Is Obsidian Entertainment profitable in 2026?

No profit figures are disclosed since it is a private Microsoft subsidiary. CEO Feargus Urquhart told Bloomberg in Feb 2026 that both Avowed and The Outer Worlds 2 missed sales expectations, prompting cancellation of The Outer Worlds 3 and a 25 percent staff cut in Jul 2026.

Is it safe to take a job at Obsidian Entertainment right now?

Risk is elevated. In Jul 2026 Microsoft cut about 60 to 70 of Obsidian's 285 staff (25 percent), confirmed by a California WARN filing of 52-plus layoffs, and canceled the Avowed sequel. A second Xbox layoff wave is expected through fiscal year 2027.

Could AI replace Obsidian Entertainment's game developers?

Unlikely soon. Obsidian publicly stated in Nov 2025, reiterated Jul 2026, that it uses no generative AI at all in its development pipeline, relying instead on hand-authored, choice-driven narrative design that press describes as hard to replicate.

Who owns Obsidian Entertainment?

Microsoft has wholly owned Obsidian Entertainment through Xbox Game Studios since acquiring it in November 2018. The studio, founded in June 2003 by ex-Black Isle Studios staff, operates as a subsidiary with no independent funding rounds.

Who is Obsidian Entertainment's biggest competitor?

Larian Studios is the most cited benchmark; Polygon wrote on Jul 9, 2026 that Xbox 'could've had the next Baldur's Gate 3' before canceling Obsidian's Avowed sequel. Sibling Microsoft studio Bethesda Game Studios is now a direct collaborator on Obsidian's new Fallout project.

Did Microsoft cancel The Outer Worlds 3?

Yes. Obsidian confirmed in a Feb 3, 2026 Kotaku report that it will not develop The Outer Worlds 3 after both Avowed and The Outer Worlds 2 failed to meet Microsoft's sales expectations.

Gaming companies · subsidiary of Microsoft Corporation (via Xbox Game Studios) · United States

Obsidian Entertainment

obsidian.net ↗

RPG studio behind Fallout: New Vegas, Avowed, and Outer Worlds, owned by Microsoft.

Losing its protection

Assessed 23 July 2026 · Evidence as of 23 July 2026

The structural protection is eroding.

On the recordSince 23 July 2026 · Checkable from late 2026 or later · Every call on the record Checkpoint: Formal Fallout project greenlight with confirmed release window and staffing

The call

Obsidian still makes RPGs players want, but its fate now depends on how Microsoft scores the next one.

Obsidian Entertainment makes role-playing games where your choices shape the story, and they have been doing this well for over 20 years. Their games are hard to copy because they require talented writers and designers who understand how to build branching stories, not just graphics or raw computing power. However, Microsoft (the parent company that owns Obsidian) has already laid off a quarter of the studio and canceled two planned sequels, which suggests the parent sees Obsidian as a cost to cut rather than a business to grow. The one thing that could change this picture is if Obsidian releases a hit game soon with a full team backing it, which would prove to Microsoft that the studio still deserves investment.

Why

AI pressure: None apparent. Generative AI could someday script branching dialogue, but hand-authored RPG narrative still needs human writers and designers. Could AI do the core job? Unlikely.

Bigger players: Microsoft/Xbox Game Studios (parent owner). Microsoft cut 25% of staff in July 2026, killed Outer Worlds 3 and Avowed 2, and now demands ~30% margins on future titles. Could a giant copy it? Yes, easily.

What protects it. Two decades of RPG craft and the Fallout: New Vegas legacy make Obsidian the obvious pick if Microsoft revives Fallout.

What would change this call

Formal Fallout project announcement with confirmed release window. Would show Microsoft is reinvesting in Obsidian rather than winding it down.
Second Xbox-wide layoff wave hits Obsidian again in FY2027. Would show the July 2026 cuts were the start of a deeper retrenchment, not a one-time correction.
Obsidian headcount trend (hiring vs. further attrition) over next 12 months. Would show whether Microsoft is stabilizing or continuing to shrink the studio.

