Obsidian Entertainment reportedly safe from Microsoft studio closures

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Obsidian Entertainment, the beloved RPG developer behind several cult classic games, is reportedly not under threat of closure despite fears it was in negotiations with corporate owner Microsoft to avoid shutdown.

Numerous reports have claimed that Xbox is planning to carry out mass layoffs, cancel an undetermined number of games, and close entire game development studios soon. Compulsion Games (South of Midnight), Double Fine (Psychonauts), and Ninja Theory (Hellblade) are a few of the developers reportedly negotiating to stay alive.

A new report from The Game Business stated that Obsidian Entertainment is also part of that list, and is currently in negotiations with Microsoft in order to avoid closure. Fears were that certain developers under Microsoft's gaming division could spin off and become independent, find new buyers, or simply shut down for good, but Bloomberg reporter Jason Schreier now reports that Obsidian Entertainment is, in fact, safe from closure.

"Despite a report this morning, I can confirm that Obsidian is *not* in negotiations to avoid shutting down," Schreier writes on Bluesky. "Plenty of details are still up in the air surrounding the layoffs (picture will be clear on Monday) but Xbox is keeping Obsidian, according to people familiar with the situation."

Obsidian Entertainment itself has been an absolute powerhouse in the RPG genre for over two decades. The developer first made a name for itself by working on sequels that sometimes eclipsed their older siblings – Star Wars: Knights of the Old Republic 2, Neverwinter Nights 2, and Fallout: New Vegas.

After being acquired by Xbox in 2018, the iconic developer's been building out its own franchises with Pillars of Eternity and Avowed, The Outer Worlds and its sequel, Pentiment, and the Grounded duology. Every game publisher under the sun has been chasing bonafide multiplayer hits, and Obsidian arguably made two of them with its survival game series – in one console generation, no less. Needless to say, its closure would have been a huge loss.

Elsewhere, the potential Xbox closures and internal turmoil come amid what CEO Asha Sharma calls a "reset" for the business. "We're not in a healthy spot, so the next 100 days is going to be about resetting the business," she said last month.

Recent reports also claimed Sharma was looking to move faster on The Elder Scrolls, Halo, and Fallout games . Microsoft's fiscal year ended on June 30, 2026, so we should likely learn more about what that reset entails in the coming days and weeks.

We've also reached out to Xbox for comment on the Obsidian rumors, and will update this article if we receive a response.

Obsidian veteran Josh Sawyer thinks RPG choices are best when they're not "purely" good or evil, and Greek plays "knocked it out of the park 1000s of years ago."