IO Interactive Layoffs
IO Interactive Lays Off Staff After Xbox Withdraws Funding for Project Fantasy RPG
Anonymous
Key Points
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Xbox confirmed it pulled funding for IO Interactive's Project Fantasy as part of a broader investment realignment, stating that while total content investment remains similar, the focus is shifting to different projects.
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Speculation over the external partner’s identity has been persistent, with FTC-era leaks suggesting the unnamed partner could be Microsoft; Xbox has since confirmed involvement on the IP, though funding has ended as part of the realignment.
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IO Interactive’s other recent release, 007 First Light, has demonstrated strong performance, with sales reaching about 3 million copies in the first two weeks after launch.
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Industry context around IO’s situation includes broader Xbox budget realignments that have reportedly placed other long-running studios, such as Arkane (DISHONORED/Blade) at risk amid reductions.
IO Interactive confirmed layoffs on June 30, 2026, after Xbox pulled its funding from Project Fantasy, the studio's long-in-development online fantasy RPG. The Danish studio — best known for the Hitman series — said it remains "100% committed" to releasing the game, even as it cuts staff to cope with the sudden loss of investment. Push Square confirmed Microsoft as the departing partner.
The news landed just weeks after a major win. IGN reported that IO Interactive's spy thriller 007 First Light sold 3 million copies in under two weeks — the fastest-selling game in the studio's history. Yet even that milestone was not enough to shield the studio from the ripple effects of Xbox's sweeping budget reset.
Xbox's "Sharma Reset" Ends the Project Fantasy Deal
Xbox CEO Asha Sharma issued a company-wide memo on June 11, 2026, citing a $500 million drop in annual revenue despite $20 billion in investments. The memo signaled a sharp turn inward. Microsoft said it would stop funding external "second-party" projects and refocus on its biggest internal franchises — Call of Duty, Halo, and Forza. Game Developer reported that Project Fantasy was one of the first casualties of that shift.
A Microsoft spokesperson told Gematsu: "We're not reducing our overall investment in games. What's changing is where we're investing and the kinds of projects we're backing." The partnership had been an open secret. FTC court documents leaked in 2023 listed Project Fantasy as a potential Xbox exclusive, pointing to a deep publishing relationship that stretched back years.
IO Insists Project Fantasy Will Still Be Released
IO Interactive posted a statement on X calling the layoffs "short-term consequences" of the funding gap. CEO Hakan Abrak's team was direct: "Project Fantasy is a game, a world, and an IP that we absolutely love and remain 100% committed to." The studio did not say how many jobs were cut or reveal a new funding plan.
TBreak noted that the studio now needs to find a new publisher or private investor to keep Project Fantasy alive. Without that, further cuts — or even a full acquisition — remain possible. Names like Sony and Amazon, which owns MGM and the 007 film rights, have already surfaced in industry speculation as potential suitors.
Bond Game Sells Big, But Development Costs Bite Hard
007 First Light cost roughly 1.3 billion Danish krone — about $202 million USD — making it the most expensive entertainment project ever made in Denmark. Despite 3 million sales in two weeks, analysts say the numbers don't automatically solve the studio's cash problem. IO Interactive employs over 500 people across several offices, and sustaining that headcount requires constant incoming capital.
The sales split tells another story about IO's Xbox ties. OpenCritic and Alinea Analytics data show that 55.1% of 007 First Light copies sold on PS5, while Xbox platforms accounted for just 11.8%. Some analysts argue this actually frees IO Interactive — a game with that platform mix was never going to thrive inside a Game Pass-first strategy anyway.
IO's Layoffs Are Part of a Much Larger Xbox Bloodbath
IO Interactive is not alone. Push Square and The Verge both reported that Arkane Studios — the team behind Dishonored — is now at risk of closure, with its Marvel's Blade project potentially facing cancellation. A broader wave of internal Microsoft layoffs is expected to begin on July 6, 2026, which would make it one of the largest single workforce cuts in gaming history.
Bloomberg's Jason Schreier noted that Xbox is already ending contracts with outside vendors and PR firms ahead of a fiscal-year-end restructuring. For the hundreds of IO developers now facing an uncertain future, the job market is brutal. At least five other Microsoft-affiliated studios are reportedly at risk — flooding an already saturated industry with talent at the worst possible time.
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