Key numbers

60 to 70 staff cut, about 25% of studio (Jul 2026)
Grounded 2 hit 3M+ players in two weeks (Aug 2025)
Xbox cut 3,200 jobs company-wide in reset (Jul 2026)

Named risks

Second Xbox-wide layoff wave (1,600 more cuts) expected through fiscal year 2027. Severity: high
Two of three 2025 flagship titles (Avowed, Outer Worlds 2) missed Microsoft's sales expectations. Severity: high
Conflicting Jul 2, 2026 reports of Obsidian 'negotiating to avoid closure' despite Bloomberg denial. Severity: medium
New Fallout project has no confirmed release window or engine choice as of Jul 17, 2026. Severity: medium

Rivals, as read in July 2026

Rival	Direction	Evidence
Larian Studios	losing to	Polygon, Jul 9 2026: Xbox 'could've had the next Baldur's Gate 3' before killing Avowed sequel
Bethesda Game Studios	contesting	Now co-developing Obsidian's new Fallout project as of Jul 17, 2026
BioWare (EA)	contesting	Cited industry peer in narrative RPG space per Wikiwand overview, n.d.
EA and Square Enix (generative AI adoption)	contesting	Obsidian's no-generative-AI stance explicitly contrasted vs their AI use, Jul 13 2026

Questions people ask

Is Obsidian Entertainment profitable in 2026?: No profit figures are disclosed since it is a private Microsoft subsidiary. CEO Feargus Urquhart told Bloomberg in Feb 2026 that both Avowed and The Outer Worlds 2 missed sales expectations, prompting cancellation of The Outer Worlds 3 and a 25 percent staff cut in Jul 2026.
Is it safe to take a job at Obsidian Entertainment right now?: Risk is elevated. In Jul 2026 Microsoft cut about 60 to 70 of Obsidian's 285 staff (25 percent), confirmed by a California WARN filing of 52-plus layoffs, and canceled the Avowed sequel. A second Xbox layoff wave is expected through fiscal year 2027.
Could AI replace Obsidian Entertainment's game developers?: Unlikely soon. Obsidian publicly stated in Nov 2025, reiterated Jul 2026, that it uses no generative AI at all in its development pipeline, relying instead on hand-authored, choice-driven narrative design that press describes as hard to replicate.
Who owns Obsidian Entertainment?: Microsoft has wholly owned Obsidian Entertainment through Xbox Game Studios since acquiring it in November 2018. The studio, founded in June 2003 by ex-Black Isle Studios staff, operates as a subsidiary with no independent funding rounds.
Who is Obsidian Entertainment's biggest competitor?: Larian Studios is the most cited benchmark; Polygon wrote on Jul 9, 2026 that Xbox 'could've had the next Baldur's Gate 3' before canceling Obsidian's Avowed sequel. Sibling Microsoft studio Bethesda Game Studios is now a direct collaborator on Obsidian's new Fallout project.
Did Microsoft cancel The Outer Worlds 3?: Yes. Obsidian confirmed in a Feb 3, 2026 Kotaku report that it will not develop The Outer Worlds 3 after both Avowed and The Outer Worlds 2 failed to meet Microsoft's sales expectations.

Timeline

2026-07-17New Fallout project with Josh Sawyer and Bethesda publicly confirmed, no release window set
2026-07-09Xbox cancels Avowed sequel, redirects Obsidian to new Fallout title
2026-07-06Obsidian loses about 25 percent of staff in Xbox reset layoffs, WARN confirms 52 plus cuts
2026-02-03CEO says Avowed and Outer Worlds 2 missed sales targets, Outer Worlds 3 canceled
2025-10The Outer Worlds 2 launches on PS5, Xbox, PC and Game Pass
2025-07-29Grounded 2 launches in early access with Eidos-Montreal
2025-02-18Avowed launches on Windows and Xbox Series X|S
2018-11Microsoft acquires Obsidian Entertainment
2003-06Obsidian Entertainment founded by ex-Black Isle Studios staff

Revision history

23 July 2026

First assessed. Losing its protection. The text above is fixed as of this date and is not edited afterwards.

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