IO Interactive closes Istanbul studio after Xbox pulls Project Fantasy funding

IO Interactive has confirmed it is shutting down its Istanbul studio and beginning layoffs across the company, after Xbox ended its funding partnership on Project Fantasy — the studio's in-development online fantasy RPG. The cuts were described as "hard, but necessary" to secure IO's long-term future as a fully independent AAA developer and publisher.

With Xbox out of the picture, IO has regained full ownership of Project Fantasy and its associated IP, and will now fund and develop the game independently. To make that viable, the studio is pulling back from external projects and potential mobile game derivatives. Beyond Istanbul, IO retains offices in Copenhagen, Barcelona, Brighton, and Malmö. The exact number of staff affected has not been disclosed. IO's statement asked the community to share job opportunities for departing colleagues.

Xbox's withdrawal is part of a sweeping restructure announced by Xbox CEO Asha Sharma, described as the most significant in Xbox history. Microsoft cut 1,600 staff in a single day, with another 1,600 expected to follow over the next 12 months, and four studios have already left the company. The broader context is a Game Pass shortfall — Microsoft reportedly targeted around 77 million subscribers by this year but currently sits at roughly 30 million. IO is not the only casualty: Xbox also pulled funding from Romero Games and backed out of a deal with Naughty Dog veteran Bruce Straley, and the next game from the creator of Assassin's Creed lost Xbox backing too.

IO had flagged potential layoffs back in June when Xbox's exit first became known, but today's statement is the first official confirmation of the Istanbul closure and the scope of the restructure. The studio remains committed to Project Fantasy and says it cannot wait to share more. Whether IO also pursues a sequel to 007: First Light — which landed well both critically and commercially — is still an open question.