The answer to all that is GPU AI, like ray tracing.  The biggest advantage of Ray Tracing is the gpu producing light and reflections verus those aspects being developed.  

More AI support to developers will be coming.  Graphics are not going to stop anytime soon.  

Yeah "support" as in more people getting fired as jobs get automated. That said I don't think AI is ready for prime time professional level usage at this point and possibly won't be for a long time, talking like 10+ years. 

As for GPUs, if AI takes over more of the rendering entirely it won't stop at lighting, GPUs themselves will likely go the way of the dinosaur as AI cores like tensor cores may just generate a photograph like image that doesn't even really use polygons or lighting at all but just approximates what it should look like based on a data set that its fed. 

But if that happens then it will likely mean you can just get photorealistic visuals on any kind of device and any one can make that from their own home, which is going to present a whole host of other problems for the traditional game industry. 

Though I don't see that happening for a while, for the time being for people banging the drum saying they want 2-3x better graphics than PS4 which will require budgets to skyrocket even higher ... who is paying for that exactly? Are you going to pay $120 for a game? And then what? Another dramatic jump for PS6? $500 million dollar budgets as the new normal? How many studios will be able to keep pace then? Right now sadly a lot of real people are paying for it with their jobs and livelihoods. 

This whole thing is not sustainable, if it was Sony wouldn't be firing all these people, if it was they wouldn't be going running to the PC, the simple fact of the matter is you can't increase budgets several times over every 6-7 years, keep the price of the games more or less the same (minus/plus $10 whopping bucks), and have no hardware growth either, PS5/XSX are on pace to sell less than the PS3/XBox 360 did. That's not a healthy business model and even Sony knows it.

It isn't a healthy business model.  PC day 1 will be a huge boost by over doubling potential customers.  And developer AI already exists in Ray Tracing.  And hardware gaps will exist for at least another decade.  RT is AI based and still requires a ton of processing power.  AI doesn't negate the need for strong hardware.  

The funny thing is PC decimates the ps5 in visuals....  PC seems to be just fine with most games at $50....  perhaps the problem is simple sony's business model and not gaming itself?

The obvious next step is digital only for consoles.  If anything is going the way of the dinosaur it is physical games.  

AI will probably eventually completely take over the entire graphics pipeline and make GPUs as we know them today irrelevant. But that is likely not going to happen any time soon. 

The fact of the matter is for people who think they can have visuals approaching closer and closer to movie and photorealism quality, but don't want to pay a dime above $70 a game for that are living in a dream world. 

To make visuals like Horizon FW or the recent God of War, both of which were on the PS4 ... that takes right now, human beings to create, and you have to pay those people. And there's a lot of people who need to be paid a lot. We're talking budgets north of $200 million. 

That is a reality, we're already at a breaking point with PS4 tier games, we really are not seeing much way beyond that, if you even go double the current budgets ... the industry as it is right now will either fall apart or people are going to have to accept that studios are going to make the choice of reducing budgets to something sane and not aiming for the best visuals anymore. 

You can see this even in the new Monster Hunter Wilds game ... it really doesn't look that much better than Monster Hunter World, probably because Capcom does not want to pay 2x-3x the budget to sell probably the same number of copies. You'd be fucking stupid to do that as a businessman frankly.

Even Hollywood is in for a reckoning likely, if movie budgets get up to $400 million for an average Hollywood blockbuster, that is in no way feasible, it's going to collapse several studios (the ones left anyway). 400, 500 million dollars for a video game is insane, if that's supposed to be the "new normal", a lot of game studios are totally fucked. 

SNY: We're giving GoW Valhalla, a AAA DLC, away for free!

Two months later...

Also SNY: We've kinda known we weren't going to hit targeted profits barring a miracle, possibly by more than shareholders can withstand, prior to the holiday season and while finalizing the GoW Valhalla marketing strategy, so we're laying off a bunch of people and closing a studio now.


Me: Wait? We need more money - or people are getting laid off = GoW Valhalla free? Did I forget to carry the Zero Dawn, because WTF?
I'm not saying this would've completely saved the day, but lessening the blow as to how many lay offs would've been a positive thing, right?

It's starting to seem like it's going the other way.

It's getting harder to compete in a space where the goal is to keep people involved, and games like GTA tend to be the winners. Suicide Squad was a disaster for Rocksteady.

Sony has already cancelled and pushed back a lot of their live service titles. 

Movies aren’t an apt comparison because the breakdown on the budgets are nothing alike. Paying stars tens of millions each, very large travel budgets for everyone involved in making the movie, and the last few years even COVID has added 25-50% to some movies budgets. 

You don’t have to pay your developers less. Just have them making smaller games. It doesn’t mean big budget blockbusters have to stop. As a whole, the average budget just needs to be less. Sony has abandoned this type of game this gen. They’re all big budget games outside of games they pay tiny unknown studios to make. In fact maybe Helldivers 2 is the first one to be a success and that is a shorter game with a $40 price tag. 

I mean you said in your post basically ... budgets have to come down. But that means visual complexity is likely going to hit against a roof. 

You can't also ask developers to keep massively increasing the visual complexity every 5-6 years for games and then say "well, you don't actually get compensated for that huge amount of work you did". For developers wanting to make games like that something is probably going to have to give. 

Games that have a visual complexity way beyond a game like say Horizon: Forbidden West are going to be extremely expensive. You have to pay people who work on games their fair due.

Movies have expenses like movie stars but games also have massive expenses a movie won't have. Movies generally only have a limited number of environments in each film and are limited to 90-120 minute experiences for the most part and you can cheat a whole lot with shots where the environment also has to be rendered to extent of anything that's actually in a film frame, anything beyond that doesn't matter. 

Games can be 30-60+ hour experiences with 4-10x more environments that have to be fully realized, many times more characters ... but if you keep pushing the fidelity of these assets every couple of years ... who is paying for that added cost? People can wave their finger at publishers for being evil, but the reality is the publishers are not lying when they say games cost way more than they did even just a few years ago. The Tekken producer (Harada) just said that Tekken 8 cost almost 3x more than Tekken 7 ... does it cost 3x more? Will it sell even 40-50% more? 

The other thing is forget about development costs solely, what about development times. We've already gone from games usually taking 2-3 years to make, to now games frequently take double that amount of time. Are we really prepared to keep bumping that number higher and higher? 8 years becomes the average development time at some point? 10 years? And of course for the publisher that means they have to pay the staff for that entire 8-10 year period. 

If an animated film today would be made like SnowWhite in the 1930's, with every frame hand drawn, every animated movie today would cost 1/2-1 Billion dollars. And nobody would make them any more because of the risk of never earning that back. So innovation was used to speed up the process through computing.

I see innovation as the only way out of the vicious cycle of bigger/better/more expensive for game development as well. It's all good being ambitious, but if the only way to achieve those ambitions is more people working longer on a project, you hit a wall sooner or later.

There are already exceptions we can see. No Man's Sky is made by about 12 people I believe. The only way to do that was through innovation. I'm not saying every game needs to be procedurally generated, but game studio's need to look at their toolsets and rethink how they make games.

This should not be too surprising. I recall Spiderman costing over 200mill; that is insane. Sony needs to pull their developers in. What has Naughty Dog and Media Molecule been doing? Don't they have Bluepoint? Anything from them? Insomniac carrying them.