Obsidian Entertainment has canceled the sequel to Avowed and other unannounced projects, and is now developing a new Fallout title. The studio continues work on downloadable content for The Outer Worlds 2 and Grounded 2, and Grounded 2 is in early access on PS5, Xbox, and PC.
In late June 2026, a report claimed Obsidian Entertainment was a target for closure in Xbox restructuring. The report was quickly corrected and retracted after journalists denied the claim, stating Xbox planned to keep the studio. Days later, Obsidian announced that Grounded 2 would enter early access on PS5 on August 11, with cross-play and cross-progression across Xbox, PC, and PS5. The game's new Buggy mount system was detailed, including an amphibious type arriving in the August Into the Abyss update.
Then, on July 9, Bloomberg reported that Obsidian had canceled the sequel to Avowed and other unannounced projects. CEO Feargus Urquhart told Bloomberg that sales of Avowed and The Outer Worlds 2 were poor. The studio will now focus on developing a new Fallout title. Development of downloadable content for The Outer Worlds 2 and Grounded 2 will continue. The cancellations follow Microsoft layoffs that affected 1,600 Xbox employees.
The sequence of events shows a studio that was the subject of a false closure rumor, then announced a major new game release, and then confirmed a significant project cancellation and a pivot to a familiar franchise. Obsidian remains active on multiple fronts, with Grounded 2 in early access and ongoing DLC work, even as it shifts its primary development effort to a new Fallout game.
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The Steam Summer Sale on Steam includes discounts on multiple Obsidian Entertainment titles. Fallout: New Vegas is 50% off at 550 yen, and its Ultimate edition is 60% off at 879 yen. Other discounted games include The Outer Worlds 2, Avowed, Pentiment, and Grounded. The sale runs until July 10 at 2 a.m. Japan time.
Obsidian Entertainment has laid off 52 employees, about 25% of its workforce, as part of a broader Xbox restructuring. Multiple unannounced projects, including the sequel to the fantasy RPG Avowed, have been canceled. The studio is now redirecting resources toward a new game in the Fallout series, with Josh Sawyer, the director of Fallout: New Vegas, expected to lead development. Bethesda Game Studios is slated to co-develop the project, though the plan is not yet finalized. The layoffs and cancellations follow Microsoft's July 6 announcement of 4,800 company-wide cuts, with 1,600 in the Xbox division. Bloomberg reported that Avowed 2 was progressing smoothly and an announcement was expected within a year. The new strategy prioritizes major franchises, and the Fallout IP is considered a key asset. Other projects, such as downloadable content for The Outer Worlds 2 and Grounded 2, will continue. Obsidian has a deep history with the Fallout series, including the return of writer John Gonzalez in January 2025 and the involvement of co-creator Tim Cain in an unannounced title.
The Game Business reported that Obsidian Entertainment was a target for closure in Xbox restructuring, but the article was corrected and apologized for after journalists Jason Schreier and Jez Corden denied the claim, stating Xbox plans to keep the studio.
Obsidian Entertainment announced that Grounded 2 will launch early access on PS5 starting August 11, 2026, with cross-play and cross-progression across Xbox, PC, and PS5. Game director Chris Parker detailed the new Buggy mount system, which functions as a combat companion and inventory carrier, and confirmed an amphibious Buggy type coming in the August Into the Abyss update.