Xbox Layoffs Impact The Outer Worlds 2 Development Team

On Monday, Microsoft revealed a significant round of layoffs, impacting 1,600 employees across various Xbox divisions. By the end of Microsoft’s fiscal year, which began in July 2026, a total of 3,200 Xbox staff members will be let go. Details are emerging about the extent of these layoffs, with teams like Bethesda and the Elder Scrolls Online reportedly facing substantial cuts.

A recent report indicates that Obsidian Entertainment has seen about 25% of its workforce affected by these layoffs. Most of the affected employees were let go on Monday, while others were informed they would be released later as part of the ongoing layoffs throughout the fiscal year. Notably, many of those impacted were senior staff, including an art director who had been with Obsidian for 21 years.

Sources have mentioned that Obsidian has a “huge list of projects” in development, but the remaining team members have yet to receive guidance on how to proceed following the layoffs. It has been confirmed that Obsidian will continue to work on Grounded 2, which entered early access last summer, as well as downloadable content for The Outer Worlds 2, their latest title. Employees are expected to receive further updates during a meeting on Tuesday.

Obsidian has been one of the most active studios in recent years, not only within Xbox but throughout the gaming industry. Since its acquisition by Microsoft in 2018, the studio has developed six games, including three that launched in 2025 alone: Avowed, Grounded 2, and The Outer Worlds 2.

Avowed was a standout title last year, and both Grounded 2 and The Outer Worlds 2 received generally positive reviews. However, both Avowed and The Outer Worlds 2 fell short of Microsoft’s sales expectations, and there are currently no plans for a third installment in The Outer Worlds series.

Asha Sharma is facing the tough realities of these changes and has made it clear who she believes is responsible (hint: not her).