Obsidian Entertainment Shifts Focus to Fallout After Avowed Sequel Canceled
Microsoft’s Xbox division is reportedly shifting Obsidian Entertainment’s resources toward the development of a new Fallout game, following the cancellation of a planned sequel to the fantasy RPG Avowed. According to Bloomberg’s Jason Schreier, the move is part of a broader restructuring under Xbox’s new leadership, which aims to concentrate on the company’s biggest gaming franchises. The new Fallout title is being led by Obsidian’s design director Josh Sawyer, with support from Bethesda, which continues to work on Fallout 76.
The news comes at a pivotal time for the franchise. While the Fallout TV series has earned critical acclaim and secured a third season, there has not been a new single-player Fallout game since Fallout 4 in 2015, or a mainline title since Fallout 76 in 2018. The series’ most recent single-player entry, Fallout 4, remains highly popular, but fans have long clamored for a follow-up to Obsidian’s beloved 2010 spin-off, Fallout: New Vegas.
Avowed Sequel Canceled Amid Xbox Restructuring
According to Schreier’s report, the Avowed sequel was progressing well and was on track for an announcement within the next year. However, it did not align with the strategy of Xbox’s new leadership team, led by Matt Booty and head of studios Jill Sharma. The cancellation is part of a wider reset that has also affected other studios under the Xbox umbrella. Earlier this week, Microsoft announced major layoffs across its gaming division, impacting studios including Obsidian, Compulsion Games, and Undead Labs.
Obsidian, acquired by Microsoft in 2018, had a strong run of releases including Grounded, Pentiment, and the recently launched Avowed. However, both Avowed and The Outer Worlds 2 reportedly failed to meet sales expectations, putting pressure on the studio to pivot toward proven blockbuster properties. Some Obsidian employees will continue working on the Avowed sequel in the interim, possibly in the hope of reviving the project at a later date, according to sources familiar with the matter. Other unannounced projects have also been shelved as part of the restructuring.
The decision to focus on Fallout is not surprising given the franchise’s explosive resurgence. The Amazon Prime TV series, released in 2024, drove massive player engagement across all existing Fallout titles, including Fallout 76, which saw its highest player counts in years. Xbox leadership sees the IP as one of its most valuable assets, especially as the company aims to strengthen its first-party portfolio against competitors like PlayStation and Nintendo.
What This Means for the Fallout Franchise
Obsidian’s involvement in a new Fallout game has generated immediate excitement among fans. The studio developed Fallout: New Vegas, which is widely considered one of the best RPGs ever made, praised for its writing, player choice, and world-building. Many fans have long campaigned for a sequel, often dubbed “New Vegas 2.” However, Schreier cautioned that there are no details yet about whether this new project will be a direct sequel or a fresh story. “The emerging strategy is still in flux,” he wrote, noting that plans could still change.
The development also raises questions about the future of Bethesda Game Studios, which is concurrently working on The Elder Scrolls VI and Starfield updates. Bethesda’s support for Obsidian’s Fallout project suggests a collaborative model similar to how Fallout 76 was developed with assistance from other studios. For Xbox, leveraging Obsidian’s RPG expertise while keeping Bethesda focused on its core titles makes strategic sense.
A Broader Industry Trend
This shift is emblematic of a larger trend in the gaming industry: publishers doubling down on established IPs while cutting smaller or riskier projects. Sony, for instance, has limited its output to tentpole franchises like God of War and Spider-Man, while Electronic Arts leans heavily on Battlefield and EA Sports titles. Microsoft’s layoffs and restructuring mirror moves by other companies as the industry continues to contract after a period of rapid expansion during the pandemic.
For context, US and Iran Trade New Strikes as Trump Declares Ceasefire ‘Over’ shows how geopolitical events can shift attention away from entertainment, but for gaming, the focus remains on recovering from overinvestment and adjusting to a more conservative market. Observers note that Microsoft’s increasingly aggressive focus on its biggest IPs could marginalize smaller studios and innovative projects, but it also ensures that flagship franchises receive the resources needed to compete at the highest level.
Looking Ahead: A New Fallout Game on the Horizon
While no official announcement has been made, the industry is buzzing with speculation. Obsidian’s next Fallout game will likely not be released for several years, given that development appears to be in early stages. However, for a fanbase starving for a new single-player experience, the news is a beacon of hope. The success of the TV series has proven that the Fallout universe has mainstream appeal beyond gaming, and Microsoft will be keen to capitalize on that momentum.
The immediate future for Obsidian includes finishing DLC for The Outer Worlds 2 and potentially winding down work on the canceled Avowed sequel. Meanwhile, Bethesda continues to expand Fallout 76 with seasonal content. For now, all eyes are on Josh Sawyer and his team to see if they can recapture the magic of New Vegas or forge a new path for the Wasteland.
In the meantime, other gaming news has been making waves: CS2 Season 5 Live: Cache Returns, New Bomb Damage, and Armory Items and Gakuran Codes July 2026: Free Rerolls and How to Redeem Them Now demonstrate the constant churn of updates in competitive and mobile gaming. But for role-playing game fans, the return of Obsidian to the Fallout universe is the story of the year.
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