New Cuts for Xbox: Obsidian's Closure Denied but Layoffs Looming

At Xbox, it's a particularly tumultuous time. Besides the new Game Pass price, a possible strategy change for adding games to the catalog, and the ongoing development of the new Xbox, Microsoft's gaming division is evaluating an internal reorganization.

New layoffs are on the horizon, along with the possible closure or sale of development studios. In recent hours, a new rumor regarding a potential closure of Obsidian emerged online, following similar rumors about Ninja Theory. However, the news was denied within a few hours.

Obsidian Will Not Close

The case of "Obsidian" is linked to a report from The Game Business that revealed ongoing negotiations between Microsoft and the development team to find a solution for the future.

The possibility of closing the studio was reportedly on the table. According to the report, at this moment: "The company wants to invest in its main franchises, and to do so, it must cut in other areas. Studios like Compulsion, Ninja Theory, Double Fine, Obsidian, Undead Labs, and others are engaged in advanced negotiations with Microsoft to avoid closure. The impact of this situation will likely ripple across the entire business."

According to Jason Schreier from Bloomberg, who cites sources close to the situation, Obsidian will not close and is not in negotiations with Microsoft to avoid shutdown.

"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." — Jason Schreier (@jasonschreier.bsky.social)
2 July 2026 at 16:24

The matter remains open. In the coming days, Microsoft is expected to announce a new wave of layoffs, which will particularly affect its gaming division as part of an internal reorganization program aimed at cost containment. Schreier himself confirmed that more details will arrive next Monday.