How Xbox's Reset Turned a Bond Game Win Into Layoff Collateral

IO Interactive announced last week that it had lost funding for Project Fantasy, an "online fantasy RPG" first announced in 2023, and that as a result it had to adapt to this new reality including staffing decisions. While the developer doesn't explicitly state that this was related to Xbox, reports from Bloomberg suggested that Xbox was the external finance partner. The studio confirmed it is closing its studio in Istanbul and beginning the layoff process for an unspecified number of employees.

The timing is what makes this sting. The studio released one of the biggest games of the year so far, 007 First Light, just over a month ago—a well-received, multi-million-selling game. 007 First Light is IO Interactive's fastest-selling game and has generated significant revenue worldwide. This is not a studio in crisis. Yet crisis conditions are what it now faces.

The Funding Collapse

The story begins with Project Fantasy—a game IO Interactive had been building with significant external backing. Back in 2023, IO Interactive's Project Fantasy was an online fantasy RPG that sought to evoke tabletop RPGs with distinct roles and the suggestion of a game master at the helm. It wasn't vaporware or a distant prototype. Project Fantasy was supposed to have been in a healthy place until recently.

Bloomberg News confirmed that the unnamed external partner was Xbox, which had pledged to fund and publish the unnamed fantasy game. That partnership is now dead. Following the end of the external finance partnership on Project Fantasy, IOI has regained full ownership of the project and its IP and will continue to develop and fund it independently amongst other projects.

The catch: doing so required immediate restructuring. The closure of the Istanbul studio and starting a process to part ways with colleagues has been announced. That Istanbul office, which opened in 2023, will have to shutter.

The Larger Pattern

This is not an isolated studio problem. This announcement comes as part of a broader Xbox restructuring that includes significant layoffs across the gaming division. Xbox told Bloomberg it ceased supporting Project Fantasy after reevaluating the types of projects it wanted to invest in.

That phrase—where we're investing—is the whole story. Xbox leadership has signaled a tightening around internal franchises and a pullback on funding third-party projects, external developers, and anything perceived as speculative. Project Fantasy, no matter how far along, apparently fell into the latter category.

The Contradiction

The brutal irony is that IO Interactive just proved it could deliver. 007 First Light boasts critical acclaim and strong commercial performance. The title has performed well, led by strong PlayStation 5 sales and with an upcoming Nintendo Switch 2 release planned.

This is a studio at the peak of its commercial and critical power. And yet the costs of that success—the window of vulnerability when a major side project was still hungry for investment before the big launch landed—left them exposed when their publisher partner suddenly recalibrated its portfolio.

The company hasn't canceled Project Fantasy outright. Project Fantasy is a game, a world, and an IP that IO Interactive is wholly committed to. But development will now compete for internal resources alongside 007 First Light, Hitman updates, and whatever comes next. The momentum from a hit game does not automatically insulate you from the fallout when the platform ecosystem shifts.