Obsidian's Pivot: Shorter Cycles, Co-Development, and Tech Reuse for RPGs

Obsidian Entertainment’s reckoning after a bruising 2025 is as much about spreadsheets as it is about skylines, spaceship hulls and inventory screens: two of the studio’s biggest RPGs — Avowed and The Outer Worlds 2 — fell short of Microsoft’s sales expectations, while the smaller, faster-lived Grounded 2 proved a surprise hit. That mismatch forced Obsidian’s leadership to openly question long development cycles, rethink resource allocation, and embrace co-development and technology reuse as core strategies for the studio’s next chapter. The result is a pragmatic shift: shorter three-to-four-year development windows, more selective scope, and a willingness to farm out work that doesn’t require every internal team’s attention — all moves designed to preserve creativity while protecting the studio’s sustainability inside the economics of modern triple‑A game publishing.

Background: Obsidian’s rise, its role at Xbox, and why 2025 mattered​

Obsidian Entertainment is one of Xbox Game Studios’ most historically respected RPG houses, built from Black Isle alumni and known for titles such as Fallout: New Vegas, Pillars of Eternity, and the original The Outer Worlds. Since joining Microsoft’s first-party family, the studio has been unusually prolific for an externally acquired studio: 2025 alone saw Obsidian ship three marquee titles across big and small budgets — Avowed, The Outer Worlds 2, and Grounded 2 — a level of output few comparable studios match.
That sheer productivity, however, masked structural stresses. Two marquee RPGs consumed years and person‑months of development resources, and the internal cost-benefit calculus collided with a tougher financial regime at Microsoft’s gaming division. In public comments, Obsidian’s CEO acknowledged the uncomfortable truth: the two RPGs did not meet the sales targets set by their parent company, even while critics and players lauded their design and writing. That contradiction — critical success but financial underperformance — is the catalyst for the changes the studio is now pursuing.

---

What happened in 2025: three releases, three different outcomes​

Avowed and The Outer Worlds 2: creative peaks, commercial valleys​

Both Avowed and The Outer Worlds 2 are the sort of large-scale, reactive RPGs Obsidian has built its reputation on: deep systems, branching narratives, and finely tuned player agency. Each title was in development for roughly six years, a lifetime in contemporary game production where technology, expectations and market conditions can shift mid-cycle.
From a creative standpoint, these games landed well with critics and many players. From a business standpoint, however, they did not meet the financial expectations Microsoft set for them. Obsidian’s leadership framed the outcome bluntly: “They’re not disasters,” the studio’s CEO said, “I’m not going to say this was a kick in the teeth. It was more like: ‘That sucks. What are we learning?’” That phrasing is telling — the studio sees the results as lessons, not existential failures, but the fiscal reality requires concrete adjustments.
Several structural pressures likely played a role in the sales shortfall:

• Long development times inflated budgets and amplified risk exposure.
• Game Pass economics distort the public face of success vs. internal profitability targets.
• Pricing debates in 2025 drew attention and consumer sensitivity (the broader industry conversation around higher price points for some new releases complicated market reception).
• Releasing multiple large products in a single calendar year split marketing focus and stretched support teams.

Grounded 2: smaller scope, faster cycle, stronger return​

By contrast, Grounded 2 — a survival game with a smaller scope relative to Avowed and The Outer Worlds 2 — hit its marks. That success underlined a critical point for Obsidian: well-scoped projects developed in shorter cycles can deliver outsized returns compared to decade-spanning multi-hundred‑person efforts.
Importantly, Grounded 2’s genesis came through an external pitch. Another studio proposed the project and Obsidian co‑developed it; that faster, leaner pipeline helped the title reach players quickly and with a favorable cost profile. The contrast between Grounded 2’s lifecycle and the two long-term RPGs is central to Obsidian’s new strategy.

