I'm confused about what that actually is?

I’d paint everything one color. It looks a bit choppy to me…

I wouldn't use any more of that dark color on the other walls. I think it would look too dark. It's odd that the inner depth looks to be different above the fireplace vs tv. I would make it all one depth if possible.

I think I would drywall it to be all the same plane. Dark color draws attention to it.

If budget allows, drywall and close up that area. If not, I would leave as is or paint same as walls.