With the budget set at a manageable $6 million, de Laurentiis agreed to give Lynch final cut on Blue Velvet -- even though his distribution company, DEG, considered its commercial prospects dim. But when the film earned rave reviews at the 1986 Toronto Film Festival, DEG committed to a full-fledged art house release, and the film became a word-of-mouth sensation. Writing for the Chicago Tribune, Dave Kehr effused, "Blue Velvet represents something that has never been seen before and in all likelihood will never be seen again: an underground movie made with Hollywood means and Hollywood skill. It's midnight mainstream."
This was Lynch making good on the surreal promise of Eraserhead, but connecting with a slightly broader audience through the sweet, nostalgic veneer of a 1950s melodrama like Peyton Place. It was a brilliant seduction: Tap into the luscious, idealized memory of the postwar boom, and let all manner of repressed kink and sadism spew forth.
It was around this time that Lynch hooked up with Emmy-nominated writer Hill Street Blues writer Mark Frost for a Marilyn Monroe biopic at Warner Bros. The project never went anywhere, but Lynch and Frost continued to work together on a spec screenplay called One Saliva Bubble, an oddball, science-fiction comedy that was set to star Steve Martin and Martin Short. That project stalled out as well, leaving the director without an immediate follow-up to Blue Velvet. Lynch, never an easy sell to the studio or independent financiers, was in danger of losing momentum, which is sometimes just as precarious as flaming out with a box office bomb.