Obsidian Entertainment, the studio behind Fallout: New Vegas and The Outer Worlds, is navigating a period of internal concern following a wave of layoffs within Microsoft’s Xbox division. As part of what Xbox boss Asha Sharma described as the most “significant” restructure in the company's history, 1,600 staff members were let go yesterday, with an additional 1,600 departures expected throughout the current financial year.
Impact on Obsidian's Development Pipeline
According to reports, approximately 60-70 employees at Obsidian were affected by these cuts, including several long-term veterans of the studio. With the business now operating with a reduced headcount, staff have expressed uncertainty regarding the studio’s “huge list of projects” and how the team will maintain its current development roadmap.
While the studio has not yet announced a follow-up to Avowed or The Outer Worlds 2—both of which were described as commercial failures—Obsidian is currently committed to supporting Grounded 2, which remains in early access, and ongoing work on The Outer Worlds 2 DLC. Microsoft has confirmed that none of its first-party, publicly announced games or projects are being cancelled as a result of these reductions.
Focusing on Strongest Franchises
The layoffs coincide with a broader shift in strategy for Microsoft’s gaming arm. Bethesda boss Jill Braff recently informed staff that the company is moving away from a model centered on independent studio planning. Instead, the organization will focus on its “strongest franchises,” determining a content roadmap that prioritizes these key properties.
This mandate has fueled speculation regarding whether Obsidian might be tasked with contributing to larger franchises, such as a potential return to the Fallout series. While Obsidian's VP of operations, Marcus Morgan, acknowledged last year that the studio is frequently asked about a sequel to the fan-favorite Fallout: New Vegas, he noted that the team prefers working on original intellectual property and sequels to their own creations.
The studio’s future also remains tied to an unannounced mystery project featuring original Fallout creator Tim Cain, who rejoined the studio in December 2025. For now, the team continues to balance these existing commitments while adjusting to the new organizational structure under the broader Xbox management shift.