// GAMESPOT — GAMING
Obsidian May Not Be On Xbox’s Chopping Block After All
Although Xbox is planning a massive layoff soon that may impact several of its subsidiaries, it appears the iconic RPG studio Obsidian Entertainment is safe.
According to a July 2 Bluesky post by Bloomberg reporter Jason Schreier, Obsidian Entertainment is "not in negotiations to avoid shutting down." More details will become clearer on Monday, July 6--the day the impending layoffs will reportedly start, which appears to have begun with South of Midnight developer Compulsion Games--but for now, Xbox is holding onto Obsidian Entertainment per Schreier's sources.
This clarification comes off the heels of a July 2 The Game Business report that suggested that several Xbox Game Studios subsidiaries--which include Obsidian Entertainment--were going to be offloaded so that the company could "reallocate where it spends money." As The Game Business noted, Xbox wants to invest in its bigger franchises--presumably the likes of Gears of War and Halo--but it needs to trim the fat to do so. And doing so means either selling or shuttering a handful of Xbox Game Studios subsidiaries.
Many of these studios--from Double Fine to Ninja Theory to Unead Labs--are currently "deep in negotiation" to avoid closure. While The Game Business reported that Obsidian Entertainment is part of this cohort, that doesn't appear to be the case.
Based in Irvine, California, Obsidian Entertainment has been around since 2003. While the studio is best known for RPGs like Fallout: New Vegas and Pillars of Eternity, the team has developed many games over the years. These include Alpha Protocol, Neverwinter Nights 2, Pentiment, South Park: The Stick of Truth, and Star Wars Knights of the Old Republic II: The Sith Lords. However, you may now know Obsidian Entertainment as the team behind Avowed and The Outer Worlds.
Unfortunately, both Avowed and The Outer Worlds 2 failed to meet Microsoft's sales expectations. As Bloomberg reported in February 2026, the fact that the studio released three games in 2025 wasn't enough to quell Microsoft's forecasts.
"They're not disasters," Obsidian head Feargus Urquhart told Bloomberg when talking about Avowed and The Outer Worlds 2. "I'm not going to say this was a kick in the teeth. It was more like: 'That sucks. What are we learning?'"
Urquhart noted that Avowed and The Outer Worlds 2 were in development for over six years, and with their underwhelming sales, it forced Obsidian Entertainment to "think a lot about how much we put into the games, how much we spend on them, how long they take," Urquhart told Bloomberg.