Full Breakdown
IO Interactive Announces Layoffs After Xbox Ends Funding for Project Fantasy
7/1/2026, 12:09:34 AM
The Layoff Announcement
On June 30 2026, IO Interactive announced staff reductions after ending its partnership with an external collaborator on Project Fantasy, describing the move as a short-term adjustment and pledging support for affected employees.
Project Fantasy – The New Online RPG
Project Fantasy, unveiled in February 2023, is an online RPG meant to expand IO Interactive beyond Hitman. FTC documents listed it as “Project Dragon,” an Xbox/PC exclusive slated for Xbox Game Studios publishing. The Xbox partnership was first reported in 2021.
Timeline of Key Events
- 2021 – Xbox begins funding IO Interactive’s fantasy RPG.
- Feb 2023 – Project Fantasy announced.
- 2023 – FTC trial cites “Project Dragon,” Xbox/PC exclusive.
- Early 2026 – 007 First Light releases, sells >3 million copies.
- June 30 2026 – IO Interactive ends partnership, announces layoffs.
- June 2026 – Bloomberg confirms Xbox withdraws funding.
Official Statements & Responses
IO Interactive’s June 30 post thanked fans for 007 First Light’s success, noted the partnership’s end, and said the studio would “adapt to this new reality” with staffing changes while staying “100 % committed” to Project Fantasy. An Xbox spokesperson told Bloomberg that Microsoft’s total game-investment budget remains unchanged, will be similar to last year, and is simply “changing where we’re investing and the kinds of projects we’re backing.”
Why It Matters / Impact
The split reduces IO Interactive’s development capacity and underscores the risk of relying on external funding. It also reflects Microsoft’s shifting investment strategy, which may affect other studios dependent on Xbox publishing.
Criticism & Opposition
Unionized Xbox staff have publicly opposed the broader “reset” that includes studio closures and layoffs, warning that such moves jeopardize publishing stability for partner developers.
Data & Statistics
007 First Light sold >3 million copies. Xbox funded Project Fantasy from at least 2021 to mid-2026. Layoff numbers remain undisclosed.
Conflicting Reports & Gaps
Sources only describe layoffs as an “unconfirmed number of staff,” and IO Interactive has not clarified whether Project Fantasy will be self-published or find a new partner.
Verbatim Quotes
- “A relationship with an external partner on our own IP, Project Fantasy, has come to an end.” — IO Interactive, Official Statement
- “This means we have to adapt to this new reality and its short-term consequences, including staffing decisions, which is what is happening as we write this update, and we are fully committed to supporting those affected through this challenging transition.” — IO Interactive, Official Statement
- “Project Fantasy is a game, a world, and an IP that we absolutely love and remain 100% committed to, now and in the future.” — IO Interactive, Official Statement
- “We’re not reducing our overall investment in games. We expect to invest about the same in content as we did last year. What’s changing is where we’re investing and the kinds of projects we’re backing.” — Xbox spokesperson, Bloomberg interview
- “in a very healthy place, it's still financed, and it's amazing.” — Hakan Abrak, CEO of IO Interactive (as reported by GameRant)
What’s Next
IO Interactive will continue developing Project Fantasy while exploring self-publishing or a new partner. Microsoft’s “reset” suggests further Xbox studio restructuring in coming months.
