This is the way most apps work if they have a default password the user is supposed to change.
Some form of "enter the code on the device" or "scan the QR code on the device" could then mutually authenticate the app using proof-of-presence rather than hardcoded passwords. This can still be done completely offline with no "cloud" or other access, or "lock in"; the app just uses the device secret to authenticate with the device locally. Then the user can set a raw RTSP password if desired.
This way unprovisioned devices are not nearly as vulnerable to network-level attacks. I agree that this is Not Awful but it's also Not Good. Right now, if you buy this camera and plug it into a network and _forget_ to set it up, it's a sitting duck for the time window between network connection and setup.
But that also means then that often anyone with physical access can easily get into the device. The complicated password provides an additional layer of illusion of security, because people then figure "it's not a default admin password, it should be good". The fundamental problem seems to be "many people are bad at passwords and onboarding flows", and so trying variations on shipping passwords seem to result in mostly the same problems.
It's hard to decide whether it's good or bad. It is definitely easier. Which I guess matters most in consumer grade routers.