Betrayed by Success: Obsidian Loses a Quarter of Its Staff After Delivering Five Acclaimed Games for Xbox

For a decade, Obsidian Entertainment stood as a beacon of survival in an unforgiving industry. The studio that resurrected itself from the brink of collapse through crowdfunding, that delivered Fallout: New Vegas under impossible deadlines, and that finally found a home under Microsoft in 2018 seemed to have beaten the odds. Under Xbox’s wing, Obsidian did exactly what its corporate parent asked: it turned out a steady stream of critically praised RPGs to feed the Game Pass machine. The Outer Worlds, Grounded, Pentiment, Avowed, and The Outer Worlds 2, five games in five years, each one a showcase of the studio’s distinctive voice.

Then, on July 6, 2026, the other shoe dropped.

Microsoft cut approximately 60 to 70 employees from Obsidian, roughly 25 percent of the studio’s 285-person workforce. Among the departed were a 21-year veteran artist, narrative designers who had shaped some of the most beloved RPGs of the past two decades, and the studio’s only recruiter. This is the story of a studio that did everything right and was still deemed expendable.

The Scale of the Cuts, A Studio No Longer Untouchable

Obsidian had previously dodged every wave of Xbox layoffs since the $69 billion Activision Blizzard acquisition. The studio sat out the 1,900 cuts in early 2024, the 650 later that year, and the July 2025 reductions that killed projects like Perfect Dark and Everwild. Those near misses fostered a quiet sense of security. That sense is now gone.

The July 6 cuts spanned every discipline: producers, artists, designers, programmers, QA testers, and writers. Among the most notable departures was art director Daniel Alpert, a 21-year veteran whose credits include Neverwinter Nights 2, Alpha Protocol, and the Fallout: New Vegas downloadable content. Narrative designer Jay Turner, formerly of BioWare and known for his work on Dragon Age: Origins and Mass Effect 2, was also let go. In a post on BlueSky, Turner called the cuts “Microsoft sacrificial rituals.” Pentiment artist Soojin Paek, area designers Bre Seale and Tyler McCombs, and communications producer Geoffrey Fogle were among the others who lost their roles. Even a new engineer who had joined Obsidian only two months earlier was swept up in the reduction.

The loss of the studio’s sole recruiter is particularly telling. It signals not just a reduction in headcount but a freeze on hiring, leaving remaining employees to wonder how they can possibly maintain Obsidian’s famously ambitious output with a quarter of their colleagues gone.

The Game Pass Mandate, Five Games in Five Years, But at What Cost?

Obsidian’s aggressive release schedule under Microsoft was a direct response to the demands of Xbox Game Pass. The subscription service needs a constant flow of new content to retain and attract subscribers, and Obsidian became one of the first-party studios most willing to deliver. Between 2020 and 2025, the studio shipped The Outer Worlds (2020, originally a pre-acquisition deal that released under Microsoft), Grounded (2022), Pentiment (2022), Avowed (2025), and The Outer Worlds 2 (2025). Each game was met with strong critical reception.

Yet volume came at a cost. According to internal assessments, both Avowed and The Outer Worlds 2 failed to meet Microsoft’s sales expectations. Neither was a commercial failure in the traditional sense, but the Game Pass model siphons off a significant portion of potential unit sales. Every subscriber who plays a game through the service is a customer who did not pay for a copy, and when subscriber growth begins to plateau, as it reportedly has, the math shifts dramatically. The very strategy that made Obsidian so productive may have made its individual releases less valuable, leaving the studio vulnerable to the spreadsheet-driven logic of a corporate restructure.

The Human Cost, Veterans, Newcomers, and a Studio in Shock

Beyond the numbers, the layoffs hit Obsidian at an acutely personal level. Daniel Alpert’s departure severs a direct link to the studio’s formative years in the early 2000s. Jay Turner’s exit removes a narrative designer whose fingerprints are on some of the genre’s most celebrated storylines. The loss of Soojin Paek, whose art defined the distinctive look of Pentiment, removes a unique creative voice.

Remaining employees received no formal guidance on how to continue with “a huge list of projects” at reduced capacity. An all-hands meeting was scheduled for July 7, the day after the cuts were announced, but in the immediate aftermath, confusion reigned. Work on Grounded 2 (currently in early access) and The Outer Worlds 2 downloadable content is expected to continue. Beyond that, everything is described as “up in the air.”

The Future: Uncertain

The uncertainty also casts a shadow over one of the most hopeful developments in recent Obsidian history: the return of Tim Cain, co-creator of the original Fallout, who rejoined the studio in December 2025 to work on an unannounced project. That reunion, which filled many longtime fans with optimism, now faces an uncertain future.

Xbox’s Broader Reset, Why Obsidian Wasn’t Safe

The cuts at Obsidian did not happen in isolation. They are part of a far larger contraction at Xbox, driven by CEO Asha Sharma’s assessment that the division is “operating at margins that are 3 to 10 times lower than comparable platforms” and has “lost 64 cents for every dollar invested.” Her plan calls for 1,600 immediate layoffs and 1,600 more over the following year, along with the restructuring or removal of several studios from Xbox’s direct management.

Earlier rumors that Obsidian might be closed entirely circulated in the days before the layoffs, but were swiftly corrected by informed sources. The studio remains open. Yet the decision to cut a quarter of its staff, far more aggressive than the proportional reductions seen at other Xbox studios, suggests that Obsidian’s productivity was not enough to shield it from the broader financial reckoning.

The chaotic information environment surrounding the cuts, with conflicting reports and delayed confirmations, has done little to reassure the remaining workforce or the studio’s fanbase. For a team that prides itself on transparency and close community engagement, the lack of clarity from Microsoft leadership stings almost as much as the layoffs themselves.

If Even Obsidian Isn’t Safe, What Studio Is?

Obsidian’s story is a cautionary tale for the entire industry. The studio delivered everything its corporate parent demanded: high-quality, critically acclaimed games at a pace that would exhaust most developers. It embraced the Game Pass model and produced content specifically designed to keep subscribers engaged. And when the subscription growth curve flattened, it was rewarded with a sudden, brutal workforce reduction that severed decades of institutional knowledge and left survivors scrambling to hold things together.

If even Obsidian isn’t safe, what studio is? The question lingers not just about one developer, but about the sustainability of a model that demands ever-increasing output while simultaneously devaluing each individual release. It is about a corporate culture that treats studios as functional units to be trimmed when the quarterly reports turn sour. And it is about the human cost of a “reset” that, according to Xbox’s own leadership, is necessary to fix margins that are fundamentally broken.

The studio’s only recruiter is gone. There will be no replacement. The silence in the hallways says more than any corporate memo. As the laid‑off veterans of Obsidian begin searching for new roles and the remaining team tries to navigate an uncertain future with a quarter of its people gone, the rest of the industry watches. If the studio that made Fallout: New Vegas and Pentiment is not protected, then no one is.