IO Interactive has announced layoffs due to an external partner withdrawing from its new intellectual property, codenamed Project Fantasy. Microsoft is widely believed to have been the publisher involved with the game, a fact previously suggested by an FTC leak and confirmed by two sources familiar with the project to Kotaku. The departure of this partner necessitates staffing adjustments, which the studio is undertaking while providing support to affected employees.
Despite this setback, IO Interactive stated its unwavering commitment to Project Fantasy. "Project Fantasy is a game, a world, and an IP that we absolutely love and remain 100% committed to, now and in the future," the studio communicated. "This wonderful universe will see the light of day."
The news surfaces as Microsoft is reportedly implementing substantial cuts across its gaming division, including potential studio closures or spin-offs. Concerns had already arisen that Project Fantasy might be impacted by earlier rounds of Xbox layoffs in the summer of 2025, with one source indicating that the game's online components had been scaled back while Xbox maintained its involvement.
Earlier in the month, IO Interactive CEO Hakan Abrak addressed the project's status. "So, first of all, I’m not going to answer what partner it is. I’m not going to confirm or deny anything," Abrak told The Game Business. "To the second part of the question, it is in a very healthy place, it’s still financed, and it’s amazing."
Microsoft has not commented on the situation, and a representative for IO Interactive referred inquiries back to the studio's official statement. The circumstances surrounding the external partner's exit remain undisclosed.