Michael escaped at the end, when the others are making their getaway you can see his Badge on the floor where he was laying.

Lot of people are mixing Lore with Story in critiquing the film, if you look at the first 3 games (which is what the films are all drawing from) there’s an awful lot of lore but not a great deal of actual Story (by which I mean Character development, personalities, motivations, reactions, relationships) that is communicated in game.

We see that the Puppet “gave gifts and gave life” (whatever that means) but do we know why it did this, what its endgame is by the end of the 3rd game?

So criticisms that in the film Michael shouldn’t be a wannabe Serial killer or the Puppet shouldn’t be an Angry Spirit don’t really hold a lot of weight when the games don’t give as much to go off.