Here's a little video blog on what happens with a million dollar movie deal Sonnyboo Podcast - Million Dollar Deal - YouTube

http://www.youtube.com/watch?v=JLwk8iIqwz4

Am I missing something? Blair Witch Project grossed over $200m, why would the investors/producers be paid from the $1m sale price of the film rather than from the net proceeds.

That was never in their contract. The investors made a huge percentage off of their initial capital, so they got nothing to complain about. How many investments put up $35,000 cash and payout $470,000? That's a 12 to 1 payout.

The producers only got points after it grossed over $50 million. The actors were not contractually obligated to get anything past their original salaries, but the producers gave them a lot of money out of generosity.