Obsidian Entertainment is safe from Xbox’s sweeping July 2026 restructuring, despite a brief closure scare. Bloomberg’s Jason Schreier and Windows Central both confirmed the Fallout: New Vegas studio will survive the reset, even as at least five other Xbox studios face shutdown.
Xbox’s July 2026 restructuring is the largest shakeup in the division’s history, with at least five studio closures, over 1,000 expected layoffs, and major project cancellations all timed for the week of July 6. In the middle of this storm, a report briefly claimed Obsidian Entertainment, the studio behind Fallout: New Vegas and Avowed, was also in danger. That report was debunked within hours by Bloomberg’s Jason Schreier, but the panic it caused reveals just how fragile trust in Xbox has become.
What Happened with the Obsidian Closure Rumor?
On July 2, 2026, The Game Business listed Obsidian Entertainment among Xbox studios reportedly in negotiations to avoid closure. The outlet placed it alongside Compulsion Games, Ninja Theory, Double Fine, and Undead Labs. The story spread fast across social media and gaming communities.
Bloomberg reporter Jason Schreier responded on Bluesky the same morning: “Despite a report this morning, I can confirm that Obsidian is not in negotiations to avoid shutting down. 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.”
Windows Central’s executive editor Jez Corden independently confirmed the same from his own sources: “Obsidian will NOT be closed down. Xbox is still widely expected to have cuts across the board, but Obsidian will endure.” The Game Business subsequently issued a correction, calling the Obsidian listing “a mistake.”
Was Obsidian Ever Actually at Risk?
The answer is complicated. According to veteran games journalist Jeff Grubb, the original report was not entirely fabricated. Speaking on a July 2 podcast, Grubb said: “Inside of Xbox, this was going around about Obsidian. But it’s happening so fast. They are making decisions within a 24-hour period. And these are decisions that under the previous leadership would have taken weeks or months.”
Grubb stopped short of saying Obsidian was on the verge of shutdown, but added: “I don’t know if it was clear that they were always safe.” He described Xbox’s current leadership style under new CEO Asha Sharma as “fly by the seat decision-making,” with a startup mentality of “move fast and break things.”
Whether Obsidian’s name simply appeared on internal lists during rapid-fire planning sessions or whether it was genuinely considered for closure remains unclear. What is clear is that as of July 2, the studio is safe.
Why Obsidian’s Position Was Vulnerable
Obsidian released three games in 2025: Avowed (February), Grounded 2 in Early Access (July), and The Outer Worlds 2 (October). Studio head Feargus Urquhart told Bloomberg in early 2026 that only Grounded 2 was a commercial success. Both Avowed and The Outer Worlds 2 missed Microsoft’s sales targets despite solid Metacritic scores above 80.
The studio confirmed it has no plans for The Outer Worlds 3. Avowed performed well in daily active users on Xbox devices, outpacing titles like Monster Hunter Wilds and Hollow Knight: Silksong, but that metric alone was not enough to meet Microsoft’s financial expectations. Grounded 2, built on a smaller budget in roughly two years of development, became the studio’s most profitable recent release compared to the six-plus years invested in both Avowed and The Outer Worlds 2.
This mismatch between critical reception and commercial performance is exactly the kind of gap that puts studios at risk during corporate restructuring.
The Bigger Picture: Xbox’s July 2026 Reset
Xbox CEO Asha Sharma, who replaced Phil Spencer in February 2026, initiated what she called a “reset” of the entire gaming division. In an internal memo reported by Bloomberg and The Verge, Sharma acknowledged that Xbox finished its fiscal year at a 3% accountability margin, had invested over $20 billion in content and platform over five years, and still saw annual revenue decline by roughly half a billion dollars.
At the Bloomberg Tech 2026 event, Sharma publicly stated Xbox was “not in a healthy spot.” The restructuring plan involves:
- Major layoffs starting July 6, 2026 (estimated at over 1,000 positions)
- At least five studio closures or spin-offs
- Significant marketing budget cuts
- Potential cancellation of Marvel’s Blade at Arkane Studios
- A strategic pivot toward core franchises like Halo, Fallout, and The Elder Scrolls
Which Xbox Studios Are Actually Closing?
