Microsoft’s Xbox Reset Pivots Obsidian to Fallout, Cancels Avowed Sequel

As part of Microsoft’s sweeping Xbox “reset” — which includes layoffs affecting 3,200 staff, the sale of several studios, and a strategic shift toward “higher priority projects” — Obsidian Entertainment is undergoing major changes. The acclaimed studio behind Grounded, The Outer Worlds, and Fallout: New Vegas is now pivoting to develop a new Fallout title and has canceled multiple projects, including a planned sequel to last year’s Avowed, according to Bloomberg.

Josh Sawyer Returns to Fallout

Josh Sawyer, Obsidian’s studio design director and the visionary behind Fallout: New Vegas (widely considered one of the best entries in the franchise), will head up the new Fallout game. Sawyer also served as director on 2022’s critically praised Pentiment and, per Bloomberg, had been leading development on an original RPG that was “similar structurally and thematically to Fallout but was not part of the franchise.”

The news marks a full-circle moment for Sawyer and Obsidian, a studio that originally cut its teeth on the Fallout series two decades ago. Despite the runaway success of the Fallout TV show — which has already been renewed for a third season — Xbox has not released a new mainline Fallout game since Fallout 76 in 2018.

Avowed Sequel Canceled

Bloomberg reports that development on the Avowed sequel was “going well” and would have been announced within the next year. Its cancellation is a significant blow to fans of the fantasy RPG, which launched to solid reviews in 2025. The move is part of a broader cost-cutting and refocusing effort under Microsoft’s gaming division overhaul.

Obsidian will continue work on the early access title Grounded 2 and on downloadable content for The Outer Worlds 2, which is also in development.

The Broader Xbox Reset

Microsoft’s restructuring extends well beyond Obsidian. The company has been selling off four Xbox studios and making deep cuts across its gaming workforce as it narrows its focus. The “reset” strategy appears to prioritize proven franchises with established fan bases and multimedia potential — and Fallout fits that bill perfectly, with its hit Amazon Prime TV series driving renewed interest in the post-apocalyptic universe.

For Obsidian, the shift represents both a loss (the canceled Avowed sequel) and an opportunity (returning to the Fallout universe that made its name). With Josh Sawyer back in the director’s chair, the new Fallout title carries enormous expectations from a fanbase that has been waiting nearly a decade for a proper single-player follow-up.

No release window has been announced for the new Fallout game.

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