Xbox cancels Avowed 2 and pivots Obsidian to new Fallout game

Xbox cancels Avowed 2 and pivots Obsidian to new Fallout game

Microsoft has redirected Obsidian Entertainment away from a planned sequel to Avowed and other unannounced projects to prioritize a new Fallout game, according to reports from Bloomberg. The shift is a central part of a broader restructuring effort led by Xbox CEO Asha Sharma to concentrate investment in the company's largest tentpole franchises, including Halo, Gears of War, and The Elder Scrolls.

The new project will be led by Josh Sawyer, the design director who previously directed 2010's Fallout: New Vegas. According to Bloomberg, Sawyer had been leading the development of an original RPG with a structure and themes similar to Fallout, but that project has been replaced by an official entry in the franchise. Bethesda Game Studios, which owns the rights to the IP, will collaborate with Obsidian on the title.

The decision comes as a blow to fans of Avowed, which launched last year on Xbox and Windows. Bloomberg reports that Obsidian had been making strong progress on a sequel and an official announcement was reportedly planned within the coming year. However, the project did not align with Sharma's strategy of focusing on recognized franchises rather than mid-tier projects. While the sequel is canceled, a small skeleton crew may continue working on it in hopes of a future revival.

This pivot occurs during a volatile period for Xbox, which has seen a sweeping reorganization this week involving thousands of layoffs and studio closures. The restructuring includes the confirmed closure of Arkane Studios Lyon and the cancellation of Marvel's Blade. Other studios reported to be at risk include Double Fine, Compulsion Games, Ninja Theory, and Undead Labs.

Obsidian Entertainment has been heavily impacted by these cuts. According to Jason Schreier and Stephen Totilo, a WARN notice filed in California confirms that 52 workers—roughly 25% of the studio's workforce—were let go. Overall, Xbox slashed 1,600 jobs this week, with another 1,600 expected before the end of the fiscal year.

The move to revive Fallout via Obsidian appears timed to capitalize on the success of the Prime Video series, which is currently filming its third season. The franchise has not seen a mainline release since 2018's Fallout 76. With Bethesda currently focusing on The Elder Scrolls 6, a new mainline Fallout game from that team alone could be years away.

Obsidian's other recent titles, including The Outer Worlds 2 and Avowed, both released in 2025. Despite receiving mostly positive reviews, both games reportedly failed to meet the sales goals set by Xbox Game Studios. The studio is expected to continue working on existing content for Grounded 2 and The Outer Worlds 2 alongside the new Fallout project.

Microsoft and Obsidian have declined to comment on the reports.