Xbox maintains Obsidian Entertainment, denying rumors of closure and expansion of studios under threat

A recent update brought clarity about the future of Obsidian Entertainment, with Bloomberg journalist Jason Schreier debunking previous reports that the studio was at risk of closure by Xbox. The initial information, published by The Game Business, was classified as inaccurate.

Schreier clarified that, although there are still many points to be defined in relation to possible layoffs, Microsoft intends to maintain Obsidian. This information was shared by sources close to the situation, according to the reporter’s post on his social networks.

Previously, Obsidian Entertainment, known for titles such as Fallout: New Vegas, The Outer Worlds and Avowed, had been included on a list of developers allegedly threatened with closure. This speculation arose amid a “reset” process for the Xbox brand.

The original report from The Game Business indicated that Obsidian was in the same condition as other studios such as Undead Labs, Double Fine and Ninja Theory. In addition to these, Arkane Lyon, responsible for developing the Blade game, would also be under evaluation.

In this scenario, Microsoft was considering the sale of some of these subsidiaries as an alternative to definitive closure. However, even a sale transaction would not guarantee that all jobs would be maintained, and staff cuts remained a possibility in the process. Microsoft, at the time, chose not to issue an official position on the news.

Obsidian would be in a period without announcing a new large-scale project, after Avowed and The Outer Worlds 2 failed to reach the company’s commercial projections. Rumors were circulating about a potential Avowed sequel being in development, while The Outer Worlds 3 had reportedly not yet begun production.

In contrast, Grounded 2, released in the year 2025, achieved favorable results. However, among the three games that Obsidian released last year, Grounded 2 represented the shortest time and probably the lowest cost investment in its development.

Microsoft’s acquisition of Obsidian occurred in 2018, together with inXile Entertainment. Since then, the studio has delivered several titles, including The Outer Worlds, The Outer Worlds 2, Grounded, Grounded 2, Pentiment and Avowed, solidifying itself as one of the most active production teams within Xbox Game Studios.

Financial restructuring and the new panorama of the Xbox division

The crisis affecting the Xbox division began after executive Asha Sharma released an internal memo, known as the corporate “reset” document. In it, the executive highlighted that Microsoft’s gaming operation operated with a responsibility margin of just 3%, a number interpreted by analysts as a profit margin.

Sharma detailed that over the past five years, the company has invested more than US$20 billion in content, platforms and hardware subsidies. However, the division’s annual revenue fell by around US$500 million in the same period, leading the executive to state that “this cannot continue.”

Journalist Jason Schreier, from Bloomberg, even described the scenario as a possible “bloodbath” for Xbox. In parallel, Microsoft was reviewing its contributions to third-party studio projects, canceling, for example, financing a new fantasy game from IO Interactive. On the other hand, OD, Hideo Kojima’s horror game, remained safe.

In a statement sent to Bloomberg, Microsoft reiterated that it was “reassessing where it invests to focus resources on its highest priorities.” The company assured that it did not intend to reduce total investment in games, but rather to realign which projects and initiatives would receive the resources.

An additional report, released by The Information, indicated that Microsoft was considering transforming the Xbox brand into a wholly owned subsidiary. This maneuver would open the way for future joint ventures with partners or even for the eventual commercialization of the games division.

Xbox employees demand dialogue amid layoff rumors

Faced with new rumors of layoffs, unionized Xbox employees made demands for negotiations to begin immediately. During a press conference, worker representatives expressed that they were “tired of paying for executives’ mistakes.”

In a direct response to IGN, a Microsoft spokesperson stated that the company will maintain good faith dialogue with the Communications Workers of America (CWA) union.

The spokesperson stressed respect for team members’ right to express their opinions, citing a “long history of good faith partnership with labor organizations.” The statement reinforced Microsoft’s commitment to continue negotiating with the CWA to reach agreements across all areas of Xbox.