Obsidian Entertainment has undergone substantial layoffs, with approximately 25% of its staff being dismissed as part of broader cuts across Microsoft's Xbox divisions. The news comes as Microsoft announced that 1,600 employees are being let go across various Xbox departments, with a total of 3,200 layoffs planned by the end of the company's current fiscal year, which began in July 2026. While the full extent of these workforce reductions across different studios is still emerging, reports indicate that Bethesda and the Elder Scrolls Online team have also been significantly affected.
According to a report citing internal sources, many of the laid-off employees at Obsidian were senior staff, including one individual who had been with the studio for 21 years. These cuts occurred on Monday, though some employees were informed their departures would be staggered throughout the fiscal year. Despite the significant reduction in personnel, Obsidian reportedly has a large slate of projects in development. The remaining staff has not yet received definitive guidance on how to proceed with their ongoing work following the extensive staff losses.
The studio is expected to continue development on Grounded 2, which entered early access last summer, and on downloadable content for The Outer Worlds 2. Employees are anticipating further details regarding the studio's future direction at a meeting scheduled for Tuesday.
Obsidian Entertainment has been a prolific studio in recent years. Since its acquisition by Microsoft in 2018, it has released six games. The year 2025 alone saw the launch of three titles: Avowed, Grounded 2, and The Outer Worlds 2. While both Avowed and Grounded 2 received generally positive reviews, and Avowed was notably a Polygon favorite from the previous year, neither The Outer Worlds 2 nor Avowed met Microsoft's sales expectations. Currently, there are no plans for a third installment in The Outer Worlds series.