What Happened to Obsidian Entertainment?

Obsidian Entertainment was founded on June 12, 2003, by Feargus Urquhart, Chris Avellone, Chris Parker, Darren Monahan, and Chris Jones, all veterans from the acclaimed RPG studio Black Isle Studios. In its early years, Obsidian built a reputation for developing critically praised sequels to popular role-playing franchises, including 'Star Wars: Knights of the Old Republic II: The Sith Lords' (2004) and 'Neverwinter Nights 2' (2006). The studio also developed original titles like 'Alpha Protocol' (2010) and the highly regarded 'Fallout: New Vegas' (2010), which cemented its status among RPG enthusiasts.

Despite critical success, Obsidian faced significant financial challenges throughout its history, notably in 2012 when several projects, including 'Stormlands' for Microsoft, were canceled, leading to a severe financial crisis. The studio famously turned to crowdfunding to save itself, successfully raising over $4 million for 'Pillars of Eternity' in 2015, a game that marked a return to classic isometric RPGs and proved to be a major success. This period shifted Obsidian's focus towards developing original intellectual properties.

A pivotal moment arrived on November 10, 2018, when Microsoft announced its acquisition of Obsidian Entertainment, integrating it into Xbox Game Studios. This acquisition provided Obsidian with greater financial stability and resources, allowing them to pursue more ambitious projects. Under Microsoft, Obsidian released new original IPs such as the critically acclaimed 'The Outer Worlds' (2019), the survival game 'Grounded' (2022), and the narrative adventure 'Pentiment' (2022).

In 2025, Obsidian launched two significant titles: the action RPG 'Avowed' on February 18, 2025, for Windows and Xbox Series X/S, and 'The Outer Worlds 2' on October 29, 2025, for PlayStation 5, Windows, and Xbox Series X/S. While both games received generally positive reviews, 'Avowed' and 'The Outer Worlds 2' reportedly failed to meet Xbox Game Studios' sales expectations.

The most recent and impactful developments occurred in July 2026. As part of a broader restructuring within Microsoft's Xbox division, Obsidian Entertainment experienced significant layoffs, affecting approximately 25% of its workforce, estimated to be between 52 and 70 employees. This restructuring also led to the cancellation of several in-progress projects, most notably a planned sequel to 'Avowed'. In a major strategic shift, Obsidian is now reportedly pivoting its primary focus to developing a new 'Fallout' game, with studio design director Josh Sawyer, who directed 'Fallout: New Vegas', at the helm. This new 'Fallout' project is expected to involve collaboration with Bethesda Game Studios. Despite these changes, a small team continues to work on the 'Avowed' sequel in hopes of a future revival, and development for 'The Outer Worlds 2' DLC and 'Grounded 2' is ongoing.