IO Interactive Regains Project Fantasy, Closes Istanbul Studio

IO Interactive has regained full ownership of Project Fantasy after Xbox ended its external funding partnership for the online role-playing game, the Copenhagen-based studio said in a statement posted to X on July 7, 2026. The studio will continue developing the title on its own, but the pivot to self-funding forced the closure of its Istanbul office and the loss of 40 jobs.

The announcement lands one day into the largest restructuring in Xbox’s history. Xbox CEO Asha Sharma sent an email to staff on July 6 outlining plans to cut roughly 3,200 roles through Microsoft’s fiscal year 2027, with 1,600 eliminations effective immediately, and to spin off or sell four Xbox-owned studios. IO Interactive, a third-party publisher and Hitman maker, is one of several external partners now absorbing the shockwave.

What IO Interactive Just Announced

In a post on X dated July 7, IO Interactive said the end of its external finance partnership on Project Fantasy had returned full rights to the studio. The full statement on Project Fantasy ownership and the Istanbul closure runs to several paragraphs and frames the cuts as a deliberate rebalancing of the studio’s portfolio.

The same post named two painful byproducts of going it alone. IO Interactive confirmed it will close its Istanbul studio and “start a process to part ways with colleagues” across the company. The studio framed the cuts as “hard, but necessary decisions” needed “to retain the long-term future of IO Interactive as one of the very few fully independent AAA developer and publisher, as well as to give Project Fantasy the best possible foundation to succeed under our own passion and direction.” Project Fantasy, the studio wrote, “is a game, a world, and an IP that we absolutely love and remain 100% committed to, now and in the future.”

Following the end of our external finance partnership on Project Fantasy, IOI has regained full ownership of the project and our IP. We will continue to develop and fund it independently amongst our other projects.

The statement was posted to X by IO Interactive on July 7, 2026.

Why Xbox Pulled the Plug

Microsoft told Bloomberg (as cited by Yahoo’s gaming coverage) it ceased supporting Project Fantasy after reevaluating the kinds of external projects it wanted to fund. The decision came one day before Sharma sent the “Resetting XBOX” email to staff, published in full on Xbox Wire on July 6.

In that email, Sharma described Xbox’s gaming business as “not healthy,” operating at margins “3-10x lower than comparable platform and publishing businesses.” She added that “in a typical year, we lost 64 cents for every dollar we invested” in external studios, a figure she used to justify the wider pullback from third-party funding deals. Microsoft’s gaming division is cutting about one-fifth of its total staff, according to the full “Resetting XBOX” memo on Xbox Wire.

The reset is broader than Project Fantasy. Cuts span Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios. Sharma’s email said “none of our first party publicly announced games or projects are being cancelled as part of these reductions,” a carve-out that signals continued investment in franchises like Fable, Gears of War: E-Day, and The Elder Scrolls 6 even as external partnerships unwind.

The Cost at the Studio Level

IO Interactive has not disclosed a company-wide headcount, but the closure of its Istanbul studio, confirmed in the same July 7 post, will cost 40 jobs. The Istanbul office had been part of IOI’s footprint for several years, supporting work across the studio’s portfolio of internal projects.

The studio’s remaining offices are its Copenhagen headquarters, plus locations in Malmö, Sweden; Barcelona, Spain; and Brighton, UK. IO Interactive said its “immediate focus is on supporting those affected as best we can through this period” and asked anyone aware of open roles to flag opportunities for displaced staff. The studio has not commented publicly on severance packages or whether any Istanbul-based roles will be preserved through remote work.

Project Fantasy’s Public Profile

Very little is publicly known about Project Fantasy beyond its name, genre, and broad creative direction. IO Interactive first confirmed the project in 2023, when it was described as an online fantasy role-playing game that draws creative inspiration from the Fighting Fantasy book series, according to an interview the studio’s CEO Hakan Abrak gave Yahoo in June 2026.

The game has no announced release date, platforms, or gameplay details. In that same June interview, Abrak said the studio would “reveal that soon,” adding “it might be revealed sooner than you think.” Six weeks later, IO Interactive is still keeping the cards close, and the only public reference to the game’s creative direction remains Abrak’s Fighting Fantasy comparison.

