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Downgrading to UE5 (because it WOULD be a downgrade in performance for everyone) would cause significantly more problems than is even imaginable and would likely cause Coffee Stain to have to focus entirely on making the game work again for an entire year before they could resume development. It's simply not worth the hassle to attempt.
Plus it would likely lock out players using any version of Windows before Windows 10 from being able to play the game anymore, and games live or die on accessibility, along with causing some serious hits to the reputation of Coffee Stain if people suddenly discovered they couldn't play the game they paid for anymore due to a change of engine.
The Unreal demos look great because they're made to look great. They're not made to be functional. If you implement these things in actual games, with so many systems running simultaneously, most of the time, the visuals and physics will have to get downgraded to achieve an acceptable level of performance.
https://www.youtube.com/watch?v=WU0gvPcc3jQ
People/developers also tend to like to stay away from change and new tech because, well, it takes a long time to learn and I totally get that especially when these developers have come such a long way in their game and have done a fantastic job. I'm more curious what people would want to see if they did make the change.
I also want to add I used to play a decent amount of the game called Scum and have watched their developers interviews and update videos. from I've taken away it seems their main gripe is limitations of what UE4 can handle. You also have to remember UE4 has been out since 2014. Tech for developers have come a LONG way in that short time frame.
There's a lot of smoke & mirrors with that Matrix demo though, and when it's not fooling you, the rest is simply configured specifically to run on the xbox series s/x hardware.
When all hardware is the same, an engine really can be put through it's paces, but in the world of PCs, developers have to account for many hundreds of thousands of possible configurations and operating systems, not to mention how a PC cannot pool almost all of it's resources in to running a game, it needs to maintain it's operating system and all other background programs besides, which is mostly what causes UE4 to bottleneck much of the time.
If you think UE is unoptimized, you have a potato. The UE gets significantly better across all aspects with each new generation. UE is hands down the best available engine on the market. It sounds like you are just an Epic hater, and that's okay.
People using Windows 7 need to get a grip and move on. It isn't even supported by newer security updates. Refusing to go beyond Windows 7 is some tin foil hat wearing, conspiracy theory, OMG THE GOVERNMENT IS WATCHING ME ♥♥♥♥♥♥♥♥. If you don't have the specs to run Windows 10, and are FORCED to stay in Windows 7, it's time to stop worrying about trying to game on PC.
Oh look, you posted another stupid comment. The Matrix video is both PS5 AND XBOX. Just saying. If you don't like Epic, just say that. If you are "fooled" by the video, then you are pretty stupid. Just saying. It's easy to tell in-game vs real life, and if you think they are trying to trick you, you need to put your meth pipe down.
That's a pretty presumptuous amount of claims you've made there.
Having experienced the multitude of titles operating on each Unreal engine since it's inception, I still say that UE3 is hands-down the best of them, and one of the best gaming engines to ever be made. The sheer variety of genres, and the capabilities of that engine seemed nearly limitless, and it ran without any issues to boot.
UE4 on the other hand has had nothing but issues since it began. Batman: Arkham Knight, the first game to 'demonstrate' the power of the new engine, was universally slammed for being an un-optimised, terrible, bug-ridden mess that could melt PS4s with how poorly it handled system resources.
Ark: Survival Evolved has been nothing but a nightmare to both Studio Wildcard and the players of said game due to how poorly the engine seems to handle the open-world survival crafting genre, and large level streaming in general, and Conan Exiles hasn't fared much better either, both games suffering from serious bugs brought on by the physics system, poor memory allocation and severe RAM demand on games that, on another engine, would likely run with much less resource usage, as shown by the multitude of other survival crafting games that offer much of the same visual fidelity while being far less resource intensive, along with plenty of other open world games with graphical fidelity matching, or even out-doing what those games offer while coping just fine. Shadow Of The Tomb Raider for instance, is visually stunning while also running far better than many of the open-world games that run on UE4 that don't look nearly as good, a testament to the wizardry Square Enix still possess when it comes to developing modern engines.
It's not that I hate Epic, I grew up playing games like Jazz Jackrabbit, Unreal and wasted maaaaany hours on Unreal Tournament, they used to be a great company, but their business decisions and practices over the last few years has greatly tarnished the reputation they acquired so many years ago, much the same as other large companies have, like EA, Blizzard Ubisoft and Activision.
The problem with growing up back when consoles were king and the 3D revolution brought on by Quake wasn't even a glint in John Carmack's eye is that we remember when those companies weren't scummy. They all released some real bangers purely for the love of making great fun games, but nowadays it's all about the money, not the entertainment, and the magic has been lost because of it.
Anyways, on to that other topic of operating systems. Personally I run Windows 7 for two main reasons. The first is that I've been unable to upgrade my computer for quite some time for financial reasons, and since Windows 10 requires more hardware resources to run, reduces the output possible when playing games, therefore decreasing performance, and the second is that I play a lot of games that either require the player to jump through a great many hoops, or simply outright do not run on Windows 10.
Most likely the Resident Evil 2 Remake wouldn't run nearly as good if I were using Windows 10 rather than Windows 7, while games like the Legacy Of Kain series or the old Tomb Raider titles would either take a fair bit of time to get working, or would outright not work at all. That being said I am intending to build an entirely new computer later this year and use Windows 10, or possibly even Windows 11 as it's base operating system, not because I've been convinced to remove any form of 'tin foil hat', but because I never had one on in the first place, I simply saw no reason to change operating systems when the one being used was doing just dandy.
And finally, the Matrix Awakens video. My first experience with said tech demo was watching a youtuber, Real Civil Engineer, play through it. It's very easy to tell how that demo operates, and truth be told, UE4 could do what that demo does, hell, UE3 could do much of it, though it would struggle with handling such high resolution textures, and obviously the ray-tracing would be entirely off the cards. A lot of said smoke & mirrors I mentioned is simply clever texture and world creation tricks that the unreal engine has been capable of for years. One prop I will give it though is that it's lighting system is pretty superb, but then, it's that lighting system that is making a lot of it look so good, though they still haven't quite got skin rendering quite right. The biggest giveaway in that tech-demo between live acting and in-game is that in-game graphics makes their skin look rubbery, but that's a problem games have always suffered with. One day they'll get it right.
Not that I expect you to read this entire post anyways, but eh, I felt like typing, it helps me relax.
I haven't had performance issues with any Windows, or UE for that matter, that wasn't solved by upgrading a component in my PC. UE3 came out, and my 8600GT ran games like ♥♥♥♥. So I got a 9800 GT, and everything ran great. UE4 came out, and my 9800GT seemed to be slowing down, but I upgraded to a FX 8350 Black Edition, and didn't need to replace GPU just yet. Newer games came out, So I upgraded to a 960 GTX. Zero issues. With 90% of games. Until 2 years ago. By no issues, I mean, I'm playing all the games I want to play, at 60fps at an acceptable graphics level. UE isn't the problem. The people developing on it are the problem. Bad coding is bad coding. Look at Ark. As you said. That isn't the engine's fault. That's Wildcard being garbage. All of the Arkham games were designed for CONSOLE, not PC. So blame the porting developer for that. For gaming as long as you have, it sure seems like you have minimal knowledge about what's happening under the hood.