Xbox Ends Project Fantasy Deal as IO Interactive Cuts Jobs

IO Interactive has confirmed layoffs after its publishing partnership for Project Fantasy came to an end. Bloomberg has since confirmed the previously unnamed external partner was Xbox, which had agreed to fund and publish the original fantasy role-playing game (RPG).

The developer confirmed that the project will continue, but it must now secure new funding or publish the game independently.

The announcement comes as Xbox reportedly prepares widespread layoffs and reviews its gaming investments. According to Xbox, the shift is part of a broader strategy to prioritize selected projects rather than reduce overall spending on games.

IO Interactive Says Project Fantasy Remains a Long-Term Commitment

In a statement, IO Interactive noted the company had recently celebrated the success of 007 First Light, but now had to share additional downbeat news following the end of its publishing partnership. It added that the change requires the studio to "adapt to this new reality" and make staffing plans, while supporting employees affected by the layoffs.

The studio also reaffirmed its commitment to the project, stating that it remains "100% committed" to Project Fantasy and that the original intellectual property (IP) "will see the light of day."

Project Fantasy first emerged in 2021, when Windows Central reported that Microsoft had partnered with IO Interactive on a new dragon-themed IP, expected to launch as an Xbox exclusive. During the FTC vs Microsoft trial in 2023, internal Microsoft documents identified Xbox as the game's publisher. Later in 2023, IO Interactive officially confirmed it was developing an online fantasy RPG built as a new world designed to entertain players and expand over the long term.

Xbox Says Investment Strategy is Shifting, Not Shrinking

Responding to Bloomberg, an Xbox spokesperson stated that the company is taking a “fresh look at where we invest so we're focusing on our highest priorities." The spokesperson also added that Xbox is not decreasing its total investment in games and expects to spend roughly the same on content as last year. However, the company is changing "where we're investing and the kinds of projects we're backing."

The decision follows a similar move in 2025, when Xbox ended support for Avalanche Studios' Contraband.

Bloomberg additionally reported that OD, Hideo Kojima's upcoming horror game, remains part of Xbox's publishing plans despite the company's ongoing business reset. For IO Interactive, the immediate priority is finding a new path to bring Project Fantasy to market while continuing development of its original IP.