Obsidian Entertainment Officially Joins Bethesda Under Xbox Game Studios Restructure

Obsidian Entertainment is officially moving under Bethesda as part of a sweeping restructuring of Xbox Game Studios, with the studio now tasked with developing an upcoming Fallout game. The corporate reshuffle, announced by Microsoft chief content officer Matt Booty in a blog post on September 22, places the RPG developer alongside Bethesda Game Studios as it pivots toward fewer, larger blockbuster franchises. While Booty confirmed that Obsidian’s current projects, including Grounded, would continue, the announcement notably sidestepped the studio’s other franchises, including a long-discussed Avowed sequel.

Founded in 2003, Obsidian built its reputation as an RPG powerhouse through a series of high-profile collaborations. The studio first gained recognition by partnering with BioWare on Star Wars Knights of the Old Republic II: The Sith Lords, then cemented its legacy by teaming up with Bethesda on Fallout: New Vegas. In the 2010s, Obsidian crowdfunded an original isometric RPG called Pillars of Eternity and later shipped The Outer Worlds, a Fallout-style sci-fi shooter RPG. Microsoft acquired the studio in 2018 as part of its broader content strategy centered on the Game Pass subscription service.

A Strategy That Has Run Its Course

Nearly a decade after that acquisition, Microsoft says the Game Pass–driven model has failed, prompting major changes to the Xbox Game Studios apparatus it originally built to support it. The restructuring focuses more resources on a smaller slate of flagship franchises, including Diablo, The Elder Scrolls, and Fallout. Obsidian, which was reportedly already planning an Avowed sequel, has now been reassigned to Fallout work as part of last summer’s Xbox “reset.” The shift signals a broader recalibration of how Microsoft allocates its development budget, favoring established IPs over the experimental titles that once defined the studio’s identity.

Obsidian’s work on its current projects, including Grounded, would continue, though it did not make any mention of the studio’s other franchises, including an Avowed sequel the studio had previously wanted to make.

Matt Booty, Microsoft Chief Content Officer

The community reaction has been mixed, with longtime fans of Obsidian’s RPGs expressing concern over the departure of the studio from its signature genre. The Outer Worlds and the Pillars of Eternity series earned praise for their narrative depth and player agency, qualities that some worry may not translate to a Fallout project. Meanwhile, the Fallout franchise itself remains a cornerstone of Bethesda’s portfolio, and the studio’s involvement raises questions about how Obsidian will balance its established identity with the demands of a beloved IP owned by its former partner.

Looking Ahead

While Obsidian takes on Fallout duties, the broader Fallout roadmap continues to take shape. Remasters of Fallout 3 and Fallout: New Vegas are also slated to arrive in the future, offering new players a chance to experience the series’ earlier entries with modern polish. Fallout 5 remains in pre-production at Bethesda, with no official release window confirmed. For now, the priority is clear: Microsoft is consolidating its development efforts around its most iconic franchises, and Obsidian’s Fallout assignment marks a significant chapter in the studio’s evolution. As the restructuring unfolds, the industry will be watching closely to see how this realignment affects both the studio’s creative direction and the future of some of gaming’s most enduring franchises.