Microsoft is shifting Obsidian Entertainment, the studio known for Fallout: New Vegas and The Outer Worlds, away from a planned sequel to Avowed and redirecting efforts toward a new Fallout game. This change is part of a larger restructuring at Xbox that has already resulted in 3,200 job cuts across the company.
| Layoffs announced | 3,200 staffers |
| MSFT stock change | $393.82 (-1.82%) |
| Obsidian’s last release | Avowed (February 2025) |
| Microsoft founded | 1975, Redmond, WA |
| CEO | Satya Nadella |
What’s Happening at Obsidian
Obsidian Entertainment is among the studios impacted by Microsoft’s wider Xbox “reset.” This strategy involves cutting jobs, shutting down or consolidating studios, and focusing budgets on what Microsoft considers “higher priority projects.”
According to The Verge, Obsidian has been instructed to put aside plans for a sequel to Avowed, its fantasy RPG released earlier this year. Instead, they’re to start working on a new Fallout entry. Since Obsidian developed Fallout: New Vegas back in 2010, they’re in a great position for this project.
This pivot doesn’t come without challenges. Engadget reports that Obsidian is not immune to the layoffs, meaning some staff who might have contributed to Avowed 2 are now gone.
Why Microsoft Is Making This Move
Think of it like a restaurant choosing to focus on its most popular dish instead of expanding its lunch menu. Avowed did well but didn’t reach mainstream audiences in the way Microsoft needed. The Fallout franchise, especially boosted by the success of Amazon’s Fallout TV series in 2024 and 2025, represents a much hotter property right now.
In 2021, Microsoft purchased Bethesda Softworks, the studio behind the Fallout IP, for $7.5 billion. With Bethesda’s main team deep into developing The Elder Scrolls VI, it makes sense for Obsidian, with its Fallout background, to take on this new project.
The Bigger Xbox Picture
This decision is part of a larger shakeup. Microsoft’s 3,200 layoffs affect multiple Xbox divisions. The company has already shut down or significantly scaled back several studios in the past year. This trend shows Microsoft is moving away from funding a wide range of mid-sized games, opting instead to concentrate on fewer, larger projects.
Under CEO Satya Nadella, Microsoft increasingly sees Xbox as a platform and subscription service—thanks to Xbox Game Pass—rather than just a console maker. Major franchise games like Fallout help drive Game Pass subscriptions and keep users engaged within Microsoft’s ecosystem.
Community Reactions
“Obsidian making Fallout again is genuinely exciting, but not at the cost of people losing their jobs. Both things can be true.”
— u/DesertWanderer_88, Reddit
“Avowed was good, not great. A New Vegas sequel from Obsidian with a bigger budget? That’s actually a dream scenario if they do it right.”
— YouTube comment on IGN’s coverage
What This Means for Everyday Players
If you were excited about more Avowed, that door seems closed for now. The fantasy world Obsidian created won’t see a follow-up anytime soon, if ever.
If you’re a Fallout fan, this could be big news, though it’ll be years before anything releases. A new Fallout game from the team that brought us New Vegas would be a major deal, likely available on Xbox, PC, and through Game Pass.
For those keeping an eye on the gaming industry, this signals that mid-budget, original games (those based on new ideas) are becoming harder to approve at major publishers. Studios are leaning towards sequels and franchise titles as safer options in a challenging market.
What To Watch
- Microsoft’s next Xbox showcase: The company usually holds a big gaming showcase each summer. Any official Fallout announcement from Obsidian would probably debut there, but since the project is just getting started, don’t expect anything before 2026 at the earliest.
- Obsidian staff updates: Keep an eye on further reports about the layoffs at the studio and which teams were affected.
- Bethesda’s Fallout timeline: With Obsidian now involved, questions arise about how Microsoft plans to manage two Fallout projects (Obsidian’s new game and any updates for Fallout 76) at the same time.
- Game Pass subscriber numbers: Microsoft’s next earnings report will shed light on whether this franchise-first strategy is driving the subscriber growth the company is hoping for.
Maya Torres
Maya Torres is the Consumer Tech Editor at Explosion.com with 7 years covering product launches for major technology publications. She has reviewed over 300 devices across smartphones, laptops, wearables, and smart home products. Maya specializes in translating spec sheets into real-world buying advice and attends CES, MWC, and Apple keynotes as press. Her reviews focus on helping readers decide what to buy, not just what specs look good on paper.
