IO Interactive announced on June 28-29 that its relationship with Xbox as an external partner on its new online fantasy RPG, Project Fantasy, has ended, resulting in staffing decisions including possible layoffs [1, 2, 3]. The Danish developer called Project Fantasy a new intellectual property it remains "100% committed to," despite the setback [2].
Project Fantasy was first announced by IO Interactive in 2023 as an online fantasy RPG to be published by a third party [1]. The partnership with Xbox fell apart amid broader Xbox restructuring plans, which include expected mass layoffs and studio closures set for July 2026 [1, 3].
Xbox said it is not cutting overall game investments but shifting focus to different projects and priorities. An Xbox spokesperson told reporters, "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" [1].
IO Interactive recently released 007 First Light in May 2026, which sold over 3 million copies within weeks of launch [1, 2, 3]. Despite the strong sales, losing Xbox as a partner has forced IO Interactive to explore self-publishing Project Fantasy or finding a new publisher [1, 2, 3].
The developer said it must "adapt to this new reality and its short-term consequences, including staffing decisions" as it pushes forward with Project Fantasy [2]. IO Interactive plans to remain committed to the game’s development and continuing work on its new world and IP [2].
With Xbox’s wider restructuring expected to impact studios and employees in July, IO Interactive’s announcement of layoffs aligns with industry shifts [1, 3]. The next key milestone will be IO Interactive's decision on Project Fantasy’s publishing path after losing its external partner in late June 2026.
