The VR world is always on the lookout for the next big thing, but sometimes it’s the behind-the-scenes stories that are just as fascinating. A recent report from GameDeveloper.com has shed light on a major shake-up at Obsidian Entertainment, one of the most beloved and respected VR game developers out there. The studio, known for its critically-acclaimed titles like Pentiment, The Outer Worlds, and Grounded, is reportedly losing around one quarter of its staff in what’s being dubbed the “Xbox reset”.
This massive restructuring effort is part of a larger 3,200-person layoff started today at Xbox, with 1,600 cuts happening immediately and another 1,600 expected within the next year. The reason behind these drastic measures? According to an internal memo from Xbox CEO Asha Sharma, the business is “not healthy” due to failed bets on Game Pass, multi-platform development, and a broader portfolio of content. To make matters worse, the industry as a whole is facing its most severe hardware crisis in history.
The layoffs at Obsidian are particularly striking, with 60-70 roles cut across all departments. Some employees have been told they’ll be part of an upcoming second wave, leaving many wondering about their future at the studio. Notably, some senior talent, including art directors and recruiters, have already packed up their bags. It’s clear that these cuts will be felt throughout the entire industry.
One thing is certain: Obsidian’s team has always been a driving force behind some of VR’s most beloved titles. The Outer Worlds, in particular, has become a cult classic among gamers, with its rich narrative and engaging gameplay mechanics. How this latest restructuring effort will affect future projects remains to be seen, but it’s hard not to worry about the long-term implications.
It’s worth noting that work on Grounded 2 and previously announced DLC for The Outer Worlds 2 is still in production, so some of Obsidian’s most dedicated fans can breathe a sigh of relief. However, there’s a great deal of uncertainty surrounding other projects. An all-staff meeting has been scheduled for tomorrow, which will likely shed more light on the situation.
The Xbox reset may have caught many off guard, but it’s clear that this move is aimed at righting the ship and getting back on track. The industry is always evolving, and sometimes that means making tough decisions to ensure survival. One thing’s for sure: VR fans are eager to see what Obsidian has in store next.
This latest development serves as a stark reminder of just how rapidly the gaming landscape can change. With new technologies emerging all the time, it’s no surprise that some studios struggle to adapt. But for now, we’ll have to wait and see how these changes play out – both at Obsidian and Xbox as a whole.
Source: Game Developer XR — 2026-07-07