Lost media only works in horror if it somehow ties back to a real (or fabricated, but existing) thing that the player\viewer can then check out when he's done playing. And until then can be regarded as potentially real. The key is that the player or viewer will have no idea until he investigates further.
There's this old text game - "Pale Luna", which can still be found online. Developer unknown. The gist of it is that it's a text adventure about hiding gold, or something similar. It was unbelieveably clunky for an 80's text adventure, but one guy - Michale Nevines - decided to beat it through and through. After hours of restarts and troubleshooting, he reached the end where the game gave him the option of digging and hiding the treasure. Coordinates were displayed in the final message, along with "PALE LUNA SMILES WIDE". After a day or two the man followed those coordinates, eventually reaching the Lassen Volcanic park. There he dug up the unmarked bump in the earth the coordinates pointed at. He found a wooden box, containing the decomposing head of a young girl. Her hair was a light blonde colour, like gold. He called the police afterwards.
I hope that it's obvious that all of this is fiction - but there was suspense when the story was created! It was written in 2011, \x\ ate it up rather quickly, people decided to investigate the coordinates and information about any murders happening in that area. Of course, nothing was found - but it all felt real until there was proof that it isn't.
There are probably other even better examples - but basically, to summarise: Lost Media needs to feel tangible, until the point where the users find out that it isn't. It will be scary, as most things, when there is uncertainty. Uncertainty whether it's real or not. And whether anything connected to it is real as well. Lost Media story and game makers right now are shooting themselves in the foot by making their stuff EXPLICITLY fictional, like that dog game.
