Microsoft’s sweeping Xbox restructuring has reached Obsidian Entertainment, with the studio reportedly canceling a planned Avowed sequel and pivoting to develop a new Fallout game under the direction of Fallout: New Vegas director Josh Sawyer.
Bloomberg’s Jason Schreier reported that the decision is part of a broader Xbox “reset” that has affected 3,200 staff across the gaming division, with multiple studios spun off or shuttered and unannounced games canceled. Obsidian, the RPG studio Microsoft acquired in 2018, lost roughly a quarter of its staff in the latest layoff wave and will now focus on a narrower slate.
Fallout returns to Obsidian
Josh Sawyer, the acclaimed director of Fallout: New Vegas, widely regarded as one of the strongest entries in the franchise, is attached to lead the new project. Bethesda Game Studios will work alongside Obsidian on the title, according to Schreier’s sources.
The move signals a major strategic shift. Bethesda Game Studios’ last single-player Fallout RPG was Fallout 4 in 2015, followed by the multiplayer Fallout 76 in 2018. The studio is currently occupied with The Elder Scrolls VI, meaning a Bethesda-led Fallout 5 remains years away. Obsidian stepping in fills that gap with a team that has proven experience in the franchise.
The cost of the reset
Obsidian had been developing a sequel to Avowed, its fantasy RPG released earlier this year, alongside The Outer Worlds 2 and Grounded 2. The Avowed sequel has now been shelved as the studio consolidates around the Fallout project and existing commitments.
The layoffs at Obsidian were part of a wider reduction of approximately 3,200 positions across Xbox’s first-party studio network. Id Software was particularly hard hit, with reports of half the studio being laid off. Microsoft characterized the restructuring as a necessary refocusing of its gaming investments.
Neither Microsoft, Bethesda, nor Obsidian have publicly confirmed the Fallout project. The game is believed to be in early development with no target release window.