The massive wave of layoffs is also affecting Obsidian Entertainment, one of the most popular first-party studios at Xbox. According to anonymous sources, the focus is set to shift to a very popular franchise.
Update from July 9, 2026: Industry insider Jason Schreier from Bloomberg has heard from internal, anonymous sources close to Obsidian that the studio apparently already has a plan following the layoffs, which contradicts my thesis from July 8.
Apparently, Studio Design Director Josh Sawyer is now supposed to be working on a new entry for the Fallout series. Whether it will be a successor to New Vegas is unclear, but it is within the realm of possibility. Moreover, the sources emphasize that the plans could still change. However, it should be clear that the work on the planned successor to Avowed has been stopped.
Personally, I remain skeptical whether Obsidian now has the capacity for a large open-world Fallout. It may be that the new game will be relatively manageable in scope – similar to The Outer Worlds, perhaps.
Original report from July 8, 2026: According to a report from Kotaku, Obsidian Entertainment will not be sold or closed as part of the massive layoff wave at Xbox, but about 60 to 70 employees are expected to lose their jobs – this would affect about 25 percent of the entire workforce.
Creative individuals from all areas are supposed to be affected, such as producers, artists, designers, programmers, QA testers, and writers – including many experienced developers who have been working for Obsidian for over 10 years.
The anonymous sources from Kotaku explain that there is now uncertainty about how to implement the huge list of planned projects after the layoffs. It seems clear that the work on the early access version of Grounded 2 and on the DLCs for The Outer Worlds 2 will continue.
As a big RPG fan, Karsten has been following Obsidian’s work since their debut with Star Wars: Knights of the Old Republic 2. He considers New Vegas to be the best Fallout. Alpha Protocol was a misunderstood gem. Tyranny and Pillars of Eternity 2 are likely two of the best old-school RPGs of the past decade. He also had fun with Avowed and the two The Outer Worlds.
What does Obsidian stand for? The studio was founded in 2003 by former veterans of Black Isle Studios (Fallout, Fallout 2, Planescape: Torment, Icewind Dale) and has stayed true to these role-playing roots to this day. Here are just a few highlights that Obsidian has released in the past 22 years and with which I have had a lot of fun over the years:
- Star Wars: Knights of the Old Republic 2
- Neverwinter Nights 2
- Fallout: New Vegas
- South Park: The Stick of Truth
- Pillars of Eternity plus Part 2 and Avowed
- Tyranny
- The Outer Worlds plus Part 2
- Grounded
- Pentiment
Since 2018, Obsidian has been a part of Xbox’s first-party studios. Unfortunately, the sales figures for Avowed and The Outer Worlds 2 have reportedly fallen short of expectations, even though they have noticeably enriched the Xbox Game Pass from my perspective.
So much wasted potential
What do the layoffs mean? At the latest since the acquisition of Bethesda, countless Fallout fans have been looking at Microsoft and wondering: Why aren’t you letting Obsidian make a successor to their fantastic Fallout: New Vegas?
Not a few claim that the Obsidian installment is the best game in the series. Also, the colleagues from GameStar ranked Fallout: New Vegas at number 1. On Steam, the game stands at a strong 95 percent positive. A successor should sell like hotcakes. Especially considering that Fallout 4 from Bethesda is already eleven years old.
With the planned layoffs now, a large open-world Fallout will hardly be feasible for Obsidian in the future. At least, that is my concern.
It just makes me angry how unbelievably much expertise and great brands Microsoft had after all the acquisitions and how little they have done or are doing with it. This also includes what has been happening at ZeniMax since 2025: One of the last major MMO studios from the West is teetering on the edge, and it breaks my heart
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