Obsidian Entertainment reportedly lays off 25% of staff on July 6, 2026
Obsidian Entertainment has reportedly laid off approximately 25% of its workforce as part of a sweeping staff reduction across the Xbox gaming division.
Sources with knowledge of the matter indicate that between 60 and 70 employees were let go on July 6, 2026, including senior talent with more than a decade of experience at the Irvine-based studio. The cuts impacted a wide variety of disciplines, including artists, designers, programmers, QA testers, and writers.
Veteran developers confirmed among Obsidian staff reductions
The workforce reduction at Obsidian Entertainment is part of a first wave of 1,600 layoffs at Xbox, which parent company Microsoft reportedly plans to continue through June 2027.
While most of the impacted roles at the studio were eliminated immediately, a small number of staff members were informed they would be let go later this year during a second phase of cuts.
Impacted individuals include the art director for The Outer Worlds and the studio’s sole recruiter, as Microsoft moves away from “experimental” projects to focus resources on its “big-hitter franchises.”
The timing of these cuts follows a period of critical acclaim for the 23-year-old studio, which won a Peabody Award for the 2022 narrative title Pentiment. While the gaming giant integrated multiple studios after Bobby Kotick’s departure from Activision Blizzard, the current focus appears to be on reallocating spend toward established properties.
For Obsidian, the loss of a quarter of its staff creates immediate questions regarding the studio’s “huge list of projects” currently in the works.
The layoffs at Obsidian cut deep into the studio’s creative leadership and veteran staff. Impacted employees represent the “Obsidian DNA” that was established when the developer was founded in 2003 by ex-Black Isle employees Feargus Urquhart, Chris Parker, Darren Monahan, and Chris Jones.
Many of those let go held senior roles, with tenure exceeding ten years at the company, according to reports from impacted staff on social media platforms like LinkedIn and Bluesky.
Public confirmations of the layoffs have appeared from several key team members. Narrative Designer Jay Turner, who worked on Avowed, confirmed his departure by stating he was among a “good number of very talented game devs” let go.
Narrative Lead Kate Dollarhyde remains at the studio but acknowledged via Bluesky that “many excellent developers” lost their jobs. The cuts also reached recent hires, such as Wenzheng Huang, an engineer who had joined the company only two months prior in May 2026.
Further confirmed departures include AK Fedeau, a writer who contributed to Pentiment and Avowed, and Soojin Paek, an artist for Pentiment. The design team for Avowed was particularly affected, with Area Designers Bre Seale, Tyler McCombs, and Katie Tenney all confirmed to be among those let go.
Additionally, Communications Producer Geoffrey Fogle and Art Director Daniel Alpert, who worked on The Outer Worlds 2, were caught in the workforce reduction.
Future of Grounded 2 and The Outer Worlds 2
Despite the significant reduction in headcount, work on several high-profile projects at Obsidian is expected to continue. The survival sequel Grounded 2, which is currently available in early access, remains in active development. Similarly, the studio plans to continue work on the announced downloadable content (DLC) for The Outer Worlds 2.
However, the exact roadmap for newer or unannounced titles remains unclear as the studio attempts to manage its remaining workload with a diminished team.
Remaining employees have expressed uncertainty regarding how the studio will sustain its ambitious slate of releases. Internal sources noted that formal guidance has not yet been provided on how current projects can proceed with 60 to 70 fewer staff members.
This shift occurs as other industry players, such as Valve adjust pricing systems and digital strategies to navigate a changing market. A studio-wide meeting scheduled for July 7 is expected to clarify the path forward for the remaining developers.
Strategic shift within the Xbox Game Studios ecosystem
The layoffs at Obsidian are a component of a much larger restructuring within Microsoft’s gaming division. Xbox has announced total cuts of 3,200 jobs, representing roughly 20% of its total organization, a process that will continue until the end of fiscal year 2027.
The stated goal for this reduction is to reallocate where the company spends money, specifically shifting investment toward major, “big-hitter” franchises rather than smaller experimental projects.
Obsidian has long been recognized for its diverse RPG portfolio, ranging from Fallout: New Vegas to the award-winning Pillars of Eternity series.
Since its acquisition by Microsoft in 2018, the studio has been a key pillar of the Xbox Game Studios lineup, contributing critically successful titles like the 2019 Game of the Year nominee The Outer Worlds.
The current cuts suggest that even studios with a consistent track of critical success must now adhere to stricter budget reapportionment across the Microsoft portfolio.
The studio’s headcount, which reportedly sat many higher before the July 6 cuts, has seen its largest reduction in its two-decade history. While rumors of a full studio closure were previously debunked, the current scale of the layoffs represents a significant pivot for the developer.
As the industry watches the fallout of these “massive cuts,” the focus remains on whether Obsidian can maintain its reputation for narrative-driven RPGs with a team roughly 25% smaller than it was last month.