Microsoft is reportedly shifting Obsidian Entertainment to develop a new Fallout game, which could be one of the biggest changes to Xbox’s first-party strategy in recent years. The move is said to be part of a wider restructuring across Microsoft’s gaming division, where the company is reducing costs, cancelling some projects and focusing more on established franchises with large global audiences, reports Bloomberg. Instead of investing heavily in newer intellectual properties, Xbox is reportedly prioritizing series that have already proven to be major commercial successes.
According to reports, Microsoft has decided not to move ahead with a sequel to Avowed and is instead giving priority to Fallout, one of the biggest franchises it acquired through its $7.5 billion purchase of ZeniMax Media in 2021. Although Avowed — released in 2025 — received generally positive reviews for its combat and role-playing mechanics, it reportedly did not meet Microsoft’s commercial expectations.
On the other hand, Fallout has seen renewed popularity after Amazon’s hit TV series introduced the franchise to a new audience and encouraged millions of players to return to older Fallout games. The last completely new Fallout release was Fallout 76 in 2018, making it the longest gap between major entries in the series.
The reported project is expected to be led by Josh Sawyer, one of the gaming industry’s most respected RPG developers. Sawyer directed Fallout: New Vegas, released in 2010, which is still considered by many fans to be one of the best Fallout games because of its deep storytelling, meaningful player choices, multiple endings and faction-based gameplay. He also directed Pentiment, another critically acclaimed Obsidian title known for its unique narrative style. His reported return to the Fallout franchise has created excitement among longtime fans, many of whom have wanted Obsidian to make another Fallout game for more than a decade.
The move would also bring Obsidian back to one of the franchises that helped build its reputation. Before joining Xbox Game Studios in 2018, the California-based studio developed well-known RPGs like Star Wars: Knights of the Old Republic II, Neverwinter Nights 2, Alpha Protocol, Pillars of Eternity, South Park: The Stick of Truth, The Outer Worlds and Fallout: New Vegas. Since becoming part of Microsoft, Obsidian has released Grounded, Pentiment, Avowed and is currently working on The Outer Worlds 2 and Grounded 2. The reported Fallout project would become one of the studio’s biggest games under Xbox ownership.
The reported Fallout project comes during one of the biggest reorganizations in Xbox’s history. Microsoft’s gaming division is expected to cut around 3,200 Xbox jobs as part of roughly 4,800 layoffs across the company. Reports suggest Obsidian has also been affected, with around 60 to 70 employees, nearly one-fourth of its workforce, losing their jobs. Even after these cuts, the studio is expected to continue supporting Grounded 2 and developing downloadable content for The Outer Worlds 2 while starting work on the new Fallout title. However, it is important to note that Microsoft has not officially announced the new Fallout game or confirmed that Avowed 2 has been cancelled.