Microsoft’s Xbox reset is pivoting Obsidian to make Fallout instead of Avowed

2026-07-08 · Source: The Verge · Field: Media & Entertainment — Content Creation & Production, Gaming & Interactive Entertainment · Depth: Fundamental Awareness, quick

Summary

Microsoft's Xbox division is undergoing a significant "reset," involving 3,200 layoffs, studio divestitures, and a strategic shift towards "higher priority projects." As a direct consequence, Obsidian Entertainment, known for *Grounded* and *The Outer Worlds*, is reorienting its development pipeline. The studio has initiated work on a new *Fallout* title, to be led by Josh Sawyer, director of *Pentiment* (2022) and *Fallout: New Vegas*. This pivot comes despite the recent success of the *Fallout* TV show, which is entering its third season, and the absence of a new game in the series since 2018's *Fallout 76*. Concurrently, Obsidian has canceled "multiple projects," notably a planned sequel to last year's *Avowed*, despite its development reportedly "going well." The studio will continue work on the early access game *Grounded 2* and DLC for *The Outer Worlds 2*. This restructuring also included approximately 25 percent of Obsidian's staff being laid off this week.

Key takeaway

For investors evaluating gaming studio portfolios, this Xbox reset highlights the inherent risk in new IP development versus established franchises. Your investment decisions should factor in platform holder strategic shifts, which can abruptly cancel promising projects like the *Avowed* sequel. Prioritize studios with diversified IP or those aligned with high-priority, proven franchises like *Fallout* to mitigate sudden project reallocations and associated staff reductions.

Key insights

Microsoft's Xbox reset is driving studio pivots and project cancellations, prioritizing established franchises like *Fallout*.

Principles

• Strategic shifts can reallocate development resources.
• Focus on established, high-visibility intellectual property.

In practice

• Obsidian is developing a new *Fallout* game.
• Canceled *Avowed* sequel despite good progress.
• Continued support for *Grounded 2* and *The Outer Worlds 2* DLC.

Topics

• Xbox Strategy
• Obsidian Entertainment
• Fallout Series
• Game Development
• Studio Layoffs
• Intellectual Property

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Editorial summary, takeaway, and curation by AIssential. Original article published by The Verge.