Xbox's Studio Shake-up
Obsidian's Future in Question Amid Conflicting Reports on Xbox Studio Restructuring
Key Points
There’s a real sense among some Xbox teams that Obsidian—and other mid-sized studios—are being punished for the poor performance of Call of Duty, implying subjective scrutiny of studios tied to big IPs rather than overall studio health.
The Game Business reports that Grounded (with Eidos Montreal) and Grounded 2, along with The Outer Worlds 2, were in discussion as part of Obsidian’s and other studios’ futures, signaling potential project realignments even for actively shipping studios.
Josh Sawyer, a director at Obsidian, publicly discussed Obsidian working on a new Fallout game, underscoring renewed interest in Fallout as a possible path forward for the studio within Microsoft's portfolio.
KitGuru highlights that Obsidian has been one of the few Microsoft studios actively shipping games and argues it is precisely the kind of studio worth preserving to maintain momentum on Microsoft’s strategy, even amid leadership churn.
A broader investment emphasis was flagged, with reports noting that Fallout and The Elder Scrolls IPs were specifically singled out as needing more investment, indicating a potential redirection of resources toward big, flagship franchises.
Microsoft is weighing the futures of several mid-sized Xbox studios, with Obsidian Entertainment at the center of conflicting reports. The Game Business reported that Obsidian was among studios in active negotiations to avoid closure, alongside Compulsion Games, Ninja Theory, Double Fine, and Undead Labs. But Bloomberg's Jason Schreier pushed back hard, stating that Obsidian "isn't in negotiations to shut down" and that the studio will be kept.
The mixed signals come as Xbox undergoes a broader cost-cutting push under new CEO Asha Sharma. Layoffs are expected as early as July. The situation remains fluid, with new details emerging almost daily.
Obsidian Caught in Xbox's Sweeping Studio Review
The Game Business reported that Obsidian, makers of Grounded and The Outer Worlds, was in talks with Microsoft over its future. The report named four other studios facing similar pressure: Compulsion Games, Ninja Theory, Double Fine, and Undead Labs. The framing suggested a high-stakes review of studios Microsoft sees as underperforming or redundant.
A key detail from the report: some Xbox team members feel mid-sized studios are being unfairly judged alongside the poor sales performance of Call of Duty. That would mean studios with solid track records are facing cuts due to problems they did not cause. KitGuru noted that Obsidian has been one of the few Microsoft studios consistently shipping games in recent years.
Schreier Report Contradicts Closure Narrative for Obsidian
Bloomberg's Jason Schreier reported that Obsidian is safe. He stated directly that the studio is not in closure negotiations and will be kept. Windows Central echoed that reporting, saying rumors of Obsidian shutting down are false. PC Games N also noted the contradiction between the two sets of reports, calling it a fast-moving and volatile situation.
The conflicting reports highlight just how unstable the information environment around Xbox has become. Microsoft has not made an official statement addressing Obsidian specifically. Until it does, neither set of reports can be fully confirmed.
Fallout and Obsidian's Next Game Could Be the Key
One major factor in Obsidian's favor: Fallout. Director Josh Sawyer publicly discussed the studio working on a new Fallout game. That matters because Microsoft has specifically flagged Fallout and The Elder Scrolls as IPs needing more investment. The Amazon Fallout TV show has renewed mainstream interest in the franchise, and a new game from Obsidian would directly feed that demand.
WCCFTech reported that Xbox is shielding Obsidian from the restructuring wave, partly because of its Fallout ties. The Outer Worlds 2 and Grounded 2 were also named in earlier discussions as projects tied to Obsidian's future. A studio with that many active projects in the pipeline has a strong case for survival.
Xbox's Broader Strategy Still Takes Shape Under New Leadership
New Xbox CEO Asha Sharma has signaled a shift toward investing in the biggest games and flagship IPs rather than spreading resources across many mid-sized studios. That focus explains both the pressure on studios like Ninja Theory and Double Fine, and the apparent protection of Obsidian given its ties to Fallout. Layoffs are expected to hit around early July, which may clarify the picture quickly.
FRVR noted that Obsidian's reported safety comes even as Xbox prepares to cut other parts of its gaming division. The broader message from Microsoft seems to be: studios connected to major, revenue-generating IPs are safer. Studios without that anchor face real risk. For Obsidian, Fallout may be its best shield.
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