technically, the first films called 'horror films' were Dracula and Frankenstein (the first public use of the phrase 'horror films' was in a variety article about the two universal pictures). there are certainly hundreds of silent films with horrific motifs or imagery (often to quite funny effect as in Photographing a Ghost, where the ghost won't stay still for the hapless photographer)- but its worth recalling that early kinetoscopes, etc. were gaining popularity during the great Spiritualism revival of the 1890s - interestingly started in Hydesville, NY (i visited the site but there wasn't anything there these days).
as for controversial - I dare say that there were a fair number of horror films that were more controversial - Psycho, by our good friend Fat Albert, created hysteria in the aisles (so great that Sir Albert himself asked the Stanford University psychology department to do a study to figure out why audiences reacted so hysterically and vocally). also, Psycho is almost single-handedly responsible for making people come and watch a movie at a particular time (prior to Hitchcock's gimmick - "no one shall be seated after Psycho has begun" - films were shown on continuous loops - check out really old movie ads and note there are no times for screenings).
outside horror, there are tons of films that were WAY more controversial - the film of the Jack Johnson-Jack Jeffries championship fight in 1912 had Federal legislation passed banning fight films written specifically for it to be prevented from screening (audiences watching a black man beat a white man was SHOCKING beyond belief). Birth of a Nation practically ripped the country in half - Rossellini's The Miracle went all the way to the Supreme Court, etc. etc.
(who says all i do is make irreverent monkey comments?)
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