Leaked Xbox Memo Reveals Obsidian’s Fate Under Bethesda

Xbox has not had a good 2026. In early July, the company announced it would lay off 1,600 employees and divest from several of its acclaimed studios, including Double Fine, with more layoffs expected in the coming fiscal year. On Sept. 22, Microsoft finally announced that next wave of job cuts, affecting an additional 268 developers. The layoffs coincided with a major company-wide reorganization that will merge several studios, resulting in big changes like Halo being moved under Activision.

Beyond Halo being under new management, another merger has many fans worried: Obsidian Entertainment will now be organized within Bethesda. However, according to Bethesda Game Studios head Jill Braff, Obsidian will retain its “creative identity and strengths that make Obsidian distinct.” In a leaked memo obtained by IGN, the Bethesda boss said that the organizational shift is “primarily a change in reporting structure.” While the two teams will work together closely on Obsidian’s upcoming Fallout project, they will remain separate studios. Obsidian previously developed the beloved Fallout: New Vegas, which is why many are excited about the team working on another game in the series.

What’s the catch?

That said, the memo includes another revealing line. Braff said the Obsidian reorganization is meant to support the “franchise-led model” Microsoft is leaning into. As part of Xbox’s ongoing major “reset,” CEO Asha Sharma said the company will focus on its existing series, implying new IP will not be a priority going forward. Compared to Bethesda, Obsidian has put out an impressive range of games over the last 15 years or so: The studio released Pillars of Eternity (and a sequel), The Outer Worlds (and a sequel), Pentiment, Avowed, Grounded, and Tyranny. For comparison, Bethesda has put out far fewer games, with Starfield being its only non-sequel or rerelease.

While Obsidian seems likely to survive, it may not have the same leeway to experiment as it did in the past. Based on Braff’s wording, it will likely be focused on sequels to Bethesda games or on follow-ups to its own series, like The Outer Worlds, Pillars of Eternity, and Grounded. With Xbox in dire straits, we may need to expect more of the same.

You can read Jill Braff’s full memo below:

Hi everyone,

Following the note from Matt, I wanted to share more on today’s news and what it means for our collective teams.

I’ve had the opportunity to get to know Feargus Urquhart and his team over the past six years, and I have great respect for what they’ve built. Obsidian has extraordinary creative talent, deep expertise, and a long history of creating memorable games and experiences. I’m looking forward to working more closely with them.

Today’s announcement is primarily a change in reporting structure. The creative identity and strengths that make Obsidian distinct will remain at the core of their studio and work.

Feargus and the Obsidian leadership team will continue to lead Obsidian, with the studio reporting to me. Bethesda Game Studios will continue to lead the Fallout franchise. Together, the teams will build on their longstanding relationship and the early work already underway on a new Fallout project, with more to share in the months ahead. This structure supports the franchise-led model we’ve been strengthening while keeping accountability for both the studio and the franchise clear.

I also recognize that employees across our studios, publishing, and business teams will have questions about what this means for our current priorities, roadmap, and responsibilities. To be clear, we’re not resetting our roadmap or asking teams to change what they’re focused on. We’ll take the time to understand how teams can best support one another, and where closer partnership can benefit our players and fans. We’ll continue communicating as we progress.

I’m looking forward to spending more time with the Obsidian team and building on the strong foundation already in place across our organizations.

Welcome Feargus and team – more soon!

Jill