Obsidian Reportedly Cancels Avowed Sequel to Start Work on New Fallout Game in Wake of Xbox Restructuring

Obsidian Entertainment is reportedly cancelling multiple projects and shifting its focus to making a new Fallout game as part of wider Xbox restructuring. Microsoft announced a major round of cuts at its gaming unit this week and said it would redirect investment towards “higher priority projects.” To that end, Obsidian will begin developing a new title for the Fallout franchise, which last saw a release in 2018 with Fallout 76.

To switch focus to a new Fallout game, the studio has cancelled multiple unannounced projects, including a sequel to Avowed, according to a report from Bloomberg. Citing people familiar with the matter, the report said that Obsidian had undergone restructuring as part of broader cuts at Xbox, with around a quarter of its employees impacted by layoffs.

The California-based studio, which released three games last year — Avowed, The Outer Worlds 2, and Grounded 2, had several new projects in the works, including Avowed 2. Obsidian will reportedly now begin work on a new Fallout title with studio design director Josh Sawyer at the helm of the project. Sawyer's involvement is notable as he served as game director on Fallout: New Vegas, Obsidian's acclaimed Fallout spin-off title that released in 2010.

However, the door isn't fully closed on Avowed 2. According to Bloomberg, some Obsidian staffers will continue to work on the sequel as they wait on other projects, like the new Fallout game, to be ready. Part of the staff will also continue to work on downloadable content and live-service updates for The Outer Worlds 2 and Grounded 2, respectively.

Multiple Fallout Games in Development 

Bethesda and Obsidian have not formally announced a new Fallout game. The report did not include any details about Obsidian's Fallout title. Bethesda, too, is believed to be working on multiple unannounced Fallout games. Back in 2024, Bethesda director Todd Howard hinted at two Fallout projects in the works at the studio. It's unclear if Obsidian will take over development of one of the games or begin working on a new one from scratch.

A new Fallout title from Obsidian would be the first game in the franchise to be not developed by Bethesda since 2010's Fallout: New Vegas. Since Bethesda acquired the intellectual property rights for Fallout from Interplay, the original creator of the Franchise, in 2007, it has released Fallout 3, Fallout 4, and Fallout 76, all of which were major commercial successes. A franchise spin-off, Fallout: New Vegas, developed by Obsidian and published by Bethesda, was launched between Fallout 3 and Fallout 4. Fans of the franchise have long demanded a new Fallout title from Obsidian.

Fallout: New Vegas was released in 2010
Photo Credit: Bethesda/ Obsidian

Renewed Interest in Fallout After TV Series

Fallout remains one of the most popular game franchises on its own, but the success of the recent Fallout TV series on Amazon Prime Video has led to renewed interest in the post-apocalyptic RPG series. Following the release of the first season of the series, nearly 5 million players flocked to Fallout games in a single day.

Eight years after the last Fallout game, Microsoft is now refocusing investment towards its biggest franchises like Halo, Fallout, and The Elder Scrolls. This week, the Xbox parent announced widespread layoffs at its gaming division, impacting approximately 3,200 employees.

Xbox CEO Asha Sharma also confirmed that the company was parting ways with several studios it acquired during a buying spree in the late 2010s. Double Fine Productions and Compulsion Games will return to being run independently and will retain their IP and game catalogue. Ninja Theory and Undead Labs, on the other hand, have found new owners and investment for their respective upcoming projects, Senua and State of Decay 3. Finally, France-based Arkane is reviewing potential strategic options.

Xbox layoffs are also impacting employees at Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios. Sharma, however, said that none of Xbox's publicly announced first-party games would be cancelled as part of the reductions at the company.