IO Interactive Hit With Layoffs After Xbox Cancels Project Fantasy Publishing Deal

On June 19, IO Interactive walked off stage at the MCV/Develop Awards in London holding the Major Studio of the Year trophy. Less than two weeks later, the studio posted an apology to the gaming community, confirmed staff cuts, and watched its Istanbul office quietly close. That is the speed at which things move in this industry, and that is how quickly Xbox can flip a studio's trajectory from high point to crisis mode.

From Studio of the Year to Staffing Decisions in Twelve Days

IO Interactive has had a genuinely good 2026 by any measure. 007 First Light - their James Bond game featuring a younger, unproven Bond - launched in early June and sold 2.7 million copies in its first week. That is a strong debut for a new IP attached to a licensed property the studio had to build from scratch. The response was warm, the critics were largely onboard, and IOI was earning its place as one of the more interesting studios working in the AAA space right now. None of that protected them from what came next.

Project Fantasy was IO Interactive's next project, a new IP described as an online fantasy RPG with no connection to Hitman or James Bond. Xbox was signed on as the publishing partner. As recently as last month, IOI CEO Hakan Abrak told GamesRadar that the game might be revealed sooner than you think. That quote aged badly. On June 30, IOI posted a letter to the gaming community confirming that their publishing partner had withdrawn from the deal and that the studio was making staffing decisions as a result. That is the corporate phrasing for layoffs.

Xbox Walks Away, and It Fits a Pattern

Microsoft ending its involvement with Project Fantasy is not shocking if you have been watching what Xbox has been doing across its portfolio this year. The company has closed studios, cancelled projects, and walked away from publishing arrangements at a pace that signals a strategic retreat from the kind of mid-to-large-scale game funding that defined its ambitions just a few years ago. IO Interactive is not a small or untested studio. They shipped a successful Bond game, they have the Hitman trilogy as their backbone, and they were trusted enough to receive a new IP publishing deal from one of the biggest companies in the industry. If Xbox is cutting ties there, it is cutting broadly.

The Istanbul studio closure is the detail that stings the most. That office opened three years ago as IOI expanded its footprint, presumably to staff up for Project Fantasy among other projects. That kind of geographical growth requires sign-off, hiring, lease agreements, and real operational investment. Closing it now means someone ate that cost, and it probably was not Microsoft. The statement from IOI was measured and professional, the kind of thing a studio writes when it needs to keep future relationships open while publicly processing something genuinely bad.

Project Fantasy Is Not Dead, But the Road Got Harder

IO Interactive insists that Project Fantasy is still in development. The studio said it will continue working on the game and adapt to the new situation. What that means in practice is unclear. Finding a new publisher for an online fantasy RPG at this stage of development, with layoffs already underway and a satellite office shut down, is a difficult position to negotiate from. It is possible IOI pursues self-publishing, or lands a mid-tier partner, or takes a platform deal from Sony or another player looking for third-party content. Nothing official has been announced beyond the statement that they are pressing forward.

The community reaction to IOI's letter was striking. The June 30 post hit over 1 million reposts and 15 million likes. That is not engagement you typically see from a studio update about development timelines. It tells you how much goodwill IO Interactive has built, especially among the Hitman fanbase and people who followed 007 First Light closely. The gaming community is rooting for them, which is a real asset even when the business situation is a mess.

What This Actually Means

IO Interactive is a resilient studio with a track record of surviving hard situations. They survived a rocky period when Square Enix dropped the Hitman series, went independent, rebuilt the trilogy into a critical and commercial success, secured the James Bond license, and delivered a compelling game on their first swing with a new property. They have navigated harder pivots than finding a new publisher. But layoffs are still layoffs, real people losing jobs because a platform holder decided a fantasy RPG was not worth the investment. Whatever Xbox's internal reasoning was, the external effect is a respected, award-winning studio in a genuinely difficult spot through no failure of their own.

Project Fantasy remains a game that almost nobody has seen in any real form. No gameplay footage, no confirmed release window, no platform announcements. IOI described it as an online fantasy RPG, and that is roughly where public knowledge ends. The studio has the skill to pull something ambitious off in that space, but now they have to do it while managing staff cuts, absorbing the closure of a satellite office, and hunting for a new publishing deal simultaneously. That is not an impossible situation. It is just a needlessly bad one, and the timing, coming off the back of their biggest commercial success in years, makes it hit harder than it should.