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The issue is more generation is leaned on the less powerful it becomes. To create those stores that you were reading in books it was fed lots of other fantasy and game information, as more of its used the less ‘new’ stuff it can make.
That’s really not the issue.
The breadth of the modern LLMs is wide enough there’s no need for further broad training.
There’s certainly room for fine tuning (likely coupled with a discriminator) around specific world lore, like feeding it all dialogue and book text from all the Elder Scrolls games if you wanted it to generate things fitting with that universe.
But there’s no limits on how ‘new’ its stuff can be as long as properly seeding its prompts.
You’ll generally see development moving towards manual development for core story and generative AI for the extended universe. Almost like a literary foveated rendering, filling in the peripheral world with generated content while the core story beats are manually directed.
Also, keep in mind that by the time AAA games release where their design is predicated on generative AI existing, we’ll be about 2-3 generations ahead of where we are today in generative AI products.