Bethesda Takes Over Obsidian in Xbox's September 22 Reorganization
Xbox announced the change on September 22 in a message to employees that was also published on Xbox Wire. Matt Booty, Xbox's chief content officer, wrote that "Bethesda will expand its remit to include Obsidian, which will continue its current projects, including Grounded, as well as the new Fallout project made in collaboration with Bethesda Game Studios." GameSpot and Kotaku both reported the move, and GameSpot described it as Obsidian now operating under Bethesda Softworks.
The wording describes a change in management, not a change in ownership. Both studios already belong to Microsoft. GameSpot pointed out that Booty's language doesn't appear to suggest that Bethesda took ownership of the studio, and sounds closer to the working relationship Bethesda's parent company, ZeniMax Media, has with Doom maker id Software. VGTimes offered a similar summary: Microsoft acquired the studio in November 2018, and for almost eight years it operated as an independent part of Xbox Game Studios. Now it has new leadership above it.
The public announcement leaves a lot out. GosuGamers noted that Xbox did not go into detail about how Obsidian's management or day-to-day operations will work under the new structure. Booty's note gives a general reason for the reorganization: fewer business units, grouping teams that already work closely together, and concentrating publishing expertise. It doesn't say who approves new projects, who sets Obsidian's budget, or how Fallout development work will be split between the two studios.
Jill Braff's Email Separates the Obsidian Studio From the Fallout Franchise
Braff's reassurance came the next day. Aftermath reported on September 23 that it had seen an internal email in which she downplayed the significance of Obsidian's new status, calling it "primarily a change in reporting structure." She wrote that "The creative identity and strengths that make Obsidian distinct will remain at the core of their studio and work."
The most useful part of the email is how it divides responsibility. Braff wrote that "Feargus Urquhart 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." She went on to say the two 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. She also said the arrangement supports the "franchise-led model" Bethesda has been building and keeps accountability clear for both the studio and the franchise.
That produces two separate chains of authority. Urquhart runs Obsidian as a company and reports to Braff. Bethesda Game Studios owns the direction of Fallout. The new Fallout game sits where the two meet, so Obsidian's team will be working inside a franchise another studio controls. This isn't new for Obsidian, which made Fallout: New Vegas under a similar arrangement. It does mean "creative identity" applies to the studio and its culture. On Fallout itself, Bethesda Game Studios makes the final calls.
Braff's note is also personal. She wrote that she has known Urquhart and his team for six years, praised the studio's "extraordinary creative talent" and history, and said she looks forward to working more closely with them. Keep in mind that this is an internal email reported by one outlet, not a public policy. It doesn't commit to any particular staffing level, budget or approval process.
July's Obsidian Layoffs and the Canceled Avowed Sequel Raise the Stakes
The reorganization comes two months after deep cuts at Obsidian. On July 9, Game Developer reported that a California WARN notice (the advance layoff filing some states require) showed at least 52 Obsidian workers were being laid off: 43 based at the California office and nine remote employees in the state. Kotaku's earlier report, which Game Developer relayed, put the losses at 60 to 70 roles across every department, about a quarter of the studio. The two figures measure different things. The WARN notice is the confirmed minimum for California. The larger number is a reported estimate that includes a second wave of cuts. Kotaku also reported that the laid-off staff included senior employees, among them the art director on The Outer Worlds and the studio's only recruiter.
The July cuts were part of a larger Xbox restructuring. Game Developer said they belonged to a planned 3,200-person reduction, with 1,600 jobs cut at once and another 1,600 expected over the following year. Xbox CEO Asha Sharma told staff the business was "not healthy" and that bets on Game Pass, multi-platform releases and a broader content portfolio had not worked out.
The project changes caused as much concern as the job losses. Bloomberg reported in July, as relayed by Aftermath, that the restructuring led Obsidian to cancel several projects, including an Avowed sequel, so it could work on a Fallout game. GosuGamers summarized the same reports: a planned Avowed sequel and several other projects had reportedly been shelved, while Fallout: New Vegas director Josh Sawyer was said to be leading the new Fallout project. Microsoft has confirmed that the Fallout project exists. It has not publicly confirmed the cancellations.
The September announcement doesn't resolve this. Softonic observed that Booty has said Obsidian Entertainment will keep supporting Grounded, but he didn't say anything about Avowed or other original IP. VGTimes likewise noted that neither Pillars of Eternity, nor The Outer Worlds, nor Avowed are mentioned in the plans. In July, Game Developer reported that Grounded 2's early access and the announced DLC for The Outer Worlds 2 were still in production. That was a July snapshot, and Xbox hasn't published a complete list of Obsidian's projects since then.
Halo, Rare, Forza and Fable Also Move in the Xbox Reset
The Obsidian change was one of several in the same memo, and together they show what Xbox is trying to do. Booty said Xbox was eliminating 268 roles across Halo Studios, other first-party studios, and the Xbox Game Studios management and central-functions layer. He said the work done since July, including studio divestitures, had brought Xbox roughly three-quarters of the way through the restructuring it had already announced.
