Sequels are practically inevitable in the film business these days; if a movie makes a profit, the smart money says there’s going to be a follow-up, and it’s all but etched in stone that a horror movie that does well is bound to become a franchise. For scary pictures, the third movie is where things get complicated -- will the second sequel be strong enough to insure that it will go on spawning future chapters that will clutter cable TV and video-rental outlets for many years to come, or after three strikes, will the beasts be driven back to the land of unprofitability? Since Paranormal Activity and its sequel Paranormal Activity 2 both managed to gross well in excess of their production costs on their first weekends of wide release, it’s no great surprise that Paranormal Activity 3 has arrived, and it seems we’ll be seeing demons making trouble for California homeowners for quite some time. It lacks the freshness and focus of the first film, but it’s a stronger piece of work than Paranormal Activity 2, and suggests the producers behind the films are smart enough to tinker with their formula while keeping a firm hand on what made its precursors effective. Just as Paranormal Activity 2 served in part as the backstory for the original picture, Paranormal Activity 3 takes us back to 1988, before the events of the second film. While the female protagonists from the first two films, Katie and Kristi Rey, are reintroduced in a brief prologue set in 2005, the bulk of the film shows them as children, being raised in a quiet California neighborhood by their parents Julie, an easygoing housewife, and Dennis, a charming goofball who shoots wedding videos for a living. Young Kristi has an imaginary friend named Toby, and while her older sister Katie makes fun of her, Kristi insists Toby is real. Dennis, who conveniently loves shooting video around his house, talks Julie into letting him tape them as they make love one night, but before things can get too steamy, an earthquake hits the house, and while watching the tape later, Dennis is convinced he sees a spectral figure in a cloud of dust. Soon, Dennis has set up VHS camcorders around the house in hopes of documenting any ghosts, but it stops being fun when it becomes increasingly clear Toby is a very real demonic presence and he has plans for Katie and Kristi. While the first two Paranormal Activity films tried to pass off the footage we saw as being shot by the film’s characters or by cameras they set up, Paranormal Activity 3 is significantly more willing to fudge the formula, with the POV a bit hard to follow at times (not to mention several characters who keep shooting when anyone with any sense would ditch the camera and run) and the sharp high-definition images suggesting Dennis had access to the very finest VHS machine ever manufactured. But directors Henry Joost and Ariel Schulman (who previously walked the line between fiction and documentary with Catfish) eagerly play with the conventions established earlier in the series for fun -- this one has a lot more laughs than the first two films, with Joost and Schulman playing the familiar long-silence-followed-by-a-jolt trick for a joke more than once, drawing some playful comedy from the would-be sex tape sequence, tossing in a Poltergeist reference, and goofing on the late 1980s costumes and decor. The movie frequently toys with the audience’s expectations in the beginning, but when the demons get serious in the final act, this packs a more-serious jolt (and creates more mayhem) than anything this franchise has delivered to date, with the finale taking the audience into truly grim and unexpected territory. It’s hard to guess where the Paranormal Activity series can go after this (if they move much further back in time, the characters will have to start using Super 8 movie cameras instead of video gear), but the third installment shows this concept still has gas left in the tank, and if it’s not as good as the original, it’s a slight cut above the second film. We’ll undoubtedly be revisiting this formula again in 12 to 18 months.