Inside Xbox, a Game Studio Is Trying to Reinvent Itself

Every week, Feargus Urquhart, the head of Obsidian Entertainment, meets for breakfast with his management team at a diner near their office to scarf down cinnamon rolls and make decisions about the video game studio’s future. They’ve had a lot to discuss in recent gatherings. Last year the developer released three games—a rare and impressive achievement for a studio of its size—but two of them failed to meet sales forecasts set by Obsidian’s parent company, Microsoft Corp. “They’re not disasters,” Urquhart says. “I’m not going to say this was a kick in the teeth. It was more like: ‘That sucks. What are we learning?’”

A day after one of these breakfast gatherings, Urquhart is sitting with a Bloomberg Businessweek reporter in a conference room in Obsidian’s offices in Irvine, California, a pleasant but humdrum Orange County suburb. After more than two decades as chief executive officer of the studio, Urquhart, 55, speaks with a level of candor that’s unusual among the industry’s leaders, who’d rather talk only of successes. The company is trying to navigate a shaky games market as well as turmoil in its corner of Microsoft, whose Xbox game division has been buckling under pressure from its ambitious profitability goals.