Xbox shifts Obsidian to a new Fallout game, cancels Avowed 2
Microsoft's Xbox is redirecting Obsidian Entertainment to develop an Obsidian new Fallout game, Bloomberg reports, canceling a planned Avowed sequel and other unannounced projects amid a broader studio reset. Fallout: New Vegas director Josh Sawyer will reportedly lead the title with Bethesda Game Studios involvement. Xbox declined to comment on the July 8 report.
The shift lands as Microsoft executes a sweeping Xbox reset that includes roughly 3,200 layoffs companywide and a sharper focus on flagship franchises. For Obsidian, the pivot replaces years of internal RPG planning with a return to the post-apocalyptic universe it last touched in 2010.
Key Takeaways
- Obsidian is reportedly starting work on a new official Fallout game led by studio design director Josh Sawyer.
- The studio canceled multiple projects, including an Avowed sequel that Bloomberg says was progressing well.
- About 25% of Obsidian staff were laid off, with a California WARN notice citing 52 job cuts.
- Bethesda Game Studios is expected to collaborate, though it remains unclear whether the project is Fallout 5 or a spin-off.
- Obsidian still plans support for Grounded 2 and DLC for The Outer Worlds 2.
Why Is Xbox Shifting Obsidian to Fallout?
According to Bloomberg, the move fits Xbox CEO Asha Sharma's strategy to concentrate investment on Microsoft's highest-priority franchises. Fallout has surged back into the spotlight through Amazon's hit TV adaptation, now filming a third season, even as Bethesda has not shipped a new mainline Fallout entry since Fallout 76 in 2018.
Forbes framed the decision as a trade-off: shelving Obsidian's planned Avowed follow-up to put a proven RPG team on a globally recognized brand. That mirrors broader Xbox messaging about doubling down on tentpole IP rather than spreading resources across smaller sequels.
Who Is Leading the Obsidian New Fallout Game?
Bloomberg reports that Josh Sawyer, Obsidian's studio design director and the lead behind Fallout: New Vegas, will head the project. Sawyer had reportedly been directing a separate RPG that was structurally and thematically similar to Fallout but not part of the franchise; that work now appears subsumed into an official Fallout title.
Windows Central notes Bethesda's involvement alongside Obsidian, marking a rare joint effort on the series since New Vegas.
What Happened to the Avowed Sequel?
The planned Avowed sequel is among the canceled projects, despite Bloomberg sources saying development was going well and an announcement was expected within the next year. Bloomberg adds the sequel did not fit into Sharma's overall strategy of investing more heavily in Microsoft's biggest franchises.
Windows Central confirmed the Avowed follow-up was shelved to make room for the Fallout assignment. Obsidian still intends to support Grounded 2 in early access and deliver DLC for The Outer Worlds 2, according to Bloomberg.
Is This Fallout 5 or a New Vegas-Style Spin-Off?
None of the cited reports confirm whether Obsidian is building the long-discussed Fallout 5 or a standalone spin-off in the New Vegas mold. Bloomberg described plans as early-stage and subject to change, with sources calling the overall strategy in flux.
What is clear is timing: Bethesda remains heavily invested in The Elder Scrolls VI, leaving room for Obsidian to advance Fallout on a parallel track. For readers tracking how mega-cap entertainment bets ripple through broader media and tech portfolios, see our Fintech & Crypto Alerts coverage for related market-moving shifts.
Microsoft has not officially announced the game. Xbox spokesperson Delaney Simmons declined to comment when Bloomberg asked about the report on July 8, 2026.