Obsidian Entertainment, the revered RPG studio behind The Outer Worlds and Pillars of Eternity, has been caught in the latest wave of Microsoft’s Xbox restructuring. According to reports from PC Gamer and Kotaku, between 60 and 70 employees were laid off this week at the studio’s Irvine, California office, including veteran developers who have been with the company for years. The cuts are part of a broader realignment that began on July 6, as Microsoft recalibrates its gaming division following the massive $68.7 billion Activision Blizzard acquisition.
What Just Happened at Obsidian
The layoffs at Obsidian were not a sudden isolated event but the latest ripple from Microsoft’s ongoing cost-cutting measures across its Xbox studios. While Microsoft has not issued a detailed breakdown by studio, the company confirmed in a statement that it was making “structural adjustments” to its workforce. At Obsidian, the affected roles span multiple disciplines, according to the reports, hitting areas such as art, design, and production. Some of the departed staff were seasoned leads who had contributed to the studio’s most iconic games.
Obsidian, which Microsoft acquired in 2018, had grown significantly in recent years, swelling to over 200 employees as it took on multiple large-scale projects. The studio is currently developing the highly anticipated first-person RPG Avowed, set in the Pillars of Eternity universe, and The Outer Worlds 2, a sequel to the 2019 hit. An unannounced small-team project was also reportedly in the works. While Microsoft has not specified which projects are affected, any reduction in headcount inevitably raises questions about development timelines and scope.
PC Gamer first detailed the impact, noting that the cuts were communicated to staff in a company-wide meeting. Kotaku corroborated the scale, emphasizing the loss of veteran talent. The exact number of affected employees is fluid, but the consensus places it in the 60–70 range, representing a significant portion of a studio that prided itself on a tight-knit culture.
What This Means for Gamers and Game Pass Subscribers
For players invested in the Xbox ecosystem, the layoffs strike at a particularly sensitive time. Game Pass, Microsoft’s subscription service, has been built on the promise of a steady flow of first-party games available on day one. Obsidian has been a poster child for that strategy: The Outer Worlds launched simultaneously on Game Pass in 2019, and Avowed and The Outer Worlds 2 are both expected to be day-one drops. Any disruption to Obsidian’s output directly affects the service’s value proposition.
That said, it’s important to temper alarm. Game development is often fluid, and studios routinely adjust team sizes. However, losing veteran developers can lead to institutional knowledge drain and potential delays. Avowed, which was first teased in 2020, has already seen a protracted development cycle—it was reportedly rebooted internally at one point and has swapped directors. Further upheaval could push its release window beyond the vague 2025 target that insiders had pointed to.
For average Game Pass subscribers, the immediate impact may be imperceptible. The catalog remains stocked with hundreds of games, including high-profile third-party titles. But the long-term cadence of Xbox first-party exclusives is what keeps subscribers loyal. If marquee titles suffer, retention rates could dip. Power users and Xbox enthusiasts—those who track every Bethesda, Obsidian, and inXile release—may feel the sting more acutely.
To put the potential delays into perspective, here’s a look at Obsidian’s known upcoming projects and their current status:
| Project | Status | Expected Release |
|---|---|---|
| Avowed | In development, reportedly restarted | 2025 (unconfirmed) |
| The Outer Worlds 2 | In development | TBA |
| Unannounced small project | Pre-production (rumored) | TBA |
Developers and IT professionals within the gaming industry are also watching closely. The layoffs signal that even well-regarded studios under Microsoft’s umbrella are not immune to fiscal discipline. For those seeking employment, the job market in game development tightens further, while for those still at Microsoft studios, morale could take a hit, potentially sparking further attrition.
How We Got Here: Microsoft’s Year of Contraction
To understand the Obsidian layoffs, one must zoom out to the broader Xbox restructuring that began in early 2023. After a pandemic-era hiring spree, Microsoft’s gaming workforce ballooned from roughly 15,000 to over 25,000 post-Activision Blizzard acquisition, creating redundancy and budget pressures. Here’s a chronology of key cuts:
- January 2023: Microsoft announces 10,000 job cuts company-wide, including within gaming. Studios like 343 Industries (Halo Infinite) see layoffs—around 60 at 343 alone.
- October 2023: The Activision Blizzard deal closes, adding thousands of employees. Integration begins, and cost synergies become a priority.
- January 2024: Microsoft lays off 1,900 employees across Activision Blizzard and Xbox, primarily affecting former Activision teams but also some Xbox studios.
- May 2024: Xbox shuts down several Bethesda studios, including Tango Gameworks (Hi-Fi Rush) and Arkane Austin (Redfall), sending shockwaves through the industry.
- July 6, 2024: A fresh wave of restructuring begins, with internal sources indicating that “every studio will lose some people.” This directly leads to the Obsidian cuts.
- Mid-July 2024: Obsidian confirms layoffs of 60–70 employees, as reported by PC Gamer and Kotaku.
This pattern suggests that Microsoft is systematically evaluating its portfolio and trimming where it sees overlap or underperformance. The “Game Pass Promise” of a vast, diverse first-party lineup is being rewritten in real time: instead of funding everything and hoping for hits, Microsoft appears to be focusing resources on proven franchises and cost-effective blockbusters. The mid-tier, creatively risky projects that defined Obsidian’s history—and that once made Game Pass feel like a haven for unique experiences—may be harder to justify in this new era of fiscal scrutiny.
What to Do Now: Practical Steps for the Affected and the Interested
If you’re an Obsidian employee impacted by the layoffs, immediate steps include:
- Internal transfers: Microsoft often allows affected staff to apply for open roles across the company before separation; check the internal job board first.
- Update your portfolio: Polish your art, design, or code samples. Sites like ArtStation and GitHub are crucial for creative and technical roles.
- Leverage your network: Reach out to former colleagues, industry groups, and LinkedIn connections. Many studio closures have led to community-organized job fairs.
- Understand your severance: Review your package carefully and consult with HR about benefits extension, career counseling, or placement services. Some states have WARN Act requirements that may provide additional support.
For gamers concerned about upcoming titles, manage expectations and stay informed:
- Follow official Obsidian and Xbox social channels for development updates.
- If delays are announced, use the extra time to explore the Game Pass backlog—there’s no shortage of quality RPGs, from Fallout to Yakuza.
- Vote with your wallet: Game Pass subscriptions remain monthly; if you feel the value has diminished, pause or cancel to send a market signal.
The Bigger Picture: What’s Next for Xbox’s Studio System
All eyes are now on the next Xbox showcase or developer update. A planned appearance at Gamescom in August could shed light on Avowed’s progress, and The Game Awards in December might bring new trailers. Internally, the remaining Obsidian team will need to regroup and reassign responsibilities. Morale will be tested, but the studio has weathered storms before—it nearly shut down before Microsoft’s acquisition.
On a macro level, the gaming industry will be watching how Microsoft balances its newfound scale with the need to nurture creative studios. The layoffs at Obsidian, a studio known for cult classics, raise existential questions: Does the modern Xbox ecosystem have room for mid-tier, passion projects? Or is it all about the next mega-franchise? The answer will shape not just Game Pass but the entire landscape of console and PC gaming for years to come.
The coming weeks will reveal whether these cuts were a one-time correction or the beginning of a deeper retrenchment. For now, the message is clear: even under the protective wing of a trillion-dollar corporation, no studio is entirely safe, and the Game Pass promise is more conditional than ever.