The Financial Cushion for Self-Funding

IO Interactive can afford to fund Project Fantasy on its own because its latest release, 007: First Light, has been an unusually large commercial hit for a mid-sized European studio. The James Bond origin story sold 1.5 million units in its first 24 hours on sale, IO Interactive said in a press release dated May 28, 2026, making it “the fastest-selling title in IO Interactive’s history.”

Two weeks after launch, the title had crossed 3 million copies sold, IO Interactive CEO Hakan Abrak told IGN in an interview reported by Game Developer. The studio’s flagship Hitman series, now packaged as Hitman: World of Assassination, continues to generate recurring revenue, with IO Interactive having previously reported more than 25 million copies sold and more than 85 million players over the franchise’s lifetime.

• 1.5 million: 007: First Light units sold in first 24 hours (May 26, 2026 launch)
• 3 million: 007: First Light units sold within two weeks of launch
• 40 jobs: lost in IO Interactive’s Istanbul studio closure
• 3,200: total Xbox job cuts planned through fiscal year 2027

007: First Light launched on May 26, 2026 on PlayStation 5, Xbox Series X|S, Amazon’s online store, and PC via Steam and Epic Games Store. A Nintendo Switch 2 version is set to follow in summer 2026. The game carries an 88 OpenCritic rating and an 87 Metacritic score, the highest ratings for an IO Interactive game to date.

How the Xbox Reset Is Spilling Past Microsoft’s Walls

IO Interactive is not an Xbox-owned studio, but it is one of several independent developers whose projects were funded by Microsoft’s gaming division. Bloomberg’s report on Project Fantasy suggests Microsoft is unwinding at least some of those relationships as part of its reset, even when the affected studios are not on its own balance sheet.

Within Microsoft’s own walls, four studios are leaving Xbox entirely and one is in consultation:

• Compulsion Games and Double Fine Productions will transition to independent studios with their IP, catalog, and runway for their next games.
• Ninja Theory and Undead Labs have entered terms to join new ownership with funding to complete and grow Senua’s Saga and State of Decay 3.
• Arkane Studios has begun consultation with its French works council to review “potential strategic options.”

Mojang and King now report directly to Sharma, and former Xbox Live and Mojang lead Helen Chiang has been promoted to a newly created chief operating officer role. Xbox will also “reduce management layers to no more than 5, and where possible, 3” and trim vendor spend by 50%, according to the July 6 email.

What Players Will Not See Yet

Project Fantasy remains, in IO Interactive’s own words, “a game, a world, and an IP that we absolutely love and remain 100% committed to, now and in the future.” The studio’s X account and press page remain the only confirmed channels for updates on the game.

No release date, platforms, or gameplay details have been announced, and the studio has not said when any of those will be revealed. Abrak told Game Developer in the 007: First Light sales interview that the studio’s confidence “is pretty high right now,” a stance the company will need to defend as it absorbs the cost of self-funding Project Fantasy alone.

Frequently Asked Questions

What is Project Fantasy at IO Interactive?

Project Fantasy is an online fantasy role-playing game that IO Interactive first confirmed in 2023. CEO Hakan Abrak told Yahoo in a June 2026 interview that it draws creative inspiration from the Fighting Fantasy book series. The studio regained full ownership of the IP on July 7, 2026 after Xbox ended its external funding partnership.

How many people did IO Interactive lay off?

The studio’s July 7 announcement confirmed the closure of its Istanbul office, with 40 jobs lost. The studio has not specified how many additional employees are affected across its other locations in Copenhagen, Malmö, Barcelona, and Brighton, nor has it detailed severance packages.

Why is Xbox cutting 3,200 jobs?

Xbox CEO Asha Sharma said in a July 6 email to staff that the gaming business “is not healthy” and is operating at margins 3-10x lower than comparable platform and publishing businesses. The cuts span Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios, with 1,600 layoffs effective immediately and the rest through fiscal year 2027.

Which Xbox studios are being sold or spun off?

Four Xbox-owned studios will leave the company: Compulsion Games, Double Fine Productions, Ninja Theory, and Undead Labs. Arkane Studios is in French consultation over “potential strategic options.” Mojang and King now report directly to Sharma.

How well did 007: First Light sell?

The James Bond origin story sold 1.5 million units in its first 24 hours, IO Interactive said in a May 28, 2026 press release, making it the fastest-selling title in the studio’s history. By two weeks after launch, the game had crossed 3 million copies sold, according to an interview Abrak gave to IGN.