Xbox's sweeping business overhaul, which includes a planned reduction of 3,200 jobs by next summer, has already had significant repercussions for studios under its umbrella, including Obsidian Entertainment. The studio saw 25% of its staff cut in the first wave of layoffs, leading to a major shift in direction. Remaining staff have reportedly been tasked with focusing on a new Fallout game, with other projects, such as a sequel to 2025's Avowed, being pushed aside.
While some reports suggest the Avowed sequel might be revisited in the future, it is currently not a priority for Microsoft. This comes as a blow to the team that built the foundation for the game, which is set within Obsidian's Pillars of Eternity universe. This world, introduced in 2015's Pillars of Eternity, centers on the fictional realm of Eora, characterized by supernatural phenomena and religious conflict. A unique aspect of Eora is the absence of true gods, replaced by artificial deities created by an ancient race to instill moral order, setting it apart from typical fantasy settings.
The Pillars of Eternity series began with a critically acclaimed CRPG in 2015, which was seen as a revival for the genre, drawing parallels to classic PC RPGs like Baldur's Gate. Obsidian followed up in 2018 with Pillars of Eternity 2: Deadfire, which, despite not being an immediate commercial success, gained a dedicated fanbase and cult status.
Following Microsoft's acquisition of Obsidian in 2018, the studio focused on titles like The Outer Worlds and Grounded. The Pillars of Eternity universe re-emerged in 2025 with Avowed, a new RPG set in Eora that explored a deadly plague. Although its more constrained scope was a point of contention for players expecting a vast open world similar to Elder Scrolls, Avowed served as an accessible entry point into its complex CRPG world. It appeared to set the stage for a more mainstream moment for the franchise, which now seems unlikely as Obsidian pivots to a new Fallout game.
The decision to shift focus might seem commercially sensible, as CRPGs are often considered a niche genre. Assigning a popular IP like Fallout to a studio with experience, particularly Obsidian's history with Fallout: New Vegas, could be viewed as a strategic move.
However, the timing is questionable, especially in the wake of Baldur's Gate 3's success in 2023. Larian Studios' award-winning RPG demonstrated a significant market appetite for dense, choice-driven CRPGs set in rich fantasy worlds. The subsequent years have seen few major titles attempting to replicate this success, partly due to the difficulty and resources required to build such experiences. Even Hasbro, which holds the Baldur's Gate IP, has reportedly struggled to find a studio willing to develop Baldur's Gate 4.
Building an immersive world capable of supporting a large-scale RPG requires significant time, a skilled team, and the ability to create a reactive environment where player choices have tangible consequences. Obsidian possesses these qualities, including strong worldbuilding capabilities, expertise in intricate RPG systems, and mastery of choice-driven narratives. This combination of talent made it uniquely positioned to develop a game that could rival Baldur's Gate 3's impact.
These recent strategic shifts suggest a lack of clear vision for Microsoft's gaming division. The Pillars of Eternity universe represents a valuable asset with the potential to power a successor to Avowed or to tap into an underserved market segment. However, it remains unclear if leadership possesses the insight to recognize and capitalize on these opportunities within the broader gaming landscape. Focusing on a Fallout game, potentially released years after its recent mainstream resurgence via Prime Video, may not be the key to revitalizing Xbox's gaming brand. Instead, the company could benefit from empowering talented developers with the trust and resources to create games that resonate with player desires.