Obsidian Entertainment Lost 25% of Its Staff in Xbox's Layoff Sweep, and Projects Beyond Grounded 2 Are Up in the Air

On July 6, 2026, Obsidian Entertainment became one of the most prominent casualties in Xbox's sweeping workforce reduction. The studio behind Fallout: New Vegas, The Outer Worlds, Avowed, and Pentiment is losing roughly 60 to 70 employees, around a quarter of its total staff, according to a Kotaku report citing multiple sources familiar with the matter. These are not junior hires being trimmed from a bloated roster. Many of the people walking out the door have a decade or more at the studio. Some have credits spanning multiple generations of games and platforms. This is not a startup getting leaner. This is a 23-year-old RPG institution getting cut at the knees.

The Scope of What Was Lost

The disciplines hit in this round read like a teardown of everything that makes a game function: artists, designers, writers, producers, programmers, and QA testers were all included in the first wave. The studio's art director on The Outer Worlds was let go. So was the studio's only recruiter, which says something loud about how much of a future Xbox is planning for Obsidian right now. When you eliminate the person responsible for bringing new talent in the door, you are not building toward anything. You are winding something down.

Most of the cuts came on July 6 as part of the first 1,600 jobs eliminated in Xbox's announced reduction of 3,200 roles across Microsoft. A second wave is coming later this year, and some Obsidian staff were explicitly told they fall into that group, meaning the damage is not finished. Employees who survived the first round told Kotaku they have received no formal guidance on how the studio's existing project slate continues with so many people missing.

Who These People Are

Narrative designer Jay Turner, whose writing credits include Avowed, Dragon Age: Origins, and Mass Effect 2, was among those affected. Turner described the situation bluntly on Bluesky, calling the cuts "Microsoft sacrificial rituals." That framing is pointed, but it captures something accurate: these are not random positions being eliminated. These are specialized roles built up over years of active production, and they cannot be replaced by posting a listing. A writer who understands Obsidian's RPG voice and has shipped three games at the studio is not a resource that shows up on a spreadsheet as interchangeable.

The loss of the studio's only recruiter carries its own grim irony. If Obsidian wants to backfill after losing a quarter of its people, it will need to hire someone to help it hire people. That person no longer works there. On LinkedIn, the pattern is visible in public posts from impacted employees: senior talent, people with 10 or more years at the studio, people with credits that span multiple Obsidian titles, all gone in the same sweep.

Twenty-Three Years of RPG Craft

Obsidian was founded in June 2003 by Feargus Urquhart, Chris Avellone, Chris Parker, Darren Monahan, and Chris Jones, all veterans of Black Isle Studios. The studio's reputation was built on complex, morally layered RPGs that rarely received the commercial support they deserved but almost always punched above their weight. Star Wars: Knights of the Old Republic II: The Sith Lords is still considered one of the finest Star Wars games ever made, despite being rushed out the door by LucasArts. Fallout: New Vegas remains the last time a studio outside Bethesda made a mainline Fallout entry, and most players consider it the best one. That game was made in 18 months on a budget that modern AAA studios spend on marketing.

Microsoft acquired Obsidian in November 2018 as part of a push to build out its first-party portfolio. The years that followed were among the most productive in the studio's history. The Outer Worlds shipped in 2019 to strong critical reception and multiple awards. Grounded hit early access in 2020 and built a dedicated community. Pentiment launched in 2022 and won a Peabody Award along with the Game Developers Choice award for best narrative, an extraordinary achievement for a small-team experimental title. Avowed landed in 2025. Two Outer Worlds games. Two Grounded games. A Pillars of Eternity follow-up. A medieval manuscript narrative that critics called one of the most original games of the generation. All of that, shipped under Microsoft's roof.

What Continues and What Does Not

Kotaku's reporting indicates that work on Grounded 2, currently in early access, is expected to continue. The announced DLC for The Outer Worlds 2 is also reportedly still on track. Beyond those two commitments, nothing is confirmed. Obsidian is described internally as having a substantial list of projects in various stages of development, and the remaining employees do not yet know which of those survive the cuts or whether the team left standing is large enough to see them through. The studio held a company-wide meeting on July 7 to address the situation, but formal guidance from leadership rarely tells the full story of what production looks like after losing a quarter of the people doing the work.

The Pattern Is Not Hard to See

Microsoft spent years and billions of dollars assembling one of the most impressive first-party lineups in the history of console gaming: Bethesda, id Software, Obsidian, Double Fine, Compulsion, Ninja Theory, Arkane, Playground Games, The Initiative, and more. Then, in methodical waves, it cut deeply into each of them. id Software lost half its staff days after shipping a major DOOM: The Dark Ages DLC, including most of its programming team. The Elder Scrolls Online studio lost half its development team in the same round. Ninja Theory and Undead Labs were sold off entirely. Double Fine and Compulsion were spun back out to independence, which sounds like a gift but also looks like Microsoft walking away from the cost of maintaining them.

Obsidian is one of the last studios in that portfolio with an active, multi-title output and a legacy that stretches back to the early days of Western RPGs. Cutting 25% of that studio is not a recalibration. It is the deliberate removal of institutional knowledge that took 23 years to accumulate. Xbox declined to comment on specifics when contacted about the Obsidian situation.

What This Means for Players

Grounded 2 and The Outer Worlds 2 DLC continuing is the floor, not the ceiling. If Obsidian had additional projects in development beyond those two commitments, a 25% staff reduction in the middle of active production is not a course correction. It is a delay, a scope reduction, or a quiet cancellation with extra steps. When a team loses its producers, writers, QA testers, and art director in the same morning, the people who remain spend weeks just piecing together what they are responsible for before they can get back to producing anything.

Obsidian's history is a case study in making great games under difficult conditions and doing it regardless. Fallout: New Vegas shipped on a brutal timeline and became a landmark anyway. Pentiment was made by a small team taking a risk nobody in the industry was taking. The studio earned its reputation through consistent creative output, not through massive budgets or marketing firepower. What Microsoft is demonstrating right now is that output is not protection. Being one of the best RPG studios in the business does not mean your headcount survives the next quarterly restructuring. For the people who walked into Obsidian on July 6 and found out they no longer had jobs, after years of shipping games that players still talk about, that is the only lesson Microsoft seems to be teaching.