Xbox Drops IO Interactive's RPG Project; July Job Cuts Expected

Microsoft's Xbox is pulling money from a video game made by a studio that just sold more than three million copies of its last title. At the same time, the company says it will spend the same amount on games overall.

IO Interactive, the developer behind the Hitman series and the recent hit 007 First Light, had previously partnered with Xbox to fund and publish a game codenamed Project Fantasy. Microsoft's Xbox has withdrawn from the arrangement as part of a review of its spending priorities. IO Interactive, a privately held Danish company, will continue development of the game but now needs to find another publishing partner or fund it independently.

Get your free investing masterclass bonus when you join Market Briefs, our free daily newsletter

In a statement to Bloomberg News, an Xbox representative said, "We're "taking a fresh look at where we invest so we're focusing on our highest priorities"." The spokesperson added, "We're not reducing our overall investment in games. "We expect to invest about the same in content as we did last year. What's changing is where we're investing and the kinds of projects we're backing"."

The decision is particularly striking given IO Interactive's recent track record. 007 First Light launched in late 2024 and exceeded sales expectations, moving over three million units. The studio had been riding that momentum to expand into multiple new intellectual properties, with Project Fantasy as one of its flagship efforts. Now, without Xbox's financial backing, IO Interactive must reassess its development pipeline and potentially its workforce.

Separately, IO Interactive posted on social media that it must "adapt to this new reality and its short-term consequences, including staffing decisions."

Project Fantasy, an RPG, was first announced by IO Interactive back in early 2023. The project was one of several new IPs the studio pursued following the commercial success of 007 First Light, which launched in late 2024 and exceeded sales expectations. Xbox's decision to end funding coincides with its upcoming large-scale workforce reductions scheduled for July 6. Asha Sharma, who became CEO in February, is leading what she describes as a "reset" that could result in shutting down multiple subsidiaries.

The decision to halt funding for Project Fantasy is part of a broader strategic shift under Sharma's leadership. Since taking the helm in February, she has signaled a focus on "highest priorities" and a willingness to restructure. The gaming industry has seen significant layoffs in recent years, and this reset could indicate a more selective approach to partnerships and internal development at Xbox.

Subscribe to Market Briefs, our free daily newsletter, and claim your bonus investing masterclass