Microsoft’s Xbox division is pivoting its development resources toward a new Fallout title, a move that has resulted in significant changes at Obsidian Entertainment. The studio has confirmed the cancellation of an unannounced Avowed sequel alongside a reduction in its total headcount.
These changes are part of a larger business “reset” announced by Xbox CEO Asha Sharma. The strategy involves a company-wide reduction of 3,200 jobs and the divestment of five studios. As part of this consolidation, Xbox is prioritizing its most prominent intellectual properties, with Fallout now serving as a core focus for the developer.
Obsidian's Transition to Fallout
According to reports, Obsidian design director Josh Sawyer will lead the development of the new Fallout game. Sawyer is a familiar face to the franchise, having previously directed 2010’s Fallout: New Vegas. Bethesda Game Studios is set to work in tandem with Obsidian on this new project.
Before the restructuring, Sawyer had been leading a different project that shared thematic and structural DNA with Fallout but was not officially part of the series. That work has now been superseded by the new Fallout assignment.
Avowed Sequel Canceled
The decision to cancel the Avowed sequel marks a sharp change in direction for Obsidian. Development of the project was reportedly progressing well, with the team utilizing existing technology and world-building from the 2025 original. Plans had been in place to announce the title within the coming year, but those efforts were halted as the project did not align with the new leadership's broader strategy.
While the sequel is officially off the table, the situation remains fluid for some staff. Certain developers are expected to remain attached to the project in a limited capacity, keeping the door open for a potential revival if resources allow in the future.
Despite these cuts, Obsidian continues to manage other active commitments. The studio remains focused on providing post-launch support for The Outer Worlds 2 and is continuing development on the multiplayer survival game Grounded 2.
This shift comes as the Fallout franchise looks to regain momentum. The series has not seen a mainline entry since the 2018 launch of Fallout 76, with Bethesda focusing on ongoing updates for the online RPG and other internal projects. Xbox's renewed investment in the property signals an intent to leverage its largest franchises following the current period of corporate restructuring.