Chris Avellone says Xbox studios once told they were safe from layoffs are now uncertain. Here is what sources, reports, and internal memos reveal about the situation.
The internal crisis at Xbox Game Studios is beginning to spill into public view. This time, the alarm is coming from Chris Avellone, co‑founder of Obsidian Entertainment and one of the most recognizable writers in RPG development. In a series of posts on X, Avellone said he is hearing from internal sources that studios previously told they were safe from layoffs are now being warned that nothing is guaranteed.
“Apparently, MS studios that had previously been told that layoffs wouldn’t affect them are now receiving a different message,” Avellone wrote. “Studios previously considered ‘safe’ are now informing employees that they are unsure how management changes will affect the studio.”
He added that even teams with consistent release schedules are feeling the pressure, and offered to help affected developers find new opportunities.
What Chris Avellone Is Hearing From Xbox Studios
Avellone’s posts describe a shift in tone inside Xbox:
- Studios previously told they were not part of upcoming layoffs are now being told leadership cannot guarantee anything
- Teams with steady output are still worried
- Employees are seeking clarity but receiving mixed messages
He also encouraged anyone who fears they may be affected to contact him privately so he can share job leads.
Why His Comments Matter
Avellone’s connections inside Xbox are not random. He co‑founded Obsidian Entertainment, which Microsoft acquired in 2018. His reference to “studios with consistent releases” strongly implies:
- Obsidian, which shipped Avowed and The Outer Worlds 2 last year
- Possibly Ninja Theory, which released Senua’s Saga: Hellblade II in 2024
- Or Playground Games, which delivered Fable in 2025
His comments align with reporting from Bloomberg, IGN, and Windows Central, all of which have described widespread anxiety across Xbox’s internal teams.
The Internal Memo That Triggered the Panic
On June 10, Xbox CEO Asha Sharma and content chief Matt Booty published a memo outlining the division’s financial crisis:
- Nearly 500 million dollars in revenue lost over five years
- Over 20 billion dollars spent on content and hardware subsidies
- A profit margin of 3 percent
- A studio system described as “overstretched”
The memo also acknowledged rising hardware costs, internal inefficiencies, and the need for restructuring.
Bloomberg’s Report on July Layoffs
According to Bloomberg, Microsoft is preparing significant layoffs in July, shortly after the fiscal year ends on June 30. The report states:
- Cuts may affect multiple studios
- Marketing and operational budgets are being reduced
- Studio closures are possible
- Leadership is evaluating long term sustainability of the entire Xbox structure
This aligns with Avellone’s claim that studios once considered safe are now uncertain.
Obsidian and the “Consistent Releases” Comment
When a user on X suggested that only studios producing low quality games should be worried, Avellone pushed back. He noted:
- Obsidian uses extensive outsourcing, meaning not all development is internal
- Even well performing studios are vulnerable
- Quality alone does not protect teams from corporate restructuring
This is consistent with industry reporting that Microsoft’s cuts are financial, not performance based.
Avellone’s Complicated History With Obsidian
Avellone left Obsidian in 2015 under turbulent circumstances and has been publicly critical of the studio’s leadership. Despite this, his recent posts have focused on:
- Criticizing Microsoft’s handling of layoffs
- Offering help to affected developers
- Sharing job opportunities
His personal history does not invalidate his sources, but it adds context to why he is vocal about the issue.
Industry Context: Why Xbox Is Under Pressure
Several factors are converging:
- Rising hardware component costs, especially storage and memory
- Project Helix, Xbox’s next console, facing budget and supply challenges
- Game Pass growth slowing, according to multiple analysts
- Major releases underperforming, including several first party titles
- Competition from PlayStation and Nintendo intensifying
- Internal restructuring after Phil Spencer’s departure
The result is a climate where no studio feels secure, even those with strong track records.