A skeleton crew at Obsidian is still building Avowed 2 after Xbox cancelled it

A week ago the picture at Obsidian Entertainment looked simple from the outside. The studio shipped Avowed in early 2025, the sequel was reportedly going well, and word was an announcement wasn't far off. Then Bloomberg's Jason Schreier reported on July 8 that Xbox had killed the Avowed sequel and pointed Obsidian at a new Fallout game instead. What has come out since is more interesting than a clean cancellation, and it says a lot about what these cuts actually do to the people making the games.

One thing up front: this is reporting, not an Xbox announcement. Microsoft has not confirmed any of it on the record, so hold it loosely until it does.

What Xbox reportedly decided

Per Schreier, Avowed 2 is off the official slate. Obsidian's headline project going forward is a new Fallout game led by Josh Sawyer, the design director who ran Fallout: New Vegas back in 2010. On paper that is a great pairing. New Vegas is still the game a lot of players point to when they argue about the best Fallout, and putting Sawyer back in that universe is something the series' fans have wanted for over a decade. Bethesda Game Studios is reportedly attached to the project too.

The catch is how it happened. The Fallout pivot is part of a wider Xbox restructuring that came with layoffs, and Obsidian was not spared. Reports put the cuts at roughly a quarter of the studio, in the neighborhood of 50 people. The direction from Xbox leadership, as reported, is to concentrate on the biggest franchises it owns, Fallout and The Elder Scrolls and Halo, over newer or smaller IP. Avowed, a two-game-old fantasy series, did not make that cut.

The part worth paying attention to

Here is the wrinkle. A few days after the cancellation report, Schreier followed up: a small team at Obsidian is still working on Avowed 2 anyway. The plan, as reported, is that this skeleton crew keeps the sequel moving until the Fallout project needs more hands, and in the meantime tries to get Avowed 2 far enough along that Xbox looks at a nearly finished game and decides it is cheaper to release it than to shelve it. Chris Avellone, who spent years at Obsidian, has said publicly that the studio is trying to re-pitch the project. The sequel was reportedly further along than you'd expect for a follow-up to a 2025 game, which is exactly why the people who built it don't want to let it go.

That is a familiar and slightly grim maneuver. Cancelled doesn't always mean the file gets deleted. Sometimes it means a handful of developers keep the lights on out of stubbornness and a bet that the math changes. Whether it works is entirely up to Xbox, and Xbox just told everyone which franchises it actually cares about.

Where this stands

Nothing here is finished. The Fallout game has no release window, and the reporting itself says the plans are in flux. It isn't even clear whether Obsidian is making a mainline Fallout, a New Vegas style spin-off, or something else. Avowed 2's survival depends on a re-pitch that may never land. Microsoft has stayed quiet on all of it.

So the honest read: the best-case version is a New Vegas director back in the wasteland with Bethesda's support, plus a well-liked RPG series getting a stay of execution because its team refused to walk away. The worst case is a good sequel quietly bleeding out while its studio absorbs another round of cuts. Both are on the table right now, and the people who will decide which one happens are not the ones making the game.

Credit where it's due. The developers still clocking in on a game their employer officially cancelled are doing the least glamorous work in this whole story, and they're the reason there's any Avowed 2 left to talk about.