On Monday, Microsoft announced a new wave of layoffs, including 1,600 being let go across various Xbox divisions. In total, 3,200 Xbox employees will be laid off by the end of Microsoft’s fiscal year, which just started in July 2026. We’re gradually learning more about the full extent of these layoffs across various Xbox divisions, like how Bethesda and the Elder Scrolls Online team have reportedly been hit hard.
A new Kotaku report states that Obsidian Entertainment has lost about 25% of its staff as a result of the layoffs. Most of them were laid off on Monday, with a portion being told they would be let go at a later date as part of the 1,600 additional Xbox layoffs throughout the fiscal year. Many of those laid off were senior employees, including an art director who worked at Obsidian for 21 years.
A source told Kotaku that Obsidian has a “huge list of projects” in the works, and that the remaining staff has not yet been told how to proceed with their work with so many people laid off. Kotaku stated Obsidian will continue working on Grounded 2, which launched in early access last summer, and on DLC for The Outer Worlds 2, Obsidian’s latest release. Employees are expected to learn more about what comes next at a meeting on Tuesday.
Obsidian has been one of the busiest studios in recent years, not just at Xbox, but across the industry. Since being acquired by Microsoft in 2018, it’s developed six games, including three released in 2025 alone (Avowed, Grounded 2, and The Outer Worlds 2).
Avowed was a Polygon favorite from last year, and reviews for Grounded 2 and The Outer Worlds 2 were largely positive as well. However, Avowed and The Outer Worlds 2 undersold relative to Microsoft’s expectations, and there are no plans for a third The Outer Worlds game at this time.
