IO Interactive confirms layoffs as Project Fantasy loses partner

Xbox pulled out of its deal to fund and publish IO Interactive’s Project Fantasy, and the studio responded by confirming layoffs even as it insists the game is still alive. The move lands hard for a company that has spent months celebrating 007 First Light, IO’s new James Bond game, while trying to keep its fantasy IP moving forward.

IO Interactive said the breakup with the external partner forced staffing decisions in the short term, but it also said Project Fantasy remains in development and that the studio is still committed to bringing it to market. The project still sits on IO’s site as a “bold new online fantasy RPG,” and the studio continues to frame it as a major original IP. That makes the layoffs feel less like a collapse of the game itself than a break in the financing that was holding it up.

The business stakes were sharpened by the project’s long association with Xbox. Project Fantasy was publicly announced by IO Interactive in February 2023, and its existence was linked to Microsoft and Xbox in reporting tied to the FTC v. Microsoft trial that same year. Bloomberg said on June 30, 2026, that Xbox had pulled out of the deal, while Microsoft said it was “taking a fresh look at where we invest so we’re focusing on our highest priorities” and said it was not reducing overall investment in games.

For IO, the timing is especially awkward because 007 First Light launched on May 26, 2026 and has become the studio’s fastest-selling title to date. In reporting cited by outlets, CEO Hakan Abrak said the game sold 3 million copies in under two weeks and exceeded internal expectations. That matters because the layoffs do not appear tied to Bond’s performance. They are tied to a different bet, one that depended on outside money.

IO Interactive has not said how many employees will be affected, leaving the size of the reduction unclear. The studio, which describes itself as an independent game developer and publisher with multiple studios across Europe and Asia, is now trying to keep one prestige project on track while absorbing the loss of another project’s publisher. The irony is plain: Project Fantasy may still be headed for release, but the partnership that was supposed to carry it there is already gone.