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Director Paul Schrader tells me there were three main stories behind the making of his latest film, The Canyons – a microbudget B-movie written by the novelist Bret Easton Ellis and starring Lindsay Lohan and the porn star James Deen. "One: Bret and Paul make a movie; Two: The Lindsay Lohan Horror Show; Three: Hey, it's pretty good after all!"

Speaking over the phone from his lake house in upstate New York, he laughs the weary laugh of a man who has truly seen it all – Schrader wrote Raging Bull and Taxi Driver before embarking on a long and turbulent career as a Hollywood director. With 18 films to his name, he's had a couple of critical flops over the years, and was fired after turning in his version of The Exorcist prequel. The Canyons, which he describes as "cinema for the post-theatrical world," is an unusual creature, and not just in its authorship and casting. Schrader, Ellis and producer Braxton Pope financed the film themselves, first through a successful Kickstarter campaign (which raised $150,000 (U.S.) from fans) and then by putting in roughly $30,000 each of their own cash. With a total budget of only $250,000, The Canyons has already received blockbuster amounts of hype. Hailed by its own producer as "the most open film ever," The New York Times Magazine published an 8000-word feature in January detailing the melodramatic production process – in which Lohan was hired, fired, rehired, cried, pounded on hotel doors, insisted on doing her own (dreadful) makeup and vanished due to an "inner-ear infection" after partying until 6 a.m. with Lady Gaga at the Chateau Marmont. That piece, Schrader tells me, started off as a story about "a new way of making movies. Then Lindsay came on board so it was supposed to be a story about the New Lindsay. But the New Lindsay didn't show up so it became a story about the Old Lindsay."

If Schrader is annoyed about this, he doesn't show it. The biggest worry for an independent, ultra-low budget movie like The Canyons is that will disappear without a trace. This has not been the case so far with this film, which includes a four-way sex scene, a graphic murder, lots of nudity and many long, agonizingly cryptic conversations between utterly despicable characters (an Ellis trademark). Basically if you enjoyed American Psycho, you'll enjoy this film. Though "enjoy" is perhaps not the correct word for taking pleasure in watching horrible people do horrible things to each other with minimal dramatic consequences. For those who like their drama slow, dark and cynical, The Canyons should prove a hit.

And for the strange cast of characters involved in the making of the film, a hit is what it absolutely needs to be. For Ellis, the movie represents a chance to become a known quantity as a screenwriter. For Deen, it's a crossover vehicle into "straight" films. For Schrader (now 67) it offers a chance to finish out his Hollywood career on a high note. And for Lohan, well, there's a young actress who has not lacked for chances. After her troubles with the law and history of addiction, Lohan is uninsurable in Hollywood. This means no production with a proper budget will touch her. The Canyons is her last chance. And while her on-set antics are on the public record, she did manage to finish the shoot and turn in a credible performance – inch-thick eyeliner and pancake makeup notwithstanding. Part of the reason for this success is that Lohan plays Tara, a pill-popping failed actress who trades sex for financial stability. She is charismatic and attractive, but in an anxious, roughed-up party girl sort of way. Let's just say as roles go, it's not a huge stretch.

Asked about his notoriously troubled leading lady, Schrader is head-shakingly jovial, like a master discussing his disobedient puppy, rather than a veteran director on the subject of a young actress who seems to be slowly killing herself in a terrifyingly public way.

"The sheer unpredictability of her is a huge challenge. Lindsay likes to live in a world of high drama and when it doesn't materialize she creates it." He pauses, then adds thoughtfully, there might even be a fourth story to come out of the The Canyons. "I really do think we might see the Lindsay Lohan Comeback Story one day. I'm still in touch with her and if she gets out of this mandatory rehab and manages to get off the Adderall, who knows? She's a talented girl."

As for The Canyons, it will have a limited theatrical release this weekend, but the on-demand opening on the U.S. cable network IFC is what Schrader is really watching. He claims the movie has already made money (they sold it for $1-million up front) and that the rest is just gravy. By circumventing the normal development system, getting actors and crew to work for nearly nothing (everyone on set was paid $100 a day) and allowing fans to crowdsource the film in advance, Ellis, Pope and Schrader may walk away with a tidy sum in the end. They may have found a new way of making movies, but is it ethical? Schrader doesn't seem to care. "We're in a post-empire arts culture," he tells me. "We're making movies out of crap that's left lying around from when we were great."

If proclamations like that don't drive a failed actress back on the Adderall, I don't know what will. But such is the dark and demented reality of The Canyons.

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