XBOX Layoffs Continue as Microsoft Refocuses on Fallout and Major Franchises

XBOX's restructuring reportedly cancels multiple Obsidian projects while shifting resources toward Fallout and reducing staff across key studios.

Microsoft’s reorganization of its XBOX division is changing the company’s approach to first-party development. The company is said to be moving away from some current projects and toward larger franchise-driven ones as it cuts thousands of jobs throughout its gaming business.

The latest developments affect two of the most recognizable XBOX brands, Obsidian Entertainment and id Software. Many of Obsidian Entertainment's projects have been canceled as part of Microsoft's broad restructuring efforts. Some of the rumored cancellations include a sequel to the role-playing game Avowed (released in 2025) and a few unannounced projects in development.

According to reports, the Irvine company has eliminated about 25% of its staff as XBOX continues to shuffle its internal teams. But even with the cancellations, it looks like Obsidian is now focusing on one of XBOX’s most successful franchises. Studio design director Josh Sawyer is set to lead production of a new Fallout game, according to sources familiar with the situation.

The project is still in planning and could evolve as production progresses. Still, the move would provide one of Microsoft's most experienced RPG companies access to one of gaming's most valuable intellectual properties. According to the proposed approach, Microsoft is leaning towards proven IPs that have shown commercial success.

It appears the company is focusing resources on blockbuster series that can attract larger audiences and higher long-term returns, rather than continuing to concentrate on smaller or less profitable projects. The supposed rejection of an Avowed sequel has led to suspicion regarding XBOX’s long-term plans.

Obsidian Reportedly Abandons Fallout Sequel For New Project.

While the first game put Obsidian in a new fantastical environment, many observers didn’t think it had the commercial momentum to warrant a sequel right away. On the other hand, Fallout remained one of the most recognizable trademarks in Microsoft’s portfolio after the purchase of Bethesda.

It can be seen as a strategic move, in a sense, to position Obsidian as a viable commercial alternative. To Fallout, the studio has extensive experience in role-playing games and several key devs who worked on Fallout: New Vegas before, so it’s a perfect fit for the next entry in the genre.

The reorganization is part of a wider leadership concept. Microsoft’s gaming division appears to be shifting to a more focused strategy, directing studios toward projects with greater commercial potential rather than allowing many experimental ventures to grow in parallel.

Some developers might have decided to keep working on Avowed, but that might be more consistent and have higher success expectations than Fallout. It remains to be seen if this technique results in more XBOX creative output in the long run, but it does show a more focused plan than in years past.

ID Software layoffs leave XBOX questions unanswered.

Some thought the rumored Fallout job for Obsidian was a smart move, but another part of Microsoft’s reorganization has prompted further questions. A WARN filing in Texas discloses that an XBOX subsidiary cut 158 jobs in the state. Documents filed with the Texas Workforce Commission show that 96 layoffs happened at id Software's Richardson, Texas, location, and 40 remote employees were also affected.

Those cuts have sparked speculation about id Software’s future on XBOX. The company has long been known for creating the DOOM franchise and developing the powerful id Tech engine. It is widely considered one of the best technology developers in the industry.

With employment presumably cut to the bone, some observers predict that the studio could take a support role, working on engine development and technical support for other XBOX projects. If true, that would be a massive change for one of Microsoft’s key studios.

Maybe instead of always making big first-party games, id Software might focus on maintaining its technological infrastructure and helping with overall XBOX development. Microsoft has not officially articulated the long-term purpose of each restructuring action.

Recent reports offer a clear picture of a company doubling down on fewer, larger franchises while cutting funding for programs considered less financially viable. This will become clear as these newly reassembled companies release their next generation of products, whether this helps XBOX's first-party roster or constrains creative diversity.