October 20, 2000 at 04:00 AM EDT

Getting into the Kirby Forensic Psychiatric Center on New York City’s Wards Island is difficult. That’s a good thing. Ringed with several barbed-wire fences and teeming with muscled guards and security checkpoints, it is home to some of the most notorious criminally insane inmates in the nation. Right now, at 1 o’clock on a September morning, it’s playing host to significantly less disturbing guests: the cast and crew doing 11th-hour reshoots on Book of Shadows: Blair Witch 2.

Strapped to a gurney in an unused corner of the decades-old hospital is actor Jeffrey Donovan; his head is shaven and he’s drooling thick yellow goo. Extras mill about in ratty robes, staring vacantly while munching on doughnuts. Director Joe Berlinger fidgets and yells ”Cut!” from behind monitors in a cramped closet. He stops to consider the scene, one of several demanded by the film’s distributor, Artisan, at the last minute. Why? To amp up the terror in a sequel that cynics believe was conjured because, as cast member Tristen Skyler puts it, Artisan ”caught lightning in a bottle the first time and now they’re trying to sell it.”

Berlinger looks again at the footage of Donovan’s slobber. ”This scares me,” he concludes.

Understandably so.

A year ago, amid the clamor over The Blair Witch Project, ENTERTAINMENT WEEKLY received a call from an office worker in Atlanta who had bet a colleague $500 that the film’s ”found” footage was authentic. He was one of dozens who called. And one of perhaps thousands who lost bets.

It’s the stuff of marketing legend: Artisan Entertainment picks up the $30,000 low-tech horror flick for $1 million at the 1999 Sundance Film Festival. Once the laughter from rival studios dies down, the midsize indie launches one of the most fiendishly successful campaigns in movie history, composed of a companion ”documentary,” unflinchingly deadpan TV ads, and websites boasting police reports, personal biographies, and historical documents — all of it marshaled toward one purpose: bamboozling moviegoers into thinking that Heather Donahue, Joshua Leonard, and Michael Williams really disappeared in the woods near Burkittsville, Md.

”We wanted people to have the experience of seeing a snuff film,” says Artisan CEO Amir Malin. ”Almost.” Or as Amorette Jones, his executive VP of worldwide marketing, says: ”We duped people. They were tricked.” Never mind the covers of national magazines, the actors’ appearances on Leno, even the ”written and directed by” credits at the end, the movie phenomenon of 1999 was born. And when the rocks and twigs settled, the film (released that July) had grossed $141 million domestically and more than $109 million overseas — and spawned comic books, ski caps, and countless parodies. P.T. Barnum would have been proud.

But while the attendant media circus led to the inevitable furious backlash, Artisan was faced with a daunting question: What do we do for an encore?

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