Obsidian shifted from developing licensed titles to creating original games based on the studio's own intellectual property, including Pillars of Eternity and The Outer Worlds. Both Avowed and The Outer Worlds 2 released in 2025 and, despite mostly positive reviews, failed to meet Xbox Game Studios' sales goals. Obsidian is laying off around a quarter of its workforce, with layoff notices indicating the studio is specifically cutting 52 employees, 43 who work in-office in Irvine, California, and nine in-state remote employees.
Cyborg Score Rationale
Obsidian possesses world-class creative talent and a proven track record with iconic franchises (Fallout: New Vegas remains beloved by fans). However, as of July 2026, releases underperformed commercially, leading to forced workforce reductions, project cancellations, and strategic constraints. The Fallout assignment offers redemption but signals reduced autonomy and heightened execution risk.
Top Insights
Fallout assignment marks a strategic reset: (July 2026) Microsoft redirected Obsidian away from original IP (Avowed sequel cancelled) toward proven licensed franchises, reflecting broader Xbox focus on safer, bigger-name properties
Commercial underperformance with original IP: (2025) Avowed and The Outer Worlds 2 launched to positive critical reception but missed sales targets, forcing the pivot
Workforce contraction signals pressure: (July 2026) 52-person layoff (roughly 25% of staff) underscores Microsoft's post-restructuring cost discipline and raised execution risk on Fallout
Creative leadership continuity: Josh Sawyer, original director of the acclaimed Fallout: New Vegas (2010), is leading the new project, lending credibility but also raising expectations
Named Competitors
The Witcher — Story-driven open-world RPG franchise
Baldur's Gate — Choice-based fantasy CRPG
Dragon Age — Choice-driven fantasy RPGs with deep character relationships
Kingdom Come: Deliverance — Story-focused immersive RPG with narrative-driven gameplay
Recent Developments
(July 2026) Microsoft assigned Obsidian to lead development of next Fallout game with Josh Sawyer as director, following major Xbox restructuring and mass layoffs
(July 2026) Obsidian laid off approximately 25% of workforce (52 employees) as part of broader Microsoft gaming reset
(July 2026) Microsoft cancelled Avowed sequel; Obsidian pulled off announced sequels and unannounced projects to focus on Fallout franchise
(2025) Avowed and The Outer Worlds 2 both released but failed to meet Xbox Game Studios' sales targets despite positive reviews
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