Full Breakdown
Obsidian Entertainment Rumor Quashed Amid Xbox “Reset” and Ongoing Layoffs
7/3/2026, 12:33:26 PM
The Rumor and Its Refutation
A report by *The Game Business* claimed that Obsidian Entertainment—creator of *Fallout: New Vegas*, *Grounded* and *The Outer Worlds*—was negotiating to avoid shutdown as part of Microsoft’s Xbox “reset.” Journalist Jason Schreier later posted on BlueSky that the claim was incorrect, stating that Xbox is keeping Obsidian and that details about broader layoffs would become clear on the following Monday.
Background: Xbox’s “Reset” and Recent Layoffs
In a memo that has circulated widely within the industry, Xbox head Asha Sharma warned that Microsoft’s gaming division operates with a 3 % accountability margin and that “this cannot continue.” The memo followed a July 2025 round of 9,000 company-wide cuts that also hit gaming, canceling titles such as Rare’s *Everwild* and shuttering studios like The Initiative. Simultaneously, Microsoft announced a strategic review of external game investments, pulling funding from IO Interactive while confirming continued support for projects such as Hideo Kojima’s Xbox horror game *OD*.
Timeline of Reports and Responses
- July 2025 – Microsoft cuts 9,000 staff across the corporation.
- Early 2024 – *The Game Business* publishes the Obsidian closure rumor.
- Following Monday – Jason Schreier clarifies the rumor on social media, confirming Obsidian remains under Xbox.
- Recent week – Unionized Xbox workers hold a press conference demanding immediate bargaining.
Data Points on Microsoft’s Gaming Investments
- Over the past five years, Microsoft spent $20 billion on content, platform and hardware subsidies (excluding Activision Blizzard King).
- Annual gaming-division revenue declined by ? $0.5 billion in the same period.
- The “reset” memo cites a 3 % profit-margin target.
- 9,000 employees were laid off in July 2025.
- Studios listed as “at risk” alongside Obsidian include Undead Labs, Double Fine, Ninja Theory, Compulsion and Arkane Lyon.
Official Statements from Microsoft and Unions
Microsoft’s spokesperson told IGN that the company will continue negotiating in good faith with the Communications Workers of America (CWA), emphasizing a “long track record of good-faith partnership” and reaffirming its commitment to maintain overall game-investment levels. Union representatives, speaking at a press conference, declared they are “done paying for executives’ failures” and called for immediate bargaining agreements.
Criticism and Opposition from Workers
The union’s demand reflects broader distrust among Xbox staff, amplified by the rapid pace of layoffs and the ambiguous status of studios previously earmarked for closure. Workers argue that the lack of transparent communication undermines confidence in Microsoft’s restructuring plan.
Conflicting Reports and Remaining Uncertainties
The initial *Game Business* claim that Obsidian was negotiating to avoid shutdown directly contradicts Schreier’s later correction. Neither source provided definitive information on Obsidian’s next project pipeline, leaving the studio’s future development slate unclear.
Verbatim Quotes
- “Despite a report this morning, I can confirm that Obsidian is not in negotiations to avoid shutting down. Plenty of details are still up in the air surrounding the layoffs (picture will be clear on Monday), but Xbox is keeping Obsidian, according to people familiar with the situation.” — Jason Schreier, Journalist
- “These are things that take place above my head, right?” — Josh Sawyer, Director, *Fallout: New Vegas*
- “Going forward, this cannot continue," Sharma said.” — Asha Sharma, Xbox Executive
- “we're done paying for executives' failures.” — Unionized Xbox Workers, Press Conference
- “We respect the right of our team members to make their voices heard,” — Microsoft Spokesperson
What’s Next for Obsidian and Xbox
Microsoft has indicated ongoing negotiations with the CWA and plans to maintain its current level of game-content investment. Observers will watch for any formal announcement regarding Obsidian’s project slate, while union talks are expected to shape the next phase of Xbox’s restructuring.
