Obsidian Entertainment shifts to new Fallout game as Avowed 2 cancelled amid Xbox layoffs

Microsoft’s Xbox division is undergoing a major restructuring led by new head Asha Sharma. The reset resulted in roughly 3,200 layoffs across the gaming unit, including about a quarter of Obsidian Entertainment’s staff – around 50 employees – according to Bloomberg’s Jason Schreier.

The cuts forced Obsidian to cancel the sequel to its fantasy RPG Avowed, known as Avowed 2, which was reportedly near the end of its pre‑production phase. Resources are being redirected to a new entry in the Fallout franchise. The project will be led by Josh Sawyer, the director of Fallout: New Vegas, and is expected to involve collaboration with Bethesda Softworks, the long‑time owner of the Fallout IP.

Microsoft has not confirmed the development, and an Xbox spokesperson declined to comment on the Bloomberg report. The cancellation of Avowed 2 and the staff reductions underscore Xbox’s strategy to focus on its biggest, most profitable franchises such as Halo, Doom and Fallout.