---

The business context: why Microsoft’s math matters​

The studio’s strategic pivot cannot be isolated from Microsoft’s corporate demands. Over recent years, Microsoft’s gaming division has been operating under harder profitability objectives, and that pressure radiates down to first‑party studios. Higher internal profit targets — and the accounting realities of Game Pass and cross‑platform releases — mean a game’s success is measured against different criteria than it was a decade ago.
For studios like Obsidian, the implication is stark: development budgets must be managed with an eye not only to creative ambition but to internal return targets. That dynamic explains several behavior shifts we now see in the studio’s public comments:

• Prioritizing shorter development cycles to reduce total spend and accelerate time to revenue.
• Being open to multi‑studio co‑development and outsourcing to move fast and trim internal staffing pressure.
• Reusing existing technology and assets to avoid reinventing systems for each project.

These are rational responses to a tougher profitability mandate. The risk, though, is that the quest for margins reshapes creative choices in ways that may not always please core fans.

---

How Obsidian plans to change: concrete production shifts​

1) Shrink dev cycles to three-to-four years​

Obsidian leaders have explicitly stated they want to target development timelines of about three to four years for future titles. Shorter cycles aim to reduce sunk costs, limit feature bloat, and allow the studio to iterate across multiple projects rather than committing a massive share of its human capital to one title for half a decade.
Benefits:

• Faster feedback loops with players and earlier revenue realization.
• Fewer scope escalations that lengthen production and increase cost.
• Better staff morale by avoiding marathon crunch periods.

Challenges:

• Maintaining depth and quality within a compressed schedule.
• Reworking design pipelines to prioritize modular, reusable systems.

2) Embrace co-development and external partnerships​

Obsidian’s account of Grounded 2 shows how an outside studio pitch — and subsequent co-development — can produce a hit without draining Obsidian’s core teams. The studio now signals it will be more receptive to outsourcing parts of a game (or even whole projects) when it preserves quality while reducing internal load.
Benefits:

• Access to additional talent pools and specialized expertise.
• Parallel development streams that allow Obsidian to oversee multiple projects without over‑stretching.
• Opportunity to learn new workflows and tools from partners.

Risks:

• Quality control, alignment of vision, and communication overhead across companies.
• Potential dilution of the Obsidian brand if partner work diverges from expected standards.
• Greater reliance on external schedules and dependencies.

3) Reuse technology, assets and systems​

Obsidian is consciously shifting away from treating each new title as an opportunity to rebuild core systems from scratch. Instead, the studio will prioritize reusing engines, UI frameworks, and gameplay systems when appropriate. The analogy to Fallout 3→New Vegas reuse is instructive: strategic reuse preserved development momentum while enabling targeted innovation.
Benefits:

• Reduced engineering time and fewer one-off bugs.
• Faster prototyping and earlier playtests.
• Lower cost per project and better maintainability.

Trade-offs:

• Risk of technical debt accumulation if legacy systems are stretched beyond intended use.
• Potential limitations on freshness and novelty if reuse prevents necessary reinvention.

---

Creative and commercial trade-offs: analyzing the risks​

Obsidian’s course correction makes sense for survival, but it raises legitimate concerns from players and industry watchers.

• Will shorter dev cycles produce thinner worlds? Obsidian’s reputation rests on richly interwoven systems and reactive writing. Compressing timelines could pressure designers to cut emergent systems in favor of pre-baked content. The studio must avoid substituting depth for polish.
• Does outsourcing erode studio DNA? Partnering with outside teams can accelerate development, but maintaining a consistent creative voice — especially in narrative-driven RPGs — requires rigorous editorial control and strong, centralized direction.
• Could tech reuse make future Obsidian games feel iterative? Reusing engines and systems is efficient, but the studio must balance reuse with visible innovation that justifies each new title’s existence in an increasingly crowded market.
• How will Game Pass and pricing policies continue to alter economics? Inclusion on subscription services changes the way sales are measured internally. Microsoft’s profit expectations will continue to shape platform negotiations, release windows, and cross-platform strategies.
• Are external pressures changing the kinds of risks Obsidian can take? Historically, Obsidian had the latitude to pursue ambitious, sometimes eccentric design choices. Tighter financial targets may nudge the studio toward safer, more proven formulas.

---

Opportunities: why this could be a net positive​

Viewed soberly, Obsidian’s changes position the studio to survive and thrive in a transformed market.

