False Alarm: Obsidian Closure Report Retracted

For a few hours today, it looked like Obsidian Entertainment was on the chopping block alongside Double Fine, Ninja Theory, and the rest of Xbox's reportedly at-risk studios. Then the story fell apart.

A report from The Game Business published earlier today listed Obsidian among studios "deep in negotiation with Microsoft to avoid closure," alongside Compulsion Games, Ninja Theory, Double Fine, Undead Labs, and several Bethesda-affiliated teams. The report, written by editor-in-chief Christopher Dring, painted a bleak picture of Xbox CEO Asha Sharma's ongoing restructuring effort and the internal frustration it's generating. But within hours, the Obsidian portion of that report was pulled back. The Game Business itself issued a correction, stating plainly that listing Obsidian as a studio in closure negotiations "was a mistake."

Bloomberg's Jason Schreier reinforced the retraction on Bluesky, writing:

"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."

Separately, VGC's Jordan Middler posted on Bluesky that he'd been told "multiple times recently" that the team is working on a new Fallout project. If accurate, that would make Obsidian one of the studios directly benefiting from the very franchise-first strategy that's threatening its peers.

Inside Xbox's chaos Dring's broader reporting describes an organisation where decisions are being made in hours rather than weeks, where studio heads feel they're "being punished for the poor performance of Call of Duty," and where leadership is allegedly leaning on consultants and social media sentiment rather than the developers building the games. One studio boss quoted in the report said bluntly: "We're chasing a declining market with franchises that are past their prime."

The original report made a specific claim that stuck with me: even if Avowed and The Outer Worlds 2 had sold five times their actual numbers, it "wouldn't have offset the drop on Call of Duty." That framing captures the impossible position smaller Xbox studios are in. When your parent company's revenue needle is moved by Call of Duty, Candy Crush, and Minecraft, a well-reviewed RPG selling a couple of million copies barely registers. Earlier this year, Obsidian head Fergus Urquhart told Bloomberg that neither The Outer Worlds 2 nor Avowed met sales expectations, and that the results made the studio reconsider how much it spends on its games and how long they take.

I'm relieved Obsidian appears safe, but the whiplash of today's news cycle is a symptom of a bigger problem. When information is this contradictory and this fluid, it usually means decisions are still being made in real time, and the people inside the organisation don't have a clear picture either. Schreier's note that "plenty of details are still up in the air" and that the full picture won't be clear until Monday reinforces that. Layoffs across Xbox are expected to begin on July 6, and reporting suggests at least 1,000 jobs could be lost. Studios like Compulsion, Double Fine, Ninja Theory, Undead Labs, and Arkane remain in genuine danger of closure or spinoff.

Obsidian dodged this particular bullet. The studios that haven't will find out their fate in the coming days, and I suspect the final shape of Sharma's reset will look worse than what's already leaked.