IO Interactive is facing layoffs today after an “external partner” pulled out of the production of the Hitman studio’s new IP called Project Fantasy. Microsoft has long been believed to be the publisher working with IO Interactive on the game following an FTC leak several years ago, which two sources familiar with the project recently told Kotaku was indeed the case.
Here’s the full message from IO Interactive:
For a good while, it has been all positive news from IO Interactive. We remain humbled and honored by the response to our latest outing with a young, unproven Bond. A bold new story and a take on one of the most famous characters in entertainment, which the world has embraced with love.
However, today we have to share some more downbeat news. A relationship with an external partner on our own IP, Project Fantasy, has come to an end. This means we have to adapt to this new reality and its short-term consequences, including staffing decisions, which is what is happening as we write this update, and we are fully committed to supporting those affected through this challenging transition.
Project Fantasy is a game, a world, and an IP that we absolutely love and remain 100% committed to, now and in the future. This wonderful universe will see the light of day.
The news comes as Microsoft is expected to implement steep cuts across its gaming division, including closing or spinning off some of its first-party game studios. There were concerns that Project Fantasy had been negatively impacted by the last round of major Xbox cuts in the summer of 2025. According to one source, that game’s online ambitions were scaled back, but Xbox remained involved.
“So, first of all, I’m not going to answer what partner it is. I’m not going to confirm or deny anything,” IO Interactive CEO Hakan Abrak told The Game Business last month. “To the second part of the question, it is in a very healthy place, it’s still financed, and it’s amazing.”
Update 6/30/2026, 1:57 p.m. ET: Microsoft confirmed its involvement in Project Fantasy in a statement to Bloomberg and said Xbox is “taking a fresh look at where we invest so we’re focusing on our highest priorities.”
“We’re not reducing our overall investment in games,” the spokesperson said. “We expect to invest about the same in content as we did last year. What’s changing is where we’re investing and the kinds of projects we’re backing.”