Blair Witch Project, with low budgets and unknown actors. They also used the same structure of being presented as footage recorded by the characters, typically building up to their inevitable or at least implied doom at the end. Because of this structure, likely borrowing from The Call of Cthulhu and similar short stories, the found footage genre is often associated with horror.
However, this is not always the case. They may not be as common, but there are found footage films in other genres. In fact, a lot of the best found footage films are the ones that try to work in other genres such as Europa Report (science fiction) and End of Watch (police proceedural). There are a few different reasons to take this approach. From an aesthetic standpoint, the found footage film structure can allow for a documentary or home video-like feel that adds a layer of authenticity. End of Watch uses the structure of a cop recording his everyday life to create the feeling of following two real cops on their everyday adventures. Europa Report is literally structured as a documentary, even incorporating interviews in addition to footage from the mission, making it feel like an actual step forward for the space program instead of a simple science fiction narrative.
There is also a very simple reason why studios continue to produce found footage films: they are almost guaranteed to be a success. Found footage films are often made with low budgets and, outside of a few rare exceptions such as End of Watch and Europa Report, unknown actors. From a purely financial standpoint, unknown actors can be paid less than stars (though from an ethical perspective one might argue otherwise). The format also means less money goes into equipment and reduces the number of personnel who need to be hired, and more of what little expenses are present can go into the minimal effects. This in turn ties into the idea of Return on Investment (ROI).