Conflicting reports flipped Obsidian Entertainment from endangered to safe within hours Thursday, but the larger question, which Xbox studios actually get axed, won't land until Monday. The Game Business reported that the Outer Worlds and Grounded developer had joined a growing list of Xbox studios negotiating with Microsoft to avoid closure. Obsidian was a late addition to a grim roster that already included Arkane, Undead Labs, Compulsion, Ninja Theory, and Double Fine, studios behind Perfect Dark, State of Decay 3, and Senua.
Bloomberg's Jason Schreier killed that report hours later. "Despite a report this morning, I can confirm that Obsidian is not in negotiations to avoid shutting down," Schreier posted.
He added that Xbox "is keeping Obsidian, according to people familiar with the situation."
Microsoft acquired Obsidian in 2018. The studio shipped Avowed in early 2025 to solid reviews but failed to meet sales targets, and The Outer Worlds 2 also reportedly underperformed commercially.
IGN noted that even strong sales might not have mattered, internal frustration at Microsoft reportedly stems from Call of Duty's poor performance, with first-party teams believing they're being "punished" for it. The whiplash around Obsidian's status highlights how little clarity exists inside Xbox Game Studios right now. Schreier said plenty of details remain "up in the air" and that the full picture will arrive Monday, the same day layoffs are reportedly set to begin.
Five studios remain in limbo. Arkane's Marvel's Blade is reportedly up for cancellation. Undead Labs and State of Decay 3 may be sold off. Ninja Theory just announced Senua while simultaneously being named as one of the teams facing closure. Double Fine's entire future, including the recently released Kiln, is on the line.
Obsidian is safe. The rest of Xbox's studio lineup finds out Monday.
