Obsidian Entertainment, the studio behind Avowed and The Outer Worlds, is not negotiating to avoid shutdown, according to Bloomberg reporter Jason Schreier, contradicting earlier reporting that placed the developer among studios at risk during Microsoft's Xbox restructuring.
Schreier stated on social media that Xbox is keeping Obsidian as part of the company's ongoing realignment. "Plenty of details are still up in the air surrounding the layoffs but Xbox is keeping Obsidian, according to people familiar with the situation," he posted.
The clarification came after The Game Business had reported that Obsidian, alongside other notable studios like Undead Labs, Double Fine, Ninja Theory, and Compulsion Games, were in talks with Xbox leadership to avert closure. Arkane Lyon, developer of Marvel's Blade, was also mentioned in those initial reports as facing potential risk.
While those other studios may be sold rather than closed as Microsoft reassesses its gaming portfolio, Obsidian has now been confirmed as safe under the company's restructured operations. The exact timeline and terms of any studio transitions remain unclear, though industry observers note that even studios avoiding closure could still face layoffs.
Obsidian has been without a major announced project since both Avowed and The Outer Worlds 2 underperformed commercially. The studio did find success with Grounded 2, which launched in 2025 alongside a successful second entry in that franchise. In the years since Microsoft acquired Obsidian in 2018, the developer has shipped The Outer Worlds, two Grounded games, Pentiment, and Avowed.
Josh Sawyer, the celebrated director of Fallout: New Vegas who remains at Obsidian, recently told The 41st Precinct that he has no control over whether the studio might be assigned another Fallout project. Sawyer described major IP decisions as coming from executives above his level, much like when he was tapped to develop New Vegas years ago. "These are things that take place above my head," he said, before joking that he might simply arrive at the studio one day to find out he's been tasked with making a Fallout game.
The situation reflects the broader chaos at Xbox following Asha Sharma's appointment as the unit's new leader. Sharma issued a controversial memo revealing that Microsoft's gaming division operates on a razor-thin 3% profit margin despite having invested over $20 billion in content and hardware subsidies over the past five years while revenues declined by nearly half a billion dollars in that span.
The restructuring has triggered significant change across the gaming division. Microsoft cut 9,000 employees company-wide in July 2024, with gaming taking a hit that included the cancellation of titles like Rare's Everwild and the shutdown of The Initiative. This week, unionized Xbox workers demanded immediate negotiations, with representatives saying they are "done paying for executives' failures."
Microsoft has maintained that its overall gaming investment remains flat compared to the previous year, but the company is being selective about where those dollars go. The company recently pulled funding from IO Interactive's fantasy project but kept Hideo Kojima's horror title OD in the pipeline. External studios are now bracing for another potential round of cuts, with The Information reporting that Microsoft has not ruled out turning Xbox into a subsidiary or even exploring joint venture arrangements with other partners.
A Microsoft spokesperson told IGN that the company respects workers' voices and continues negotiating in good faith with the Communications Workers of America following previous labor agreements.
Author Emily Chen: "The reprieve for Obsidian won't quiet the broader crisis at Xbox, where a profitable gaming division is being dismantled in real time."
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