Obsidian staff reportedly fear that Bethesda could limit the creative freedom they have had after Xbox moved the studio into Bethesda's organisation. Microsoft calls the change a reporting shift and says Obsidian's current projects will continue.
Xbox's restructuring has placed Obsidian Entertainment inside Bethesda's organisation. Staff reportedly worry that the move could reduce the creative freedom they have had. Microsoft confirmed on 22 September 2026 that Bethesda's remit had expanded to include Obsidian. It also said Obsidian would keep working on Grounded and a new Fallout project with Bethesda Game Studios. The change comes as Microsoft reorganises several studios around Bethesda and Activision and judges teams on commercial results as well as creative work.
Obsidian loses its independence
Chris Dring discussed the internal reaction on The Game Business show. He reported that Obsidian employees were unhappy about moving under Bethesda. Obsidian had operated with substantial autonomy and had been able to pursue the games it wanted to make. According to the report, staff did not expect to join another organisation. They had originally been led to believe something else.
The change does not mean Obsidian has left Microsoft or been acquired by Bethesda. Video Games Chronicle reported that Obsidian was placed under Bethesda Softworks' reporting line. That makes the move an organisational change, not a sale or transfer of ownership.
Bethesda has said it does not want to interfere with Obsidian's creative freedom. In a staff message reported by Aftermath, Bethesda president Jill Braff called the move "primarily a change in reporting structure." She said Obsidian's "creative identity and strengths" would remain. Braff also said Feargus Urquhart and Obsidian's current leadership team would continue running the studio.
That addresses the main fear, but it does not remove it. Independence affects who sets priorities, grants approvals and makes production decisions. Until Obsidian works through the new structure, Bethesda's promise remains an intention. It is not proof that the studio's previous operating model will stay unchanged.
The commercial pressure
The staff reaction comes against a difficult financial backdrop. Obsidian's games have been well regarded, but the source says they did not reach the sales or engagement levels that Obsidian and Microsoft had hoped for. That gap helps explain why Microsoft is reassessing how its studios are grouped. It does not prove that Bethesda will direct Obsidian's creative work.
The move was part of a wider Xbox reset, not a decision aimed only at Obsidian. Xbox president Matt Booty said Bethesda would expand its remit to include Obsidian while current projects continued unchanged, according to Xbox Wire. The same reset included layoffs affecting 268 employees. Reuters coverage mirrored by Yahoo Finance reported that figure. It shows that cost and performance pressure were part of the wider changes.
The report names four studios affected by the restructuring: Obsidian Entertainment, Undead Labs, Ninja Theory and Rare. It describes the changes as resembling a reverse acquisition. Activision and ZeniMax are bringing stronger intellectual property and publishing expertise to parts of the Xbox Game Studios portfolio viewed as weaker.
Four studios under review
Undead Labs was expected to be acquired by a third party. Instead, it bought itself and regained full independence while accepting some redundancies.
Ninja Theory's deals fell through. Microsoft is proposing to close the studio after investors withdrew because of high costs. The closure has been proposed, not completed. That distinction matters to staff and to projects still linked to the team.
Rare moved under Activision but was not meaningfully affected by redundancies. The studio has other projects in development. The source says Activision will decide whether those projects continue.
The outcomes differ. One studio regained independence. Another faces a proposed closure. Two others now operate inside new corporate structures.
For players, the confirmed short-term effect is limited. The Outer Worlds 2 will still receive its promised DLC. The wider franchise is otherwise on ice for the foreseeable future. That commitment gives Obsidian's current project a clear continuation. It does not show what the studio's next major game will be or how Bethesda's oversight will affect future decisions.
Microsoft has also confirmed that Obsidian will continue work on Grounded and a new Fallout project with Bethesda Game Studios.
The Fallout project gives the reporting change a visible test. Braff said Bethesda Game Studios would continue to lead the Fallout franchise. She also said the teams were building on "the early work already underway" on the new project, as reported by Vice. Xbox Wire described the collaboration as a reunion of the two studios behind one of the industry's most notable pairings after Fallout: New Vegas. No release date or further project details were confirmed.
What the reset signals
The restructuring is a change in control, not a single cancellation or release announcement. Xbox is sorting studios by ownership, publishing strength and perceived commercial results. The outcome differs for each team. NGB's earlier breakdown of another major expansion shows why publisher plans must be separated from delivered content. The same rule applies here. Bethesda's assurance is not yet proof that Obsidian will keep its former autonomy.
The restructuring affects four named studios but produces four different outcomes. No figures were supplied for the redundancies or the commercial shortfall. The separately reported total of 268 layoffs applies to the wider Xbox reset, not specifically to Obsidian. That limits how precisely the business case for the studio-level changes can be judged.
One point is clear. Microsoft is bringing more decisions under a smaller number of organisations while asking teams to justify their place through stronger sales or engagement.
Autonomy means more than keeping a studio's name. It means having a real say in which games get made and how they are developed. Obsidian staff are right to treat the change as consequential. Bethesda is also right that creative freedom is central to the studio's value. The strongest reading of the reset is not that Obsidian has already lost its identity. It is that Xbox has created a structure in which that identity now depends on promises that have yet to be tested.
