Obsidian cancels projects, starts new Fallout game amid Xbox reset

Obsidian Entertainment has canceled multiple projects, including a planned sequel to Avowed, and has begun work on a new Fallout game led by Josh Sawyer. The shift puts one of Xbox’s most respected role-playing studios squarely behind a franchise with a far larger built-in audience, as Microsoft pushes its game business toward the properties it believes can deliver steadier commercial returns.

The change lands inside a broader Xbox reset that is reshaping the company’s studio strategy after 3,200 job cuts across fiscal 2027, including about 1,600 immediately. Xbox said in a July 6 memo that its business is “not healthy,” that its operating margins are 3-10 times lower than comparable platform and publishing businesses, and that it is shifting investment toward “higher priority projects” across Activision, Bethesda/ZeniMax, Blizzard, King, Mojang and Xbox Game Studios. The memo also said four studios would move to new management, underscoring how far the restructuring reaches beyond a single release slate.

For Obsidian, the pivot is especially stark because the studio had been tied to new bets as much as legacy brands. Avowed, which launched in 2025, was one of Microsoft’s most visible attempts to build a fresh fantasy property, while The Outer Worlds 2 also failed to meet Microsoft’s sales expectations. Now, instead of expanding that newer pipeline, Obsidian is returning to Fallout, the post-apocalyptic series that helped define its reputation when it made Fallout: New Vegas in 2010.

Josh Sawyer’s involvement gives the new project added weight. Sawyer directed Fallout: New Vegas, which remains one of the franchise’s most admired entries and has long been a reference point for fans who want the series to emphasize choice, writing and consequences. His return signals that Microsoft is leaning on proven creative identity as much as on recognizable intellectual property.

That calculation makes business sense in a market where blockbuster brands can travel farther than unfamiliar concepts. Fallout has gained even more value after Amazon’s TV adaptation broadened the franchise’s audience and renewed interest in the games. For Microsoft, the result is a familiar corporate tradeoff: fewer experiments, more sequels, and a tighter bet on the franchises most likely to justify the spending.