Obsidian reportedly lays off 25% of staff: latest Xbox cuts

Obsidian Entertainment has reportedly taken a heavy hit in Microsoft’s latest round of Xbox layoffs this fiscal year. By current accounts, the studio behind The Outer Worlds, Pentiment, and Grounded has lost roughly a quarter of its staff, making this one of the biggest reported hits any Xbox studio has taken so far.

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Reports put the number at 60 to 70 employees, or around 25% of Obsidian Entertainment. Production, art, design, programming, and QA were all affected, and the cuts reportedly reached into nearly every discipline instead of staying contained to one team.

Some of the people reportedly let go had been with the studio for years. That list reportedly includes The Outer Worlds art director and Obsidian Entertainment’s only recruiter, which leaves new questions about how Grounded 2 early access and the planned The Outer Worlds 2 DLC will be supported while the staff who remain wait for some clarity.

By these reports, the cuts at Obsidian are part of a much broader Xbox restructuring that has removed about 3,200 roles this fiscal year. That figure includes an initial 1,600 layoffs on July 6, 2026, after heavy spending on Game Pass, acquisitions, and content reportedly fell short of expectations. Xbox CEO Asha Sharma reportedly told staff the business is “not healthy.”

For people who follow Xbox and Obsidian Entertainment closely, the wider picture is hard to ignore. Reports say Double Fine and Compulsion Games could be spun off, while Ninja Theory and Undead Labs may be sold, all during an industry slump that has dragged on since 2022 and, by some estimates, accounted for 14,600 layoffs in 2024.

The reported fallout is likely to hit Xbox and PC projects.

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