I think video-based world models like Genie 2 will happen and that they'll be shrunken down for consumer hardware (the only place they're practical).
They'll have player input controls, obviously, but they'll also be fed ControlNets for things like level layout, enemy placement, and game loop events. This will make them highly controllable and persistent.
When that happens, and when it gets good, it'll take over as the dominant type of game "engine".
I don't know how much they can be shrunk down for consumer hardware right now (though I'm hopeful), but in the near-term it'll probably all be done in the cloud and streamed as it is now. People are playing streamed video games and eating the lag, so they'll probably do it for this too, for now.
They'll have player input controls, obviously, but they'll also be fed ControlNets for things like level layout, enemy placement, and game loop events. This will make them highly controllable and persistent.
When that happens, and when it gets good, it'll take over as the dominant type of game "engine".