Obsidian Entertainment is not shutting down. That confirmation came fast, but the hours before it were a mess of conflicting information that perfectly captures how chaotic things are inside Xbox Game Studios right now.
Early Thursday, a report from The Game Business placed Obsidian, the studio behind Grounded and The Outer Worlds, on a list of Xbox developers actively negotiating with Microsoft to avoid closure. The studio joined a grim roster that already included Arkane, Undead Labs, Compulsion Games, Ninja Theory, and Double Fine. For Obsidian fans, it was a gut-punch moment.
Then journalist Jason Schreier stepped in. He posted directly to Bluesky: "Despite a report this morning, I can confirm that Obsidian is not in negotiations to avoid shutting down." He followed up by stating Xbox is keeping Obsidian, citing people familiar with the situation. The whole saga played out in under a day.
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How Obsidian ended up on the list in the first place
Microsoft acquired Obsidian back in 2018. Since then, the studio shipped Avowed in early 2025, which landed to solid critical reception but reportedly missed internal sales targets. The Outer Worlds 2 also reportedly underperformed commercially before it even had a chance to build momentum.
Here's the thing: strong sales might not have even saved anyone. Internal frustration at Microsoft reportedly traces back to Call of Duty's disappointing performance, with first-party studio teams feeling like they're being penalized for a franchise they had nothing to do with. That context makes the whole situation feel less like a performance review and more like collateral damage from a much larger strategic miscalculation.
The whiplash around Obsidian's status, from endangered to confirmed safe within hours, says a lot about how little clarity exists inside Xbox right now. Schreier himself noted that plenty of details remain "up in the air" and that the full picture is expected to drop on Monday, the same day layoffs are reportedly set to begin.
The five studios that aren't out of the woods
Obsidian's confirmation of safety doesn't change the situation for the rest of the list. Five studios are still in genuine jeopardy.
- Arkane Studios: Marvel's Blade, the studio's next project, is reportedly up for cancellation.
- Undead Labs: State of Decay 3 may be sold off rather than cancelled outright.
- Compulsion Games: The studio faced closure reports just months after winning awards.
- Ninja Theory: Announced Senua's Saga while simultaneously being named as a team facing shutdown.
- Double Fine: The entire studio's future, including the recently released Kiln, remains uncertain.
That's a lot of beloved studios, and a lot of games that players have been waiting years to see.
What Monday could look like for Xbox
The scale of what's coming is hard to overstate. If even half the studios on that list face significant cuts or closures, this would represent one of the largest single contractions in Xbox's first-party history. State of Decay 3, Senua's Saga: Hellblade III, and a potential Marvel's Blade game all disappearing would leave a serious gap in Xbox's release calendar for years.
What most players miss in coverage like this is that studio closures don't just end games in development. They scatter teams that took years to build, kill institutional knowledge, and often result in those developers landing at competitors or forming new independent studios. The long-term ripple effects on Xbox's output could be felt well into the next console generation.
For now, Obsidian is safe. The Outer Worlds 2 presumably continues. But Monday's announcements will define what Xbox Game Studios actually looks like going forward, and right now, that picture is not a comfortable one.
If you're looking to stay across all the latest gaming news and what it means for upcoming releases, the gaming guides hub is worth bookmarking as things develop. For something completely different while the Xbox situation plays out, check out the ChainStaff ROG Xbox Ally X settings guide or brush up on what Marvel's Wolverine's structure actually looks like ahead of its release.
