Xbox has withdrawn funding and publishing support for IO Interactive's online fantasy RPG, Project Fantasy, marking a significant shift in the studio's immediate plans. IO Interactive confirmed that "a relationship with an external partner on our own IP, Project Fantasy, has come to an end," warning of short-term consequences around "staffing decisions"—widely interpreted as layoffs.

Bloomberg identified the external partner as Microsoft's Xbox division. An Xbox spokesperson stated that the company is "taking a fresh look at where we invest so we're focusing on our highest priorities," adding that overall games spending remains unchanged but the allocation of resources is shifting.

Project Fantasy's Development

Project Fantasy began development in 2021, shortly after COVID, and was formally announced in 2023. It had the second-largest development team at IO Interactive—behind the recently released 007 First Light but ahead of the Hitman series—and is led by studio co-owner Christian Elverdam. IO Interactive chief development officer Véronique Lallier previously described the project as a new IP that the studio is excited to build with different game experiences.

Wider Xbox Restructuring

Microsoft's decision comes under the leadership of Asha Sharma, who took over from Phil Spencer and Sarah Bond earlier this year. Sharma's "reset" is expected to begin around July 6 and may include layoffs and potential studio sell-offs or closures. Arkane, the developer behind Dishonored and Prey, has been reported as another studio at risk within this restructuring.

IO Interactive's Position

Despite the setback, IO Interactive remains confident. The studio recently released 007 First Light to strong reception—called a "narrative tour-de-force" in reviews and selling nearly 3 million copies in its first week. That success strengthens IOI's position as it seeks alternative paths for Project Fantasy. IO Interactive stated it is "100 percent committed" to the project and that the IP "will see the light of day."

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