Microsoft’s Xbox to Shift Obsidian Studio to New ‘Fallout’ Video Game

Microsoft’s Xbox to Shift Obsidian Studio to New ‘Fallout’ Video Game

Obsidian Entertainment, a subsidiary of Microsoft Corp.’s Xbox, is pivoting to develop a new title in the Fallout franchise as part of a broader organizational restructuring, according to people familiar with the matter.

The shift involves the cancellation of multiple projects, including a planned sequel to the 2025 roleplaying game Avowed. The Irvine, California-based studio has also laid off around a quarter of its workforce, sources said.

The move comes as Xbox Chief Executive Officer Asha Sharma implements a reset of the organization. Sharma announced plans to divest five studios and cut 3,200 jobs. Her strategy focuses on increased investment in the company's largest franchises, specifically Fallout, which has sold tens of millions of copies and inspired an Amazon.com Inc. Series currently filming its third season.

Studio design director Josh Sawyer will lead the new Fallout project. This marks a return to the franchise for Sawyer, who directed the 2010 title Fallout: New Vegas—the only Fallout game in the last two decades not developed by Bethesda. Prior to this shift, Sawyer had been directing a roleplaying game that was thematically and structurally similar to Fallout but existed outside the franchise.

The project will be a collaborative effort, as the Rockville, Maryland-based Bethesda Game Studios will work with Obsidian on the new title. While Bethesda maintains control over the franchise, it has not released a new main entry since the 2018 online game Fallout 76. Bethesda has continued to create new content and update Fallout 76, which has reached more than 23 million players.

The restructuring follows a difficult year for Obsidian. The studio released three games last year, two of which failed to meet sales expectations, including Avowed, the company told Bloomberg Businessweek. Obsidian had intended to develop a sequel to Avowed in a shortened timeframe by utilizing existing technology and world-building. Sources noted that progress on the sequel was steady and on track for an announcement within the next year, but the project did not align with Sharma's overall strategy.

Some employees will remain on the Avowed sequel project while they wait for the Fallout title to be ready, with some hoping for a future revival of the game.

Despite the narrowed portfolio, Obsidian is not abandoning all other work. The studio will continue to develop Grounded 2, a live-service multiplayer survival game, and will produce downloadable content for last year's The Outer Worlds 2.

The current strategy remains in flux and could still change, according to those familiar with the matter.