The Orphanage is being touted as this year's Pan's Labyrinth, a fitting tribute considering Orphanage is produced by Pan director Guillermo Del Toro. Though mixing horror with disparate genres is familiar ground for del Toro, it's virgin territory for director Juan Antonio Bayona and writer Sergio Sanchez, both making their feature-length debut. Their film tells the story of Laura (Belen Reuda), who, with her husband and son (Fernando Cayo and Roger Princep, respectively), move back into her childhood orphanage with plans of re-opening for business. Soon, her son goes missing and Laura is convinced he's been whisked away by his invisible friends. What follows is one of the most haunting, wistful horror movies in recent memory.

The Orphanage, which opens wide this Friday, is Spain's Oscar entry for Best Foreign Film this year. We also dug it when we first saw it at Cannes, and it's subsequently made our top 20 list for 2007. We sat down with Bayona and Sanchez in San Francisco, discussing studio interference, classic horror, and the role the titular manor had in shaping the movie.

Did you ever think The Orphanage could become an Oscar contender?

Juan Antonio Bayona: Yes, of course. [Laughs.] We took it to Cannes and we got a wide reaction there. It was amazing. And things started to snowball from there. The numbers in Spain have been so huge that...there are so many good things, but there's a lot to assimilate as well.

How did you first come in contact with the screenplay?

Sergio Sanchez: I wrote the first draft of the script in 1998, 1999. It's actually something I wanted to direct myself. So what I did was I shot a short film with a similar theme. When I met Antonio at a film festival, he really liked the short film I did. He asked me if I had any screenplays. I gave him the script of The Orphanage which, at the time, I was showing to production companies in Spain. And they all kept complaining about the same things. They said, "You know, this is a mixture of drama and horror and those two elements cannot mix. They're like oil and water, you can't do that." "You don't have a main villain." "You have two different endings." "The first act is too long, blah blah blah." Basically, all the things that made the script unique they didn't like. They wanted to go for a formula.

You didn't take heed of any of it?

JAB: Well, yes, we did. For example, with the opinion of there being no evil character in the movie we decided to kill the "bad guy" in the middle of the story in a very extreme and violent way to let the audience know that this is not that kind of movie. That there is an "evil guy" or a "good guy." That [instead] the evil lurks in every character.

So that character's death wasn't in the original screenplay?

SS: The death came later on. What Antonio decided to do was like, we're not only not going to listen to the studios but we're going to go against them. [Laughs.] We're going to kill her earlier and in the most violent way possible so the audience is thrown off.

The movie starts off like classic horror. Suddenly, we start taking away all the elements. [When] the story's halfway through, it's very barebones and you have no idea where it's going to go next. The final half of the film is practically a silent movie.

When you mention classic horror films, which ones were you thinking of when you wrote the screenplay?

SS: To be perfectly honest, I wasn't thinking of any movie in particular. I guess my big two influences were...one was Peter Pan, the other was The Turn of the Screw by Henry James. I guess if I have to talk about film influences, it'd be The Innocents, the Jack Clayton adaptation of Turn of the Screw. But I wasn't thinking of movies. I was thinking of classic horror stories, I was thinking of Edgar Allan Poe, I was thinking of Henry James, Shirley Jackson.

JAB: We talked about the tone of the movie. It's unique because it starts as a chamber movie and ends as a melodrama more or less. We were talking about the tone of the movie and I remember talking about not just The Innocents. I remember we talked about Our Mother's House from Jack Clayton which was a very unique ghost story that also deals with childhood.

What sort of role did Guillermo del Toro act out as producer?

JAB: I met Guillermo, like, 15 years ago. I used to say "50." [Laughs.] People say, "No, no, you're not 50." We had a very funny meeting. I was very young, more or less like you.

SS: No, a lot less than you. [Laughs.]

JAB: I was 15 at the time, I was a minor. I went to a festival pretending to work as a journalist to get free tickets and interview people I really admired. I remember one of these people was Guillermo del Toro. When he saw me for the first time he thought I was a 10-year-old boy with sideburns, [but] he was impressed by my questions so we kept in touch. He came to Spain to shoot a movie and I went to film school and I shot a lot of stuff, different stuff like music videos, short films. And he really liked them. Since he knew I was going to do a movie he wanted to be there, to protect us. So he never, for example, insisted on an idea more than once. He gave a few suggestions. We took some and rejected others. He was there just to help us. He would remind us of experiences he had with Pedro Almodovar producing The Devil's Backbone. Almodovar used to say the good producer is the one who's always there when you need him and he's never there when you don't. So [del Toro] was trying to do exactly the same with us.

And once del Toro was on board, the budget doubled.

