I have a theory for this game:
I haven't played this game myself, but I did watch a lot of walkthroughs on the game, and I noticed something while watching GTLive's second playthrough on the game.
Before we get into the theory, we need to get into the things I noticed:
1: Amanda can control the VHS tape.
2: Woolie is indeed scared of Amanda.
3: Wooly cant control the tapes.
Using these facts, we can find a theory that there are not 2 entities, but 3.
When we play the first VHS tape, Amanda wants to go to the store to buy some apples, what I noticed was a black shadow behind a bush. I didn't take that much heed to it, but then I went to the second tape, where Amanda wants to go to the Butcher to get some meat for Grandma (she is a vegetarian). What I noticed was some polygon trash thingy just below where Wooly (or Woolie) and Amanda are standing. This irked me because, number one, it's in an alley, and two, Wooly is scared, like he doesn't want to be there. When we go inside the butcher shop and ask the butcher for meat, Amanda, disturbingly, stares at Wooly, and the VHS ends, with no end credits. The third tape shows Amanda outside our house (you've heard it right, OUR HOUSE, *Soviet Union anthem plays*) then she starts to transform.
I don't wanna include the secret tapes, because I believe it's not relevant to the theory itself.
So, to start with my theory, let's analyze the plot itself. We are gonna focus on Wooly because he is the variable in our theory. In the First VHS tape, Amanda wants to go to the market to get some apples. In this tape, Wooly seems calm and relaxed (a little, because he is allergic to apples). In the end credits, we get a secret message written, TURN THE TV OFF NOW. Now you might be thinking, huh, this might be Wooly tryna warn us. Well, you are wrong, if Amanda can control the atmosphere of the VHS tape, that means Amanda is giving us this message. In the second VHS tape, oh boy, let's say things take a dark turn from here. Wooly is warning us about something before the VHS tape glitches back to normal. Now the polygon trash thing, what is that? Some sort of poop? In my opinion, its not trash nor poop, its the remains of Amanda's past self, want proof? Here it is. If we combine the plot of the first and second VHS tapes, we get ourselves a story. Amanda and Wooly are getting apples when suddenly Entity No.3 eventually tries to take control over Amanda, so, Amanda, with her powers failing, decides to give us the warning to stop watching the tapes, that's when Entity No.3 kills Amanda and takes her form. Meanwhile, Wooly is manipulated by Entity No.3 to keep quiet. When Entity No.3 kills someone else and buries them, Wooly breaks free from its control, thus killing him. Hence, this is why Wooly is gone from the Third VHS tape, replacing a pile of wool in his place.
I hope this theory will spark a new perspective on the story itself.
Peace.
Fadelplayz