IO Interactive closes Istanbul studio after Xbox pulls funding for Project Fantasy
IO Interactive is closing its Istanbul studio and laying off approximately 40 employees after Xbox withdrew funding for Project Fantasy, the Danish studio's ambitious fantasy RPG. The studio opened in March 2023, giving it barely two years of operation before the axe fell. The cuts come despite IO Interactive's recent commercial win — 007 First Light sold more than 2.7 million copies in its first week, per Prima Games.
The fallout
Xbox's exit is part of Microsoft's broader push to concentrate resources on its highest-priority titles — a strategy shift that left new, unproven IP like Project Fantasy exposed. Bloomberg confirmed the withdrawal and IO Interactive's decision to pivot to self-funding. The consequence is a round of painful cuts: staff reductions across offices, cancellation of planned mobile games tied to IO's existing franchises, and a sharp focus on only the most viable projects. The Istanbul closure is the single largest blow.
IO Interactive has been fully independent since a management buyout from Square Enix in 2017 — one of the very few AAA studios operating without a major publisher behind it. That independence is now being tested. Losing Xbox as a financial partner also means losing access to Microsoft's Azure cloud infrastructure, which would have underpinned Project Fantasy's online RPG architecture — a gap IO Interactive will now have to bridge on its own.
The road ahead
IO Interactive published a statement framing the decisions as unavoidable:
> "These are hard but necessary decisions — for IO Interactive to remain one of the very few fully independent AAA studios and publishers, and for Project Fantasy to have the best possible chances of success under our leadership. We are completely and utterly committed to this game, this world and this IP — and we can't wait to share it with you."
The studio says it will provide support for affected employees and is actively asking anyone who can offer jobs to reach out.
Dear gaming community,
— IO Interactive (@IOInteractive) July 7, 2026
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. With this context, we had to find a new…
Project Fantasy has no confirmed release date. With self-funding now the only route forward and a leaner team than before, the timeline is anyone's guess — but IO Interactive insists the game is still coming.