People take pride in craftmanship. If AI can match that, that isn't better for them. More choices (competition) means more money diverted in marketing and ads. That isn't better for game studios and all their non-marketing branches.
All this to say, the more competition there is on the market, the winners end up being marketplaces, not game studios. Music is a commodity at this point. PC/Console video games are far behind that, but walking the same path. Mobile games are not far behind music. IIRC about 80-90% of mobile games development budget is for marketing and ads. There are around 10x mobile games released every year, compared to Steam.
I'm biased because I'm working on my own (PC) game, and I am very grateful to be working on this before the tidal wave hits. It will probably be awhile before AI can match hand-crafted/polished digital experiences.
Just sharing my thoughts as a game developer who grew up in the 90s. This isn't personal, humans will almost always take the path of least resistance. If AI matches expert level output, the outcome is inevitable.
I actually don't see this as an AI to replace, but AI to enable more people to create games. So ultimately, it still expresses the desire of the creator, who is human.
So a new easier way to create games won't really make things meaningfully worse, I don't think. Especially because the quality bar will be quite low, it's not really going to crowd out the 'good stuff' that people are generally looking for. The store shelves (so to speak) are already so crowded that they are no longer how people find good games.
In the same vein, Rosebud AI initially gives more people the opportunity to turn their ideas into games. Then, through rapid iteration, both users and we grow together, continuously improving the quality of the games