Here are the other structural changes in the memo:
- Activision takes on Rare and World's Edge, and will develop the next Halo game with a new, purpose-built team kept separate from Call of Duty.
- A small team at Halo Studios will keep supporting the Halo community and the Halo games already on sale.
- King takes on Microsoft Casual Games, putting Xbox's two casual-games and live-operations groups together.
- Playground Games and Turn 10, which have worked together for more than a decade, merge into a single team making the Forza and Fable series.
The memo also covered the studios Xbox is letting go. Compulsion Games and Double Fine went back to their management in August with their IP, back catalogs and runway funding. Undead Labs has now left on similar terms and will release State of Decay 3 on Game Pass on launch day through a new publisher. Two separate deals for Ninja Theory fell through, so Xbox will begin consulting employees about a proposed closure while it keeps looking for alternatives. Consultation at Arkane is ongoing and expected to run through the end of 2026.
Kotaku placed this in the context of Microsoft's broader strategy. It noted that Obsidian was purchased by Microsoft in 2018 as part of the Xbox maker's new content strategy around its Game Pass subscription service. Nearly a decade later, that strategy has failed, and Microsoft is making major changes to the Xbox Game Studios apparatus it built to support it. That shift includes focusing more of its resources on fewer big blockbuster franchises like Diablo, The Elder Scrolls, and Fallout. Seen that way, moving Obsidian under the Fallout publisher fits the plan. Xbox is organizing its studios around its biggest franchises.
Obsidian's Project Slate Will Show Whether "Creative Identity" Holds
Braff's email and the reorganization it defends pull in different directions. Obsidian built its reputation in two phases. It first worked on other companies' series, including Star Wars: Knights of the Old Republic II and Fallout: New Vegas. It then established its own work with Pillars of Eternity, The Outer Worlds, Grounded, Pentiment and Avowed. Aftermath's Nathan Grayson argues that the studio is now, "in a manner of speaking," back where it started. He adds that many fans still see Obsidian as the studio that did Fallout better than Bethesda, partly because its founders came from Black Isle, which worked on the Fallout games before Bethesda owned the series.
Aftermath's skepticism is its own analysis, not an established finding. Grayson notes that management at id Software also promised business as usual after layoffs and reorganizations, and that employees there have repeatedly expressed doubts. He argues that treating series and studios "like tradeable sports teams" doesn't fit easily with creative autonomy. That's a reasonable reading of events so far, but no Obsidian employee has spoken on the record about the September change.
The best way to test Braff's promise is to look at what Obsidian releases. Keeping Urquhart and his leadership team is a real commitment, and Grounded continuing gives the studio a live game it controls. Obsidian's identity, though, rests on original worlds, and Microsoft hasn't said anything publicly about the future of Avowed, Pillars of Eternity or The Outer Worlds. If Obsidian's next announcement after the Fallout game is a new original project, the reassurance holds up. If its original series stay unmentioned, the reorganization will have done what critics expected.
What This Means for Xbox, Game Pass and PC Players
For most players, nothing needs to happen right now. No games have been pulled, and the announcements affect what gets made from here on. The main thing to adjust is what you expect from Obsidian: for now, its confirmed work is Grounded plus a Fallout project in which Bethesda Game Studios has the final say. If you care about Avowed or Pillars of Eternity in particular, Microsoft hasn't said anything about them yet.
- Obsidian now reports to Bethesda president Jill Braff, while CEO Feargus Urquhart and the existing leadership team continue to run the studio.
- Bethesda Game Studios keeps control of the Fallout franchise, and Obsidian's new Fallout game is officially a collaboration, with more details promised "in the months ahead."
- Microsoft has publicly confirmed only that Obsidian will continue its current projects, including Grounded. Reports that an Avowed sequel was canceled come from Bloomberg and have not been confirmed by Microsoft.
- Obsidian lost at least 52 California-based staff in July according to a WARN filing, and a quarter of the studio according to reported estimates, before this reorganization.
- The same memo confirmed that State of Decay 3 will launch on Game Pass on day one through a new publisher, and that Ninja Theory faces a proposed closure consultation.
- Xbox has scheduled an all-company town hall for October 6, 2026, the next point where more detail could come out.
Formally, Microsoft has moved one box on an org chart and put a manager Obsidian already knows in charge of it. In practice, the studio that built its name on original RPGs is now organized around someone else's franchise, a few months after losing a quarter of its staff and, reportedly, its next original sequel. The October 6 town hall and the Fallout details Braff says will come "in the months ahead" are the next chances to learn how much room Obsidian's leadership still has. Until Microsoft says something about Obsidian's own series, players should treat the Fallout project as the studio's main priority.