It's like a meta-video curse I take it, the way the Demon movie in the first one was sort of a testimony to it's power, from the events of the first one I took the movie they're watching as a sort of curse/ritual of the demonic eye "remembering" what it's done and how it's power was released. I took the guy with the metallic mask is the man from the movie who's possessed and goes on a kill crazy rampage, eventually as the power of the demon becomes more "elegant" the killing spree stops and it's power over him becomes more sophisticated, it's able to control him more directly, with a half-mask on the area where he was scratched, he is now a puppet.
And this is how the events of the first movie are set forth.
Now that's just one theory and is negated by the second one, which refers to the first one as a fictional movie-within-a-movie, now if this is true than the first one's movie-within-a-movie is actually a different universe altogether, and it's power used the cinema as a "gate-way" to expel it's power since the girl who's scratched in the first one is in sync with the transformation on-screen.
Then the second one is also set in another plain of reality and the demonic power is using the power of cinema as a gateway into another universe it can expel it's power thru.
So it is a follow-up just not set in the same reality.
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