I am interested in the hand painted process when it comes to shadows and having a directional light in your scene. Im having an interesting discussion at work regarding painting in shadows on a model and it conflicting with the directional light. So how does diablo 3 handle how the lighting in their textures, is it a basic AO bake and let the directional lights do the rest, or do they paint shadows in the texture as if a light was shining straight down..hope this makes sense.
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as for the interaction with ingame lighting i think the choice is to have an asset that looks good but not really correctly lit for perhaps 80% of the time that may have some issues in those other situations or one that may look correct all the time but often not all that nice due to lighting fidelity issues. just do what works for the majority of cases.
if you have the camera far out like diablo, then painting seems the obvious choice.
Cheers!