Microsoft’s Xbox division has ended a publishing and funding agreement with IO Interactive for the studio’s upcoming online fantasy role-playing game, currently known as Project Fantasy, according to a report from GamesIndustry.biz. The move is expected to result in redundancies at the Danish developer known for the Hitman series.
The decision represents a significant shift for a project that was announced in 2023 as a major new intellectual property for IO Interactive. Xbox had committed to publishing the title and providing financial backing, but that arrangement has now been terminated.
Project Fantasy loses key backer
Project Fantasy was described by IO Interactive as an online fantasy RPG set in a new original universe. The studio had not released a release window or substantial gameplay details prior to the funding arrangement being discontinued.
Industry sources indicate that the cancellation of the publishing deal stems from a broader reassessment of Xbox’s third-party investment strategy. Microsoft has recently scaled back several external publishing agreements as part of cost-cutting measures across its gaming division.
IO Interactive, which employs several hundred staff across studios in Copenhagen, Malmö, and Barcelona, will now need to seek alternative funding or adjust the project’s scope. The studio also continues to work on other projects, including the James Bond game Project 007 and further content for the Hitman World of Assassination trilogy.
Redundancies expected at IO Interactive
The report states that job losses are expected within the Project Fantasy team, though the exact number of affected employees has not been confirmed. IO Interactive has not issued a public statement regarding the redundancy process at the time of writing.
The Danish games development sector has faced notable restructuring in recent years. Several other studios in the region have announced layoffs amid rising development costs and changing market conditions for online multiplayer games.
For IO Interactive, the withdrawal of Xbox’s support adds uncertainty to a project that was still in an early prototyping phase. The company had been recruiting for Project Fantasy across multiple disciplines including game design, engineering, and art.
Broader context of Xbox’s publishing changes
Xbox’s decision to exit the Project Fantasy deal follows a series of changes to its external publishing pipeline. The company has closed several studios in recent months, including Tango Gameworks and Arkane Austin, and has shifted focus toward major first-party franchises such as Call of Duty, Diablo, and Halo.
The move also reflects a wider contraction in the video game industry investment landscape. Many major platform holders have reduced funding for high-risk, unproven projects, preferring to allocate resources to established series or service-based games with predictable revenue models.
IO Interactive remains an independent studio, which gives it the flexibility to shop Project Fantasy to other publishers or continue development with self-funding, though the latter would require significant financial resources. The studio has self-published the recent Hitman games, but an online RPG represents a much larger ongoing investment.
The next steps for Project Fantasy and its development team remain unclear. IO Interactive may seek a new publishing partner or restructure the project. Further official information is expected once the studio finalizes its internal reorganization.
Source: GamesIndustry.biz
