Obsidian Entertainment, the Xbox first-party RPG studio behind The Outer Worlds 2, Avowed, and Grounded, did not escape Microsoft's sweeping July 2026 layoffs unscathed. According to reporting by Kotaku, roughly 25 percent of the studio's workforce has been cut - an estimated 60 to 70 people - as part of the broader Xbox restructuring that initially eliminated 1,600 positions across the division.
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Who Was Affected
The cuts span virtually every discipline at the studio. The layoffs included producers, artists, designers, programmers, QA testers, writers, and others who had worked across Obsidian's recent slate of releases. The seniority of those let go is particularly notable: many of those impacted were senior talent, including some with over a decade of experience at the studio, among them the art director on The Outer Worlds and the studio's only recruiter.
Daniel Alpert, an artist with 21 years at Obsidian, was among those laid off - his credits span Neverwinter Nights 2, the Fallout: New Vegas DLC expansions, Alpha Protocol, and The Outer Worlds 2. The cuts affected roughly a quarter of the studio's 285-person workforce from 2025.
The Broader Xbox Context
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. Xbox layoffs also hit id Software, Bethesda Game Studios, and ZeniMax as a whole. Most of the Obsidian roles were eliminated on July 6, with a few employees told they would be let go later this year as part of a second wave of cuts.
Last week, there had been word that Obsidian was in danger of being shut down entirely - but that specific report was later refuted. The studio remains part of Xbox Game Studios, though in a significantly reduced form.
What Comes Next for Obsidian
Despite the cuts, work will continue on Grounded 2 and planned DLC for The Outer Worlds 2. Obsidian had previously committed to two paid story expansions for the game. The two paid story expansions were announced before The Outer Worlds 2 launched in October and are included in the game's expanded edition, also available to owners of the premium upgrade. No release dates for the DLCs have been revealed yet.
The Outer Worlds 2 was released for PlayStation 5, Windows, and Xbox Series X/S on October 29, 2025, and received generally positive reviews from critics, but failed to meet the sales expectations of Xbox Game Studios. In February 2026, it was confirmed that the game had failed to meet sales expectations and that a sequel is not currently planned.
Obsidian design director Josh Sawyer said earlier this year that the triple 2025 release of Avowed, The Outer Worlds 2, and Grounded 2 was due to poor planning and resource mismanagement - "the result of things going wrong." Studio head Feargus Urquhart, however, clarified that neither The Outer Worlds 2 nor Avowed were "disasters."
The immediate outlook for Obsidian is one of consolidation. Grounded 2 has been one of the studio's strongest-performing recent properties, and Avowed 2 is also allegedly in development - though its future timeline remains unclear in the wake of these cuts.
The Outer Worlds 2 - Current Pricing
The Outer Worlds 2 is currently available from CA$6.75 via the price comparison below - worth checking if you haven't picked it up ahead of the planned DLC releases.