JAB: We talked about a lot of things. Shoot the movie in ten weeks. We talked about building a set, building the whole orphanage set. These kinds of things. It was a very low budget movie, a $4 million movie. But we had maybe more than what a newcomer usually has in Spain.

And that was enough to do everything?

JAB: Oh, no.

SS: No way. [Laughs.]

JAB: We cut out much from the script. But I think it's better. It's like when you think about Jaws and Spielberg decided to...

SS: The POV shots of the shark.

JAB: Right, from the view of the shark, because the shark wasn't working. That kind of thing of trying to get a benefit from your limitations.

SS: We went though many different drafts. The final one [is] where the major cutting happened. Actually, basically everything that was in the script got shot. It's not like we couldn't shoot stuff that was in the shooting script that was in the film. I would say something like 15 minutes of the film was cut to get to the final cut. Antonio was very convinced [on] a single point of view. That the audience knew what Laura knew so that you could identify with her. So whenever the story drifted away, he just chose to leave it out of the film.

JAB: For example, you think about the seance with Geraldine Chaplin. I remembered that we had to shoot that sequence in a single morning. It was crazy. Then it was like, "Why don't we shoot Geraldine Chaplin with a video camera because we were going to be fast?" Then, just at that moment, we realized that the only way to shoot that sequence was with a video camera. That's the kind of thing [where] we took from our limitations.

What was the working relationship between you two like?

SS: I was on the set everyday. I was there even for most of the rehearsal period. We did a lot of research with the main actress. We went to visit a couple of grieving groups. We visited parents whose kids were missing. We tried to incorporate that into the character. So sometimes things would happen during rehearsal that were very interesting so I'd go back home, re-write the scene, and hand it back. Things like that happened all the time

JAB: For example, [Princep] would always be brilliant on the first take. Then he would tend to mechanicalize. So we were trying to make these sequences look like new for the child all the time. So I remember changing the lines of dialogue between takes.

Was it difficult finding the right house for the movie?

JAB: We went to find the house in Austrias, which is where [Sanchez] was born. And I saw a short film he did, 7337, which had the same mood, the same atmosphere [of The Orphanage]. We found the house at the entrance of this village. It was surrounded by another house that we had to erase from the computer. When we finally found the house, we were very happy. It was a very strange house because the four sides were completely different. If you put the camera there, or there, or there [it] looks completely different. The house has personality. It was very interesting. But when we were talking about shooting inside the house, it was impossible because we've got these complicated shots. What we did was build the interior house in a set in Barcelona. We had wanted to shoot the movie shot-by-shot like in the old classical Hollywood way.

Who was living in the house at the time?

SS: No one. It had been abandoned for over 30 years. Actually the owner of the house was there during the shoot but I guess just so we didn't break anything. It's a house that looks as if someone had left running in the middle of some apocalypse. [Laughs.] Everything was still in place. What happened was that the woman who owned the house [at the time], her child was hit by a car right in front of the main entrance. She associated the house with all those memories so she decided to move out and never come back. The house was left just like that. As a result, it was in a very decaying state and the roof was about to collapse.

And everything was still inside?

SS: The things were still inside. We were shooting in the house and after you get the good take usually the sound crew will ask for silence to record the ambience, the room tone. And many times what would happen they would yell, "Okay, quiet. Room tone." And the guy with earphones would just go, "Quiet!" [Laughs.] "Who is that?" Always some strange stuff would find its way [into the microphone] and we could never find where the sounds were coming from.

That's oddly appropriate for the movie.

SS: Yeah. It's actually in the film. During the seance, the very first noises that you hear, the whispering, that was recorded from the house and we don't know what that is.

Since you've directed before, did you guide the direction in any way?

SS: Nope. None at all. It was just an agreement we had. You have to understand and respect that he's the director and he makes the decisions. So whenever he asked for my opinion, I would give it. But [otherwise] I would just sit there and not say anything. There was only one time that I pushed for something to be done in a different way, which was the knock on the wall scene. Again, he had very limited time to shoot, he had to do everything in a rush. He drew the storyboards for the whole movie and [that scene] was originally more complicated. I just walked up to him and said, "You know, it would be wonderful if you had the balls to do this in one take." And I walked away and hoped he would listen. [Laughs.]

Is the American remake still in production?

JAB: Yes. Guillermo is attached to the project. He will be part of production. We really don't know anything about that. Guillermo doesn't want to do exactly the same movie with an American director. He's trying to find a way of retelling the story in a parallel way.

SS: Yeah, we're not involved. And we don't want to be. This thing was so personal and it was so hard to get this film made. I'm not going to say 10 years even though the first draft is that old. It's been, really, five years working non-stop on this, fighting really hard to get the movie made. We just want to move on to the next thing. We're happy with the movie as it is.