• A balanced slate: shorter cycles plus co‑development enable Obsidian to run both big RPGs and smaller, experimental games in parallel. That diversification can stabilize revenue without sacrificing the studio’s identity.
• Leaner, more focused design: compressing timelines forces teams to identify core, high-impact systems and ruthlessly cut low-value work. That can yield games with clearer design intent.
• Faster iteration and player feedback: shorter cycles mean earlier patches, quicker live support, and an ability to respond to player data. That responsiveness is valuable in an era dominated by live services and community-driven development.
• Better staff well‑being: avoiding years-long overwork and release crushes reduces burnout, which in turn preserves institutional knowledge and creative energy.

---

What this means for players and for Xbox​

For players, Obsidian’s shift should mean more consistent releases and clearer expectations about scope. Fans of deep RPGs should cautiously optimistic: the studio hasn’t signaled an abandonment of narrative ambition, only a retooling of how to deliver it sustainably. If the studio successfully pairs sharper scope with its established design instincts, future Obsidian RPGs could be both more polished and more frequent.
For Xbox, Obsidian’s recalibration is pragmatic risk management. Microsoft requires games that can meet heavy financial expectations in a subscription-first era. Studios that can deliver reliable value at controlled cost will be safer from the churn of portfolio rationalization. Obsidian’s move toward co-development and reuse aligns neatly with what a profit-conscious publisher wants: predictable cadence and controlled budgets without completely stripping creative autonomy.

---

Lessons for the industry: scalable ambition beats perpetual bloat​

Obsidian’s public self‑examination offers a template for other mid‑sized AAA studios wrestling with long cycles and rising costs:

• Identify the true pillars of your game and protect them. Let other elements flex or be deferred to post-launch expansions or DLC.
• Build a modular engine and tools strategy that supports reuse across multiple projects.
• Establish clear co‑development contracts and editorial workflows to preserve creative coherence.
• Balance internal IP work with targeted external partnerships to reduce fixed overhead.
• Communicate candidly with your community about trade-offs — transparency builds trust when scope or timelines change.

These are operational, not artistic, prescriptions: they don't tell developers what to make, only how to make it more sustainably.

---

Concrete recommendations for Obsidian (and similar studios)​

• Institutionalize a “minimum lovable product” approach for RPGs: ship a narrower base experience that’s polished and expandable rather than aiming for sprawling launch scope that requires half a decade to finish.
• Create a reusable RPG framework (combat, inventory, companions, quest templates) — treat it as a product within the studio that gets caretaking, not reinvention, between projects.
• Formalize co‑dev playbooks: production standards, code ownership, milestone gates and a single editorial authority to keep narrative and mechanical tone consistent.
• Invest in a central live‑ops and post‑launch team that supports multiple titles, avoiding the reactive “jump from project to project” syndrome that stretched support teams in 2025.
• Maintain a small portfolio of true experimental projects (smaller scope, faster cycles) to keep creative risk without threatening the studio’s financial baseline.

---

Final assessment: a necessary course correction with cultural risk and creative promise​

Obsidian’s stated changes are a realistic, evidence‑based response to the pressures of modern triple‑A game publishing inside a profit‑focused parent company. Shorter cycles, strategic outsourcing, and technology reuse are proven levers to reduce cost and compress time-to-market. Grounded 2’s relative commercial success underlines that scale alone does not guarantee returns — thoughtful scope and efficient delivery do.
Yet the path forward is not without risk. The greatest danger is cultural: if financial discipline becomes dogma, creativity will atrophy. Obsidian’s brand rests on deep, reactive RPGs with distinct voices and uncompromising systems work. The studio’s challenge is to preserve that identity while building leaner, more deliberate pipelines.
If Obsidian can institutionalize those lessons — protect core creative decision‑making, enforce strong editorial leadership across co‑devs, and treat technology reuse as an enabler rather than a constraint — it stands a solid chance to both survive and continue shaping the RPG genre. For players who love the studio’s work, the ideal outcome is simple: more Obsidian games delivered on time, polished and worth buying — not because they hit impossible internal margin targets, but because they earn their place on players’ shelves and in their conversations.
Obsidian’s new path is pragmatic: not the death of big RPGs, but the promise of smarter ones — designed to be finished, supported, and iterated on without burning the people who make them. That’s a direction worth watching.

---

Source: Windows Central https://www.windowscentral.com/gami...development-struggles-missing-profit-targets/