Obsidian Entertainment, the studio behind titles such as Avowed, The Outer Worlds, and the beloved Fallout: New Vegas, is not at risk of closure amid Microsoft's ongoing restructuring of its Xbox business. This correction comes from Bloomberg reporter Jason Schreier, who refutes an earlier report from The Game Business that listed Obsidian among several studios negotiating to avoid shutdown.
Schreier stated on social media that while many details surrounding recent layoffs remain unclear, Xbox is retaining Obsidian, according to individuals familiar with the situation. The initial report had placed Obsidian alongside other Microsoft-owned studios like Undead Labs (State of Decay), Double Fine (Psychonauts), Ninja Theory (Hellblade), and Compulsion Games (South of Midnight) as potentially facing closure or sale. Arkane Lyon, developer of Marvel's Blade, was also mentioned as being under threat.
Obsidian's current project slate was noted as a factor, with both Avowed and The Outer Worlds 2 reportedly not meeting commercial expectations. While Grounded 2 was a success, the studio has no further announced projects following these developments. This situation also led to speculation about Obsidian's potential involvement in future Fallout titles, a franchise many fans associate with the studio due to Fallout: New Vegas. However, Obsidian's Studio Design Director Josh Sawyer recently indicated that decisions regarding such high-profile IPs come from "titans" above his level.
Microsoft has recently communicated a significant shift in its gaming strategy, driven by a stated need to address declining revenues. Xbox boss Phil Spencer outlined a strategy to "reset" the business, aiming for increased profitability. This has led to reassessments of investments, including the withdrawal of funding for IO Interactive's upcoming fantasy project. Microsoft has stated it is focusing on its highest priorities and reallocating investment rather than reducing it overall, while also exploring various structural options for the Xbox brand itself.
These developments follow substantial layoffs across Microsoft, including a major reduction of 9,000 staff in July 2025, which also impacted the gaming division and led to the cancellation of titles like Rare's Everwild and the closure of studios such as The Initiative.