Obsidian pivots to new Fallout game after Avowed sequel canceled

Obsidian Entertainment has canceled multiple projects, including a planned sequel to Avowed, and will begin work on a new Fallout game as Microsoft’s Xbox reset cuts through its gaming business. The Irvine, California studio is being reshaped alongside roughly 3,200 job eliminations across fiscal 2027, including about 1,600 immediate layoffs, with one count putting 52 Obsidian workers on the cut list.

The pivot sends Obsidian back to the franchise that helped define its reputation with Fallout: New Vegas. That move pulls one of Xbox Game Studios’ most established role-playing teams away from a planned sequel to an original fantasy property and deeper into one of gaming’s most recognizable series.

The change is part of a broader restructuring that Xbox described as the “most significant restructure in Xbox history.” In a memo dated July 6, Xbox said it would shift investment toward higher-priority projects, eliminate about 3,200 roles over fiscal 2027, and move four studios to new management. The reductions reach across Xbox Game Studios, Bethesda/ZeniMax, Activision, Blizzard, King and Mojang.

Microsoft also said none of its first-party publicly announced games or projects were being canceled as part of the cuts. The projects dropped at Obsidian were not publicly announced, letting Xbox preserve its visible release slate even as it trims internal work that had not yet been revealed.

For Obsidian, the new Fallout assignment marks a return to a proven commercial lane after years of balancing original ideas with licensed work. For Xbox, it is another sign that the company is narrowing support around franchises with the clearest audience and the lowest execution risk, while smaller or less established bets face the pressure of layoffs, studio transfers and canceled development tracks.