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Xbox insists it's not cutting game investment as layoffs loom and Obsidian's fate sparks conflicting reports

Xbox insists it's not cutting game investment as layoffs loom and Obsidian's fate sparks conflicting reports
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Microsoft's Xbox division is days away from confirming a wave of layoffs and studio closures, with early July set as the moment the full picture becomes clear. Despite reports of studios being shuttered or sold and funding deals being pulled, Xbox told Bloomberg it is "not reducing our overall investment in games" — adding that what's changing is "where we're investing and the kinds of projects we're backing."

Business Insider reports the broader Microsoft layoffs will affect under 2.5% of the company's roughly 220,000-person workforce — fewer than 5,500 people, and a smaller cut than last year's round. Studios already named as being at risk or under negotiation include Double Fine, Ninja Theory, Compulsion, and Undead Labs. Arkane Lyon, working on Marvel's Blade, is also reportedly under threat. Xbox also pulled its funding from IO Interactive's Project Fantasy, an online RPG that was in development alongside the studio's 007 First Light. The confirmed picture is expected early next week. On Obsidian specifically, reports collided: The Game Business listed the Avowed and Outer Worlds studio as being in negotiations to avoid closure, alongside the other at-risk studios. Bloomberg's Jason Schreier then pushed back, saying that report is incorrect and that Xbox is keeping Obsidian — though he acknowledged plenty of details around the layoffs are still unsettled.

Obsidian has had a complicated recent run. Both Avowed and The Outer Worlds 2 reportedly missed commercial targets, though Grounded 2 was a hit. The studio has been at Microsoft since 2018, when it was acquired alongside inXile. New Xbox boss Asha Sharma has reportedly been pushing to accelerate development on big-ticket franchises like Elder Scrolls, Fallout, and Halo — and some had speculated Obsidian could be tapped for a new Fallout game, given their history with New Vegas. Fallout: New Vegas director Josh Sawyer, still at the studio, said last week he has no idea whether that'll happen, noting those decisions come from well above his level.

The full scope of cuts — which studios survive, which get sold, and how many jobs go — should be confirmed early next week. Until then, the situation remains fluid, with leaks and conflicting reports continuing to shape an increasingly grim picture for Xbox's first-party lineup.

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