IMO I need to know the size of your TV and the size of the TV hole .Right now that TV is way too high for proper viewing so if you don’t want the TV in the hole then the next best place is under the two windows where the sofa is now. Then an L shaped sofa arrangement with one sofa facing the TV Close up the TV hole and get some art for the other hole.

I agree with Patricia above about putting the TV below those windows. FWIW, I think it would be worth the hassle to have that recessed area above the fireplace sheetrocked over. Maybye have some sort of built in placed where that Ikea looking shelf thing is.

You can use what you have it you make a few changes

Raise the drapes and select a color other than white for them

Change out the toss pillows

Paint the mantle to match the stone

Move the TV down to the niche for the TV

Add some type of multiple wall decor to the arch over the FP /TV combo

The walls IMO are too peach in color and should match your carpet.

Sheetrock in both cutouts. Tv under windows. Sofa facing tv and 2 chairs facing fireplace.

I think if the upper cutout was sheetrocked to make that wall flat, you could then add some nice artwork above the fireplace/tv.

OK so you fill in the arch with drywall, which also means addressing the electrical...........then how much stuff to you have to buy to get it finished?

I think the tv should go in the cubby next to the fireplace. I think that was the original intended purpose for it. A place for wood storage for the fireplace is a historic function for something like that but we all know that not the case. I don’t like the light paint color above the mantel. I would like the mantel itself a darker more prominent color. Then your eye is drawn to the mantel and what is place above it

And, please remove the picture above the hole. All it does is draw the eye to the ceiling.

I recently removed the hole in my FR. The first pic is before I bought the home, and the second is after my renovation.