I think it would be a mistake to paint the fire place, the tiles look to be a lovely rich red and the wood sets that off. I would talk to your kids, but I think you should go dark in here, a deep blue or green on the walls, nice lamps on side tables, a fluffy rug, coffee table or upholstered bench to rest your feet on. I assume a tv will be in there too? More flexible seating for friends?

I suggest something like this, excuse the placement of the sofa and the removal of the side window. I was in hurry so no time to fix the image the sofa should be placed on the wall across the fireplace. The upper part of the fireplace is deleted in my suggestion for a place in case you want a TV. If you want to paint the fireplace I suggest using White if the room color is colorful like this.

But if you paint the room with neutral color like white, grey, beige then you can paint the fireplace black, darker shade of blue or green something like that. If you tight on budget you can leave it out like this as its not too out of place.

Furniture wise Computer table cause what teenager wouldnt like it can double as study space, shelves for their trinkets and books, maybe low cabinets on the wall in the corner under the window, place faux plant here and there as decoration

For sure discuss with the kids what they are interested recently their fav bands/artist, neon sign, pet, artworks cause you can hang guitar or makrame depends on your children hobby.

I suggest using neutral theme and color as the children will grow up and the room can used as other function immidiately

Thank you both for taking the trouble to reply - it's so helpful to have your views! Now need to agree with the kids!!

You could paint the fire surround white? Or a deeper shade as below.

thats nice there some client creating similar space for their children with various theme like harry potter, disney, handpaintings etc, btw if you want bench seating in bay window area which can double as storage and place the computer table on the wall below the side window, it somehow very comfortable for reading and napping