Microsoft has carried out a massive organisational overhaul at Xbox, folding Obsidian Entertainment under Bethesda.

Matt Booty, the President of Game Content and Studios at Xbox, announced on August 22 in a post titled 'Continuing the Reset' that 268 employees have been laid off and the studio structure has been reorganised. The layoffs target certain internal development departments and central management organisations, while subsidiary developer Obsidian Entertainment has been placed under the leadership of Bethesda.

Obsidian Entertainment, now nestled within Bethesda, will transition to a reporting structure that directly connects to the parent department. The studio plans to continue post-launch support for the live service game Grounded and existing projects without a hitch. At the same time, the developers will work in close collaboration with Bethesda Game Studios to pour all efforts into preparing the next entry in the Fallout franchise.

Massive consolidation and expansion of roles among existing studios have also taken place. Playground Games and Turn 10, racing game specialists who have cooperated for over a decade, have completely merged into a single team dedicated to producing the Forza and Fable series. Alongside this, King is expanding its business domain to absorb Microsoft Casual Games, taking full charge of casual game planning and live operations.

There are also organisations walking independent paths or facing the threat of closure. Following the separation of Double Fine and Compulsion Games last August, Undead Labs has also spun off as an independent developer led by its employees. State of Decay 3, currently in development, is scheduled to undergo a closed beta test later this year before launching on Xbox, PC, and PS5 in 2027.

In stark contrast, Ninja Theory has initiated internal consultations with studio closure in mind after two external partnership deals fell through, effectively treading the path toward shutdown. Arkane Studios will continue discussions by reviewing various options regarding the developer's future until December of this year.

Matt Booty announced that the reduction plan of approximately 3,200 roles previewed last July is roughly 75% complete. Matt Booty stated, "I am deeply grateful for the achievements forged by departing colleagues and acutely aware of how difficult today will be," adding that, "The goal of this reorganization is to strengthen the franchises and titles we hold through the reduction of business sectors, the establishment of a closely knit collaboration network, and the consolidation of publishing capabilities."