Just over a month after the successful launch of 007 First Light, the fastest selling game in its history, IO Interactive has run into some unexpected bad news about another project it’s had in development for years. An “external partner” pulled funding from Project Fantasy, an “online fantasy RPG” IO announced in 2023, and it sounds like layoffs at the studio are imminent as a result.
“For a good while, it has been all positive news from IO Interactive,” the studio wrote on X. “”However, today we have to share some more downbeat news. A relationship with an external partner on our own IP, Project Fantasy, has come to an end. 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.”
(Image credit: IO Interactive (Twitter))
The comment about “staffing decisions” leaps out—it’s not a confirmation of layoffs, but it certainly hints at them. IOI did not name the “external partner” in question, but it was widely assumed to be Microsoft, and the company confirmed that it was indeed the partner in question in a statement to Bloomberg, saying it is “taking a fresh look at where we invest so we’re focusing on our highest priorities.”
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Microsoft’s Xbox division is eyeballing major layoffs and possible multiple studio closures as part of its reset, which is expected to begin in early July, and that could also mean ending more publishing partnerships with external studios like IOI. We saw that happen in the wake of major layoffs in 2025: While Microsoft was not named in either case, reports at the time indicated that it had ended funding for projects at both Romero Games and Avalanche Studios, throwing both into turmoil.
Romero Games co-founder John Romero commented on IO Interactive’s situation, writing, “As a company, we’ve been there, and it’s extremely difficult.”
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(Image credit: John Romero (Twitter))
It’s also notable that in 2021, IO Interactive was reportedly working with Microsoft on a fantasy game codenamed Project Dragon. It’s not known whether Project Dragon eventually evolved into Project Fantasy, but IO Interactive CEO Hakan Abrak teased at the time that “we have a third universe that we’re working actively on, which is a bit different and absolutely a love child,” adding, “It is something our core people, our veteran staff, have been dreaming about for some time.”
Despite the sudden change, IO Interactive said it remains “100% committed” to Project Fantasy, and promised that “this wonderful world will see the light of day.” Given the current state of the videogame industry, which will only get worse if and when the expected axe falls on Xbox, I wouldn’t count on that happening anytime soon.
IO Interactive declined to comment.
