Hollywood can understand which lessons to draw from a phenomenon like “Titanic,” the most expensive movie ever made. Spend more money! But this? Let’s see: spend no money; don’t advertise on TV before it opens; don’t put any recognizable actors in your movie; open your film in a few art houses; then say 10 Hail Marys and wait for lightning to strike.

Since teenagers were invented in the 1950s, we’ve had a long line of movies that seemed to turn the generational tables on Hollywood. Movies like “Easy Rider,” “The Breakfast Club” and “Slacker.” And there have always been small, rule-breaking movies that turned into surprise hits–“American Graffiti,” “sex, lies, & videotape,” “Clerks” and “The Full Monty,” to name just a few. “Blair Witch”–made by thirtysomething filmmakers and embraced by the twentysomething audience–is the newest and in some ways most mysterious in this line of Zeitgeist-transforming films. It came out of nowhere and won’t leave us alone, just like the Witch.

“Blair Witch,” unlike the earlier watershed movies, isn’t likely to inspire kids to change their politics or their lifestyles. (Sleeping-bag chic? Don’t think so.) What it will inspire is young wanna-bes who will look at the no-budget video images and proclaim, “I can do that!” And suddenly film festivals and indie distribution companies will be flooded by home movies masquerading as features, just as the success of “Pulp Fiction” produced legions of ersatz Tarantinos. This notion doesn’t sit well with some Hollywood traditionalists. “It’s like taking away the need for a driver’s license and giving people with cameras free rein to do what they want to do,” says Marcus Hu, copresident of the indie company Strand Releasing. “It’s going to be unbearable.” But Rebecca Yeldham, one of the programmers who invited the movie to the Sundance Film Festival this January, puts a more sanguine spin on “Blair’s” inevitable influence. “It’s a democratization of the process, which makes it exciting.” Producer Christine Vachon (“Happiness,” “Kids”) is also hopeful: “The film world might be more receptive now to something they haven’t seen before. Originality is what makes it so exciting.”

But at the big studios, the lesson to be learned is not that the public wants originality–that’s too scary a notion. As far as the major players are concerned, the real lesson of “Blair Witch” is in its marketing, which has taught Hollywood the awesome power of the Internet. The film’s Web site–with its police reports and newsreel-style interviews–is no more or less the work of art than the movie itself, and it creates the illusion that everything in “Blair Witch” was real. “We’ve all had Web sites for all our movies for years,” says one studio marketing head. “But this was a Web site that was an entertainment experience in itself. The movie was an extension of the Web site, not the other way around. That’s what was new.”

Mark Curcio, CEO of Artisan, which bought and distributed the movie, concurs. “Our filmmakers understood that the site had to be refreshed, thematic, episodic and constantly changing. Every studio will copy that immediately.” Chris Pula, Disney’s president of theatrical marketing, has been watching the campaign closely. “Artisan sold them a legend, and only in the end did the Internet audience realize they had been sold a movie, but then they didn’t care,” he says. Pula does see dangers, however, in trying to copy the “Blair” campaign, which is hardly suitable for every film. (The target audience for “The Full Monty,” for example, doesn’t live on the Net.) “It’s a mistake to think this can happen again,” warns Pula. “The next one will need a sexy reason to be there. And you will be able to bring a movie down with the Internet as fast as you can build one. Do one of these sites wrong, you might not recover.” Indeed, the Internet has changed the whole concept of buzz. As Artisan honcho Jeremy Barber says, “This movie illustrates that word of mouth, which used to take months to develop, now happens like wildfire on the Internet.”

But all the talk about how the audience “discovered” “The Blair Witch Project” needs to be taken with a grain of salt. Everyone says the Internet is a more “democratic” way of reaching an audience than TV, but marketing is still marketing, and hype is still hype. Has a hipper generation of salesmen simply built a better mousetrap in which to catch a more cynical, skeptical generation? Is this a grass-roots phenomenon or have the “Blair Witch” folks created the illusion of grass roots?

Cyberspace is the most ambiguous of places–anyone can be anyone–and there have been suspicions that some of the ecstatic word of mouth on the “Witch” Web sites has been generated by Artisan itself. The company denies this. But Pula, who used to work at Warner Bros., admits that fake Internet audience reactions are a common tool at the big studios, which are very careful to see that their messages can’t be traced back to marketing-department computers. Nineteen-year-old “Joe Cool” in Bloomington, Ind., who’s raving about the movie on the Net, could actually be studio employee “Jill Spin” carefully throwing in a few misspelled words for authenticity. “I have plenty of people out there to counter bad buzz on movies, and we use the Internet to start the good buzz,” says Pula. “We’re all just learning how to use this.”

If you had a dollar for every “lesson” Hollywood was supposed to learn and didn’t, you could buy DreamWorks from Spielberg, Geffen and Katzenberg. It will be years before the true impact of “Blair Witch” is known. “This movie shows you don’t need stars,” says Barber. True, and “Wild Wild West” shows that you do–if his name is Will Smith. No one movie is going to topple the star system–it’s still the nearest thing to a guarantee the studios have. Amir Malin, a president of Artisan, which is planning to make a “Blair Witch 2” for next summer, isn’t making any grand claims for his surprise success. “I’m not a big believer in the idea that ‘Blair Witch’ portends anything. It’s a lesson Hollywood relearns all the time–you don’t need megabudgets and megastars and $25 million advertising budgets to get a huge hit.”

Back in 1976, they were saying the same things about an out-of-left-field sleeper called “Rocky.” How this underdog movie was going to lead Hollywood back to low-budget, personal filmmaking. And what did it lead to? Sequels and steroids. Now that’s scary.