Based on reporting from Bloomberg, The Verge, Kotaku, and GamesBeat, five Xbox studios face closure or forced spin-offs:
| Studio | Known For | Current Status |
|---|---|---|
| Ninja Theory | Hellblade series, Senua | Staff informed of closure; seeking buyer |
| Compulsion Games | We Happy Few, South of Midnight | Closure seen as inevitable; staff told to seek other jobs |
| Double Fine | Psychonauts, Kiln, Keeper | Negotiating independence or buyout |
| Undead Labs | State of Decay series | Microsoft actively seeking buyer |
| Arkane Studios | Dishonored, Prey, Marvel’s Blade | Blade cancellation and studio sale under discussion |
Ninja Theory’s situation is particularly jarring. The studio announced its new game Senua at the Xbox Games Showcase, only to learn a week later that it was being shut down. This comes just one year after Xbox closed Arkane Austin, Tango Gameworks, and The Initiative, and cancelled both Perfect Dark and Everwild.
Could Obsidian Work on Fallout Next?
VGC’s Jordan Middler reported that Obsidian was in the early stages of a Fallout project. Bloomberg’s Jason Schreier denied that claim on ResetEra, but added a notable qualifier: “That’s not true, but given Sharma’s reported new direction, it could very well become true very soon.”
Xbox’s new strategy prioritizes its most valuable franchises. Obsidian created Fallout: New Vegas, widely regarded as the best Fallout game ever made. The studio also welcomed back key Fallout alumni in late 2025: creative director John Gonzalez (New Vegas’s lead writer) and co-creator Tim Cain both returned to Obsidian, though neither confirmed they are working on a Fallout title.
With Bethesda Game Studios still focused on The Elder Scrolls VI, and the Fallout TV series continuing to drive franchise interest, an Obsidian-developed Fallout project could fill a gap that Xbox badly needs.
What This Means for the Xbox Ecosystem
The fact that so many people instantly believed Obsidian could be closed speaks volumes about the current state of trust in Xbox. As Windows Central noted, “the level of distrust currently surrounding the brand” is at a peak. Since the Activision Blizzard King acquisition closed in 2023, Microsoft has conducted five major rounds of gaming layoffs. Console prices are also rising, with the Xbox Series X 1 TB model expected to hit $800 from August 2026.
For players invested in the Xbox ecosystem, the uncertainty extends beyond studio closures. Game Pass deals may be paused, hardware costs are climbing, and the studio pipeline for exclusive titles is narrowing. The bright side is that Xbox appears committed to keeping its most strategically valuable studios, with Obsidian seemingly positioned as a key RPG asset for the future.
What Players Usually Ask About This Situation
Is Obsidian Entertainment shutting down?
No. Both Bloomberg’s Jason Schreier and Windows Central’s Jez Corden confirmed from independent sources that Xbox is keeping Obsidian. The original closure report was retracted as an error.
When will the Xbox layoffs happen?
Layoffs are expected to begin on Monday, July 6, 2026, immediately after Microsoft’s fiscal year closed on June 30. The full scope should become clear throughout the week.
Is Obsidian making a new Fallout game?
Not currently, according to Schreier. However, Xbox’s new franchise-first strategy under Asha Sharma could change that soon. Key Fallout: New Vegas veterans have already returned to the studio.
How many Xbox studios are being closed?
At least five studios are at risk: Ninja Theory, Compulsion Games, Double Fine, Undead Labs, and Arkane Studios. Some are negotiating spin-offs or buyouts rather than outright closure.
Why is Xbox closing studios it recently acquired?
Microsoft acquired dozens of studios between 2018 and 2023 but struggled to generate profitable returns. Xbox’s accountability margin dropped to 3%, and annual revenue declined by approximately $500 million over five years despite $20 billion in investment. CEO Asha Sharma is prioritizing profitability over portfolio breadth.
The July 6 deadline marks the beginning of what could be the most consequential week in Xbox history. Obsidian appears to have weathered the storm, but the aftershocks across the Xbox studio network will take months to fully play out.
