Xbox Memo Uncovers Obsidian’s Future with Bethesda

Xbox has faced significant challenges in 2026. In early July, the company revealed plans to lay off 1,600 employees and divest from several of its well-known studios, including Double Fine, with further layoffs anticipated in the upcoming fiscal year. On September 22, Microsoft announced another round of job cuts, impacting an additional 268 developers. These layoffs are part of a broader company-wide reorganization that will see several studios merged, including the notable shift of Halo now being managed under Activision.

In addition to the Halo transition, another merger has raised concerns among fans: Obsidian Entertainment will now operate within Bethesda. However, Jill Braff, head of Bethesda Game Studios, reassured that Obsidian will maintain its “creative identity and strengths that make Obsidian distinct.” A leaked memo indicated that this organizational change is mainly about adjusting the reporting structure. While the two teams will collaborate closely on Obsidian’s upcoming Fallout project, they will remain separate entities. Obsidian is known for creating the beloved Fallout: New Vegas, which has fans eager for their next installment in the franchise.

The memo also highlighted a significant point. Braff mentioned that the reorganization of Obsidian is intended to support the “franchise-led model” that Microsoft is adopting. As part of Xbox’s ongoing major “reset,” CEO Asha Sharma stated that the company will concentrate on its existing franchises, suggesting that new intellectual properties may not be prioritized moving forward. Over the past 15 years, Obsidian has released a diverse array of games, including Pillars of Eternity (and its sequel), The Outer Worlds (and its sequel), Pentiment, Avowed, Grounded, and Tyranny. In contrast, Bethesda has released fewer titles, with Starfield being its only original game outside of sequels or re-releases.

While it seems Obsidian will continue to operate, it may not have the same freedom to innovate as it once did. Based on Braff’s comments, the studio will likely focus on sequels to Bethesda games or follow-ups to its own franchises, such as The Outer Worlds, Pillars of Eternity, and Grounded. Given Xbox’s current struggles, we might have to brace ourselves for more of the same.

Here’s the full memo from Jill Braff:

Hi everyone,

Following the note from Matt, I wanted to share more on today’s news and what it means for our collective teams.

I’ve had the opportunity to get to know Feargus Urquhart and his team over the past six years, and I have great respect for what they’ve built. Obsidian has extraordinary creative talent, deep expertise, and a long history of creating memorable games and experiences. I’m looking forward to working more closely with them.

Today’s announcement is primarily a change in reporting structure. The creative identity and strengths that make Obsidian distinct will remain at the core of their studio and work.

Feargus and the Obsidian leadership team will continue to lead Obsidian, with the studio reporting to me. Bethesda Game Studios will continue to lead the Fallout franchise. Together, the teams will build on their longstanding relationship and the early work already underway on a new Fallout project, with more to share in the months ahead. This structure supports the franchise-led model we’ve been strengthening while keeping accountability for both the studio and the franchise clear.

I also recognize that employees across our studios, publishing, and business teams will have questions about what this means for our current priorities, roadmap, and responsibilities. To be clear, we’re not resetting our roadmap or asking teams to change what they’re focused on. We’ll take the time to understand how teams can best support one another, and where closer partnership can benefit our players and fans. We’ll continue communicating as we progress.

I’m looking forward to spending more time with the Obsidian team and building on the strong foundation already in place across our organizations.

Welcome Feargus and team – more soon!

Jill

It’s been a tough few months for Team Green.