IO Interactive’s Project Fantasy Faces Layoffs After Xbox Ends Partnership

The studio remains "100 percent committed" to the role-playing game, and that its "wonderful universe" would "see the light of day."

Posted By | On 01st, Jul. 2026

project fantasy io interactive

With layoffs around almost every corner in the industry these days, it’s now IO Interactive’s turn to announce the same. But this isn’t the result of 007 First Light failing – on the contrary, it’s due to Project Fantasy and the conclusion of a partnership with an “external partner.”

“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,” it said on Twitter.

Project Fantasy is a game, a world, and an IP that we absolutely love and remain 100% committed to, now and in the future. This wonderful universe will see the light of day.”

If you’ll remember, however, leaked documents from the FTC’s case against Microsoft indicated that the latter was the partner in question. In an intriguing twist, it actually confirmed the same to Bloomberg while reassuring that its gaming investment isn’t “reducing.”

“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,” a spokesperson told Jason Schreier.

This is far from the first time that Xbox backed out of major projects, causing untold upheaval. Avalanche suspended development on Contraband after the last round of mass layoffs at Microsoft, and the project has effectively been cancelled. Romero Games faced a similar dilemma with its upcoming shooter – although it was saved, it’s since been “completely redesigned.”

For what it’s worth, Project Fantasy – announced in February 2023 as an online fantasy role-playing game – isn’t dead, and IO Interactive remains committed to it. The real question is whether finding a new publisher is necessary for it to “see the light of day.” As always, stay tuned for more updates in the coming days, especially as we near alleged record layoffs at Xbox.


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