Microsoft’s mass layoffs had a heavy impact on the Xbox division, and Obsidian Entertainment, the studio behind The Outer Worlds, is one of many Xbox-owned studios where cuts were deep.
Kotaku reports that between 60 and 70 people–roughly a quarter of the studio’s workforce–have been let go. The talent laid off includes producers, QA testers, artists, and many others spanning different disciplines.
Senior talent was not spared in the cuts, with Kotaku saying that some laid off were with the studio for over a decade. Others affected include the art director for The Outer Worlds and the studio’s lone recruiter. Despite the cuts, it is said that work will commence on Grounded 2 and planned DLC for The Outer Worlds 2, but any plans beyond that are currently unknown.
Obsidian has a storied history: Founded in 2003, the Irvine, California-based studio became known for Star Wars: Knights of the Old Republic 2, Fallout: New Vegas, and South Park: The Stick of Truth. Microsoft bought the studio in 2018 as part of an acquisition spree, and the studio has since shipped games including Grounded, Pentiment, and Avowed.
2025 was massive for Obsidian, as it released Avowed, The Outer Wilds 2, and Grounded 2 (in early access) all in the same year–but Obsidian studio design director Josh Sawyer said earlier this year that the triple release was due to poor planning and resource mismanagement, or in Sawyer’s words, “the result of things going wrong.” It’s said that Obsidian will continue making games set in the Avowed universe, but a third entry in The Outer Worlds series is not on the docket.
Meanwhile, Xbox layoffs also hit Id Software, Bethesda Game Studios, and ZeniMax as a whole. These cuts are part of Xbox’s initial wave of 1,600 layoffs, with about 3,200 total layoffs expected throughout Microsoft’s fiscal year. Microsoft is cutting about 4,800 positions across the entire company–roughly 2% of its entire workforce.
