Obsidian Entertainment Safe from Closure Despite Xbox Reset Reports
Obsidian Entertainment, the renowned developer behind the upcoming RPG Avowed, is not at risk of closure by Microsoft, according to a direct refutation from Bloomberg reporter Jason Schreier. This clarification follows an initial, conflicting report from The Game Business that listed the studio among several Xbox Game Studios teams in negotiations to avoid being shut down.
On July 2, 2026, The Game Business reported that Obsidian was "deep in negotiation with Microsoft to avoid closure" as part of a broader Xbox business "reset" initiated under leadership including Asha Sharma. The report placed Obsidian alongside studios like Ninja Theory and Double Fine, suggesting their fates were uncertain amid widespread cost-cutting measures.
Obsidian's status remains secure despite industry-wide shifts.
However, Schreier swiftly countered this narrative on social media. "Despite a report this morning, I can confirm that Obsidian is not in negotiations to avoid shutting down," he wrote. "Plenty of details are still up in the air surrounding the layoffs... but Xbox is keeping Obsidian, according to people familiar with the situation."
The initial report had cited internal sentiment that even significantly better commercial performance from Obsidian's recent titles, including Avowed and The Outer Worlds 2, would not have offset broader financial challenges within Xbox. Schreier's update provides a key piece of stabilizing news for the studio and its community, though it leaves the status of other teams and the extent of impending layoffs unresolved.
Conflicting Reports: The Game Business vs. Bloomberg
Conflicting reports emerged on July 2, 2026, regarding the fate of Obsidian Entertainment, creating a stark divide between an initial industry rumor and a high-profile journalistic refutation. The confusion began with a report from The Game Business, which stated that Obsidian—alongside studios like Ninja Theory and Double Fine—was in "deep negotiation with Microsoft to avoid closure." The report suggested that even successful performance from Avowed and The Outer Worlds 2 would not have been enough to offset financial pressures, specifically citing the revenue impact of Call of Duty's underperformance as a key factor driving potential cuts.
According to The Game Business, sources within Xbox described a climate where studios were being evaluated against the colossal revenue from franchises like Candy Crush and Minecraft, making the commercial returns of titles like Avowed seem "almost insignificant" in comparison. The outlet reported that layoffs were scheduled to begin the following Monday, July 6. This initial report fueled significant concern for the studio behind Fallout: New Vegas.
Avowed gameplay environment.
However, within hours, Bloomberg journalist Jason Schreier directly contested the claim. Taking to social media, Schreier wrote, "I can confirm that Obsidian is not in negotiations to avoid shutting down." He added, "Plenty of details are still up in the air surrounding the layoffs... but Xbox is keeping Obsidian, according to people familiar with the situation." This authoritative rebuttal shifted the narrative, indicating Obsidian's position was more secure than initially reported.
The conflicting reports unfolded amid ongoing labor actions. Following widespread layoff announcements, the CWA Union, representing organized workers at Microsoft, had called for immediate bargaining over the impacts of the company's strategic decisions. While the situation for other studios remained unclear, the swift correction from Schreier provided temporary reassurance for Obsidian's future under Xbox, highlighting the volatile and fluid nature of Microsoft's internal restructuring plans.
Xbox Strategic Shift: The $20 Billion Investment Challenge
The reported restructuring at Xbox Game Studios is driven by a severe financial challenge: Microsoft has invested over $20 billion in its gaming division over five years while seeing annual revenue decline by nearly half a billion dollars. This stark reality was outlined in a memo from Xbox leadership, necessitating a major strategic shift to focus spending on the company's "highest priorities."
According to the memo from Xbox boss Asha Sharma, reported by Bloomberg, the massive investment in "content, platform, and hardware subsidies" failed to produce growth. In response, Microsoft is now "taking a fresh look at where we invest" and has begun canceling external projects, such as funding for an IO Interactive fantasy game. This financial pressure creates the context for the difficult decisions about studio portfolios and layoffs, described by journalist Jason Schreier as a potential "bloodbath."
The creative scale of Avowed reflects significant financial backing.
The commercial performance of individual studios' games is being scrutinized under this new financial lens. For Obsidian Entertainment, sources indicated that titles like Avowed and The Outer Worlds 2 reportedly failed to meet commercial expectations. A report from The Game Business suggested that even significantly better performance from these RPGs might not have offset broader financial issues, like underperformance from the Call of Duty franchise. In contrast, Grounded 2 was noted as a commercial success for the studio in 2025.
This environment of cuts and refocusing on franchises has led to speculation about Obsidian's classic work on Fallout: New Vegas. Director Josh Sawyer, who remains at the studio, has expressed uncertainty about the possibility of making another Fallout game, stating such decisions are made at a higher corporate level. The new Xbox leadership's push to accelerate key franchises like Fallout has fueled fan hope, but no such project has been confirmed.
The State of Xbox Game Studios: Who is Still at Risk?
Beyond Obsidian, multiple other Xbox Game Studios remain under intense scrutiny as Microsoft's strategic "reset" continues, with several reportedly negotiating their futures. According to the initial report from The Game Business, studios including Ninja Theory (Hellblade), Double Fine (Psychonauts), Undead Labs (State of Decay), and Compulsion Games (South of Midnight) were named alongside Obsidian as being in "deep negotiation with Microsoft to avoid closure."
The report, which cited internal sources, painted a downbeat atmosphere. It suggested that even strong performances from these studios' games would be financially overshadowed by major revenue drivers like Call of Duty, Candy Crush, Minecraft, and Warcraft. An internal sentiment quoted by The Game Business indicated that reallocating budgets from these teams to flagship franchises like Halo was not seen as a guaranteed path to critical success.
The lush environments of Avowed.
Arkane Lyon, the developer behind the upcoming Marvel's Blade, was also listed among the studios under threat in the initial reporting. The broader context for this uncertainty is new Xbox CEO Asha Sharma's plan to transform the division's financial health, with industry veterans estimating at least 1,000 job losses. The report indicated that layoffs and final decisions regarding these studios' fates were expected to be confirmed the week of July 6th.
While Bloomberg's Jason Schreier directly refuted the danger to Obsidian, the status of Ninja Theory, Double Fine, Undead Labs, Arkane Lyon, and Compulsion Games remained unaddressed in that correction. At the time of reporting, neither Microsoft nor the individual studios have issued official statements on their negotiation status, leaving their futures within the Xbox ecosystem publicly uncertain.