Obsidian Entertainment is reportedly developing a new Fallout game, led by studio design director Josh Sawyer, as part of a sweeping Xbox restructuring that has impacted hundreds of employees across Microsoft's gaming divisions.
According to Bloomberg, the plan follows the cancellation of several unannounced projects at the Irvine-based studio. A small team will continue work on a planned Avowed sequel in the hope of reviving it later, while other staff will focus on downloadable content for The Outer Worlds 2 and ongoing content for Grounded 2.
Bethesda is expected to collaborate with Obsidian on the new Fallout project, the report adds.
The development is part of a major restructuring across Xbox's first-party studios, announced earlier this week. Xbox CEO Asha Sharma said the company is "resetting" its approach to studio ownership. "Since 2018, we have aggressively expanded our studio portfolio while the number of games created each month across the industry now outpaces the last ten years combined," Sharma said in a statement. "We now find ourselves competing not only with the largest publishers, but also with independent studios. It is neither possible nor desirable to own every great independent studio. We have also learned that we are not the best home for every type of studio."
Five internal studios have been divested or restructured as a result. Compulsion Games and Double Fine will become independent studios. Ninja Theory and Undead Labs will enter new ownership terms, while Arkane has started consultation proceedings. Hundreds of layoffs have been reported across the Xbox portfolio, including 136 confirmed at id Software, 22 at Bethesda Game Studios in Austin, and significant impacts at ZeniMax Online Studios, Activision, Blizzard, King, Mojang, and Xbox Game Studios. id Software, the studio behind Doom and Quake, reportedly lost "collectively decades of knowledge" according to affected staff.
For Obsidian, the pivot toward Fallout represents a return to the franchise that defined much of its legacy. The studio developed Fallout: New Vegas in 2010 under director Josh Sawyer, a game widely regarded as one of the finest entries in the series for its branching narrative, faction writing, and player agency. The title has aged into a cult classic, sustained by a passionate modding community and frequent critical reappraisals. Sawyer has remained at Obsidian throughout the studio's acquisition by Microsoft in 2018, serving as design director across multiple projects.
Renewed interest in the Fallout universe was supercharged by Prime Video's television adaptation, which became the platform's sixth-most watched series of all time. The show drove a significant surge in game sales across the franchise, with Fallout 4 and Fallout 76 both seeing their largest player counts in years following the series premiere in April 2024. The second season, expected to draw from the events of Fallout: New Vegas, has only heightened anticipation for a return to the Mojave Wasteland.
A new Fallout title from Obsidian would mark the studio's first return to the franchise in 16 years. It would also be the first major single-player Fallout game since Fallout 4 launched in 2015, though Bethesda Game Studios continues development on The Elder Scrolls VI. An Xbox spokesperson declined to comment on the reported strategy.
The new Fallout project is still in its early stages, according to the report, and no platforms, release window, or technical details have been confirmed. For many fans, the prospect of Obsidian returning to the wasteland represents one of the most anticipated potential developments in the franchise's history.
