By
Kenneth ShepardPublished July 8, 2026
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As Microsoft continues hacking away at Xbox’s game studios as part of thousands of layoffs, the teams that are still under the company’s umbrella are finding out what’s next. Obsidian, the developer behind Avowed and The Outer Worlds, is, according to a new report from Bloomberg, canceling a planned Avowed sequel and pivoting to a new Fallout game. It’s something fans have long asked for, but it’s also a surprise shift that wasn’t originally part of the plan
According to Bloomberg’s sources, studio design director Josh Sawyer will reportedly be leading the team on a new Fallout game, which will mark the studio’s return to the post-apocalyptic franchise after releasing the acclaimed Fallout: New Vegas back in 2010. However, Bloomberg‘s sources say the strategy is “in flux” and could change. Prior to this, Sawyer was reportedly directing an RPG that was “similar structurally and thematically” to Fallout, but wasn’t actually part of the Bethesda-owned universe.
A WARN Act notice confirms that 52 people have been laid off from the Irvine-based studio’s California office, roughly a quarter of Obsidian’s overall headcount. The now-canceled Avowed sequel was apparently on track to be revealed within the next year, but “did not fit into” new Xbox CEO Asha Sharma’s strategy, presumably because Avowed/Pillars of Eternityis not considered a pillar franchise for the brand, and the original game apparently failed to meet sales expectations
The pivot to Falloutoccurs as a TV adaptation of the franchise continues to be a hit on Amazon’s streaming platform, but with Fallout 5 nowhere in sight as Bethesda continues working on The Elder Scrolls VI. Xbox under Sharma is reportedly looking to speed up development of its core franchises, which also include Halo
Bloomberg‘sut project in some capacity, even as it continues working to ship TES VI, whichis still years away from releasing
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