Xbox confirms Obsidian safe amid studio layoffs and ends IO Interactive partnership

Microsoft’s Xbox division is undergoing a restructuring dubbed the “reset,” shifting investment toward its flagship franchises such as Halo, Fallout and The Elder Scrolls. Reports that Obsidian Entertainment might be slated for closure were refuted by Bloomberg journalist Jason Schreier, who confirmed the studio is not in negotiations to avoid shutdown and remains part of Xbox Game Studios.

Other studios—including Compulsion Games, Double Fine, Ninja Theory, Undead Labs and Arkane—are reported to be in talks with Microsoft to prevent closure. Layoffs are expected to begin on 6 July, with further details to follow.

Separately, Xbox has terminated its funding and publishing agreement with IO Interactive for the online fantasy RPG “Project Fantasy.” IO Interactive said the split could lead to job cuts but affirmed the game will still be released. An Xbox spokesperson explained the company is “taking a fresh look at where we invest,” maintaining overall investment levels while reprioritising projects. The Communications Workers of America union has voiced support for affected staff.