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To an extent all developers are pandering. To their target audience. That's how they are making money. Guilty Gear Strive was a prime example of pandering to a casual audience and it worked out great for Arc System Works. It's their best selling Guilty Gear game ever. Electronic Arts ceased their mutilation of the Command & Conquer IP and outsourced it to Petroglyph games which remastered the first two games to a pretty prominent success. It's also a case of "pandering" to a nostalgic crowd who just wanted to play some good old C&C without having to muck around with third party software or disabling CPU cores to get the old games to work on modern PCs.
https://www.youtube.com/watch?v=EVZVbTSePvI&t=71s
That's at worst the case for a pathetic handful of mainstream games. MANY upcoming and recently released video games still feature attractive and/or pretty female characters. Here, a few examples:
Vanillaware as main inspiration
https://store.steampowered.com/app/1394650/Detained_Too_Good_for_School/
Lovely lasses and big mechs
https://store.steampowered.com/app/2559370/The_Scramble_Vice/
Solo developer from Spain made this
https://store.steampowered.com/app/1828650/The_Silent_Kingdom/
Waifuvania
https://store.steampowered.com/app/1429500/Frontier_Hunter_Erzas_Wheel_of_Fortune/
Has a roster with numerous pretty characters
https://store.steampowered.com/app/2076010/UNDER_NIGHT_INBIRTH_II_SysCeles/
Edit: that's just a few examples. If I wanted to, I could list games with pretty female characters all day and still not be done.
Is western gaming dead? No.
Money will still be made but it will struggle and some studios will fall. Gaming is popular and will remain so. Humans like their entertainment.
Will it course correct?
Eventually.
Look at the movie industry. It's had it's ups and downs. One moment America had it's day, then Europe, then America again and then Australia had a moment... if you're in the west it kind of becomes homogeneous after a while but India has Bollywood, Korea or China has plenty of studios and then there's all the things going on in Africa..
People tend to pay attention to what they know and understand, not what they don't.
Gaming, isn't centralised. there will always be something interesting and companies will eventually course correct. We've seen some recent bangers come out of China and sooner or later Devs will course correct more to what players want. They die if they don't.
More micro transactions, crappy DLC, and season pass/battle pass ♥♥♥♥♥♥♥♥ at $100 a pop ISN'T what people are asking for. "Woke" could disappear tomorrow and it wouldn't fix ♥♥♥♥ about the industry because the usual practices will still continue. Don't worry about DEI. Chances are, your rig won't be able to play the newest UE5 stutter slop anyway because you didn't sell your soul and a kidney to buy a 5090 for $4K.
Who are we kidding; money talks, and this is just content for the algorithms. Besides, Western gaming has a lot of bigger issues than pandering writing. They can't even get half of their games to run at a stable frame-rate or implement AI and physics on par with games from 2010
https://youtu.be/NXn0Cao8jm4?si=XAXC07cBnf7F96Yw