IO Interactive has laid off staff following the collapse of its partnership with an unnamed external collaborator on Project Fantasy, an online fantasy RPG in development at the studio. Multiple sources identify Microsoft as the partner behind the deal's dissolution.
The Danish developer, known for the Hitman franchise and the recent James Bond game 007 First Light, confirmed the staffing cuts but pledged that Project Fantasy would continue development. The studio did not disclose how many employees were affected by the layoffs or provide specifics about the project's new direction.
Project Fantasy represents IO Interactive's attempt to expand beyond its established action-game franchises into the multiplayer RPG space. The partnership breakdown signals tension in a relationship that likely involved significant funding or publishing support from Microsoft. Kotaku and Bloomberg's reporting suggests Microsoft's involvement, though neither company has formally confirmed the details.
IO Interactive has navigated several franchise transitions in recent years. The studio regained independence from Square Enix in 2018 and secured the James Bond license for 007 First Light, which launched in 2023 to mixed commercial reception. That game's performance may have influenced Microsoft's confidence in the studio's next venture.
The studio's statement that Project Fantasy will continue suggests the project will now operate under different terms, possibly with reduced scope or modified gameplay systems. Online fantasy RPGs face crowded competition from established titles like Final Fantasy XIV and World of Warcraft, meaning IO Interactive faces pressure to differentiate whatever emerges from this restart.
The layoffs reflect broader contraction across the gaming industry. Major studios including Microsoft's own Xbox Game Pass division have cut thousands of positions this year. For IO Interactive, the challenge now involves rebuilding Project Fantasy while maintaining momentum on its existing franchises with a smaller team.