Microsoft pivots Obsidian to develop new Fallout game instead of Avowed

On July 8, 2026, Microsoft announced a significant shift in its gaming strategy, leading Obsidian Entertainment to abandon the development of Avowed in favor of a new Fallout title. This decision comes amid a broader Xbox reset that includes layoffs of approximately 3,200 employees and a reallocation of resources to focus on more critical projects.

Obsidian Entertainment's New Direction

Obsidian Entertainment, known for popular titles like Grounded and The Outer Worlds, is now tasked with developing a new entry in the Fallout franchise. According to Bloomberg, the studio had previously been working on a role-playing game (RPG) that shared thematic elements with Fallout but was not part of the established series. This pivot signifies a strategic shift in Xbox's approach to game development.

Josh Sawyer, the director of Fallout: New Vegas, will lead the new project. Sawyer has a history with the Fallout series and has also directed the critically acclaimed game Pentiment. The decision to cancel the Avowed sequel, which was reportedly in good development and set for announcement soon, reflects the urgency of Microsoft's new priorities.

The Fallout Franchise's Future

Despite the success of the Fallout television adaptation, which has been renewed for a third season, Xbox has not released a new game in the series since Fallout 76 in 2018. The new direction for Obsidian aims to reinvigorate the franchise and capture the attention of fans eagerly awaiting new content.

The decision to focus on Fallout also comes in light of a significant restructuring at Microsoft, which is aiming to streamline its operations and concentrate on high-priority projects. As part of this restructuring, about 25% of Obsidian's staff were laid off, as reported by Kotaku.

Impact on Other Projects

While the new Fallout game is now a top priority for Obsidian, the studio will continue to support its existing titles. Development on the early access game Grounded 2 and downloadable content (DLC) for The Outer Worlds 2 remains in the pipeline. The future of the studio's projects may largely depend on the success of the upcoming Fallout title.

• Josh Sawyer: Director of Fallout: New Vegas leading the new Fallout game.
• Avowed: Sequel cancelled, previously in good development.
• Fallout 76: Last series release in 2018.
• Layoffs: 25% of Obsidian's staff affected.

As Microsoft navigates this transition, the gaming community watches closely to see how these changes will affect the future of Xbox and its portfolio of games.