The future of the genre is uncertain, but still scary methinks.
Yesterday I think I managed to narrow down the largest obstacle to making a good survival horror game; basically the harder you try to scare the player, the less they will likely ultimately be scared. Even the most nightmarish and frightening monster starts to become blase if you see it every couple of minutes (or worse yet if it turns out to be an easily defeated foe that becomes a commonplace enemy somewhere down the road). By limiting the actual interaction with what can kill the player you actually have the effect of putting them on edge. Now I'm not saying that you can let them wander around a level and only save the monster for a pre-scripted event; then we know we're safe until we trigger whatever it is. Instead the game can keep an internal monitor based upon certain factors, and then randomly introduce the monster when appropriate. It's sort of an approximation of "The Director" A.I. from Left 4 Dead, where it can take different factors into account such as whether the players are loitering too long in areas, have gone a long time without being in a 'crisis' situation, etc.
One of the most recent games in memory that appears to have done this well is Amnesia: The Dark Descent. The atmosphere is foreboding, and unlike a lot of games out there this one actually takes a stark contrast in that there are only a handful of monster types and they cannot actually ever be killed. The player must run from the monsters, and although they can earn a brief reprieve during a chase from stunning a creature with a tossed item, but they must hide if they wish to survive. Even looking at the monsters causes sanity damage, which in turn results in hallucinations and other unfortunate negative tricks the game can pull on the player. Here's an example:
You can see how the atmosphere is responsible for the tension here, not the monster itself. It's the location, the lead-up to the encounter that makes the creature terrifying. You only get the briefest glimpses of the would-be killer are from a closet that the character is hiding in while doing his best not to scream or give away his location. It's an incredibly tense and quite effective scene. Allow me to demonstrate a point though, by showing you this (the relevant bit starts at about the 1:20 mark):
That's the same creature, but in a bright room and not really doing anything because it's glitched out. Taking a good look at it, it's not really all that much at all, is it? Sure, it's kind of gross looking, but there have been a lot worse. I think it proves an important point though: context is incredibly important, perhaps the most important aspect of the horror experience in any medium, whether movie, book, or of course game. So with this in mind, what is there to look forward to in the future?
Perhaps, just perhaps, there might be a possibility in the future that a horror game might actually cater itself to what it knows will scare you. For example, scroll down to the number one item on this Cracked list. To summarize briefly if you haven't bothered to look, the game is called Deep Sea. You play it by wearing a gas mask type device that covers your entire face. I'll quote some of the best stuff directly from the article itself:
"So it's not just that you can't see the graphics: You can't see anything at all, and you can only hear the creepy sounds that come from the game itself (everything else is canceled out by the headphones). In Deep Sea, you are underwater and surrounded by unthinkable creatures coming at you from all sides. An AI character tells you which way the monsters are coming, more or less, and you have to try to shoot them down with your joystick. If there's a hit, you'll hear a scream -- if you miss, all you will hear is your shot drifting away into the sea (and, eventually, your own scream).
"In fact, the more scared you are, the harder the game gets -- the game actually keeps track of your breathing and plays back an exaggerated breathing sound that increases the more nervous you get, sooner or later drowning out the game's commands and getting you killed. Even if you're not claustrophobic at all, you might be after playing it."
Now, I'm not suggesting that a game get more difficult the frightened you become because that in and of itself could become an entirely too frustrating experience. Consider though a less obtrusive means of keeping track of things like heartbeat, breathing, even the amount you're sweating. A game could test you early on, learning what might get you scared and what definitely doesn't. It presents you with scenarios, perhaps does ask some overt, sweeping questions requiring your input. These questions though, even if you lie about them, are only the surface. The game eventually knows just when, where, and how to scare you. And if you start getting accustomed to one method, it can tell and then start switching things up in order to keep the fright coming.
At the moment it might just be a pipe dream, but games like Amnesia prove that Survival Horror can still be done well, and experimental things like Deep Sea also prove that we might not be too far off from a game that knows just the right buttons to push to make you shit your pants, time after time.