Microsoft in Talks to Save Obsidian and Other Xbox Studios From Closure
Obsidian and several other Xbox-linked studios are reportedly negotiating with Microsoft to reduce the risk of closure, as internal priorities shift toward major franchises while smaller teams face tougher scrutiny.
Microsoft talks aim to prevent studio shutdowns
During a new episode of The Game Business Show, editor-in-chief and co-founder Christopher Dring said Obsidian and “a few of the Bethesda studios” are currently in discussions with Microsoft. The goal, as Dring framed it, is to avoid being shut down.
Dring also addressed how Xbox leadership changes have been received. He noted that Asha Sharma’s appointment—set to take over from Phil Spencer as CEO—was initially viewed with skepticism, but momentum reportedly “rapidly turned around.” That improvement, Dring said, came from a run of fan-friendly moves, including cutting the price of Game Pass and making some first-party titles exclusive. One studio manager even told Dring that Sharma “brought hope back to Xbox.”
Still, the tone has reportedly shifted again in the wake of widespread layoffs and reports of studio closures that some have described as a “bloodbath.”
Why Xbox wants to refocus spending
Dring explained the pressure behind the negotiations by saying Xbox is looking to “reallocate where it spends money.” In his account, the company wants to pour more resources into headline franchises such as Halo, Gears, and Fallout. To make that happen, Dring said Xbox believes it needs to cut costs elsewhere, which puts studios including Compulsion, Ninja Theory, Double Fine, Obsidian, and Undead Labs—and additional Bethesda studios—“deep in negotiation” with Microsoft.
He also argued that even a strong year for Obsidian in 2025 may not have changed the outcome. Avowed and The Outer Worlds 2, Dring said, reportedly could have sold five times the copies they did, and that boost “it wouldn’t have offset the drop on Call of Duty.”
Studio leaders feel the fallout from Call of Duty
Dring further described how studio heads perceive the new direction, pointing to the contrast between massive Xbox hits and smaller releases. He said that big-name games like Candy Crush, Minecraft, and Warcraft make smaller titles feel “completely insignificant,” at least in the eyes of decision-makers.
He added that some internal leaders believe Sharma is leaning too heavily on consultants and analysts rather than taking guidance from the teams actually building games. In Dring’s telling, studio leadership argues that the industry cannot deliver the kind of speed and efficient turnaround timelines some outside advisers demand.
Dring cautioned that the changes won’t arrive instantly. “We’re not going to see these changes take effect overnight,” he said, and noted that frustration is partly rooted in the belief that things had been improving—studio teams getting stronger “game by game.”
Looking specifically at Xbox Game Studios, Dring said the division most at risk has still delivered a “broadly decent” stretch of performance over the past “few” years. He emphasized that not every release lands and that portfolios naturally include both hits and misses, but argued that—overall—things should be moving in the right direction. In his account, studio leaders feel they were punished for Call of Duty’s underperformance.
The situation is made more striking by the studio involved: Obsidian, known for Fallout: New Vegas—a creative blueprint for the Prime Video series—is now among the teams said to be at risk, even as Xbox focuses on franchises like Fallout.
