IO Interactive announced layoffs after Xbox ended its partnership on the company’s fantasy RPG, Project Fantasy, on or just before August 4, 2026 [1, 2, 3, 4, 5]. Xbox’s decision comes as part of a broader organizational reset under new leadership, planned to start around July 6, 2026, which will include studio closures and layoffs [1, 2, 4].
IO Interactive confirmed the external partner ending the relationship was Xbox, as reported by Bloomberg and multiple other sources [1, 2, 3, 4, 5]. Despite the setback, IO Interactive said it remains fully committed to continuing development and is determined that Project Fantasy will still be released in the future [2, 3, 4, 5]. The company stated, "Project Fantasy is a game, a world, and an IP that we absolutely love and remain 100 percent committed to, now and in the future. This wonderful universe will see the light of day" [2].
Layoffs are a short-term consequence of Xbox pulling out, though IO Interactive did not disclose the exact number of staff affected [1, 2, 3, 4, 5]. The company also pledged to support those impacted through the transition, recognizing the challenging circumstances [4].
An Xbox spokesperson emphasized that the company is not reducing its overall investment in games, but is shifting priorities and the types of projects it backs. "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," they said [1]. Another statement noted, "We expect to invest about the same in content as we did last year. What's changing is where we invest so we're focusing on our highest priorities" [2].
IO Interactive had recently seen success with its May 2026 release of 007 First Light, which sold 3 million copies shortly after launch [1, 3]. The studio began developing Project Fantasy around 2021, with a public reveal in 2023 [1, 2].
The upcoming reorganization at Xbox is expected to continue with layoffs and possible studio closures, starting July 6, 2026 [1, 2]. IO Interactive’s announcement of layoffs and Xbox’s exit from Project Fantasy came just days after this planned restructuring date [1, 2, 3, 4, 5].
