Microsoft has pulled funding on a fantasy game from Hitman developer IO Interactive, as it looks to close Dishonored and Blade studio Arkane. After Xbox boss Asha Sharma promised a company ‘reset’, the prospect of catastrophic layoffs has hung over Microsoft’s gaming division.
Impact on IO Interactive and Project Fantasy
007 First Light developer IO Interactive has said it is facing layoffs after a deal to fund and publish a new game codenamed Project Fantasy fell through. In a statement on X, IO Interactive wrote: ‘For a good while, it has been all positive news from IO Interactive. We remain humbled and honoured 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.’
Microsoft's Role and Studio Closures
While IO Interactive didn’t name the publisher, this was later outed as Microsoft by a report on Bloomberg. A statement from Xbox was provided to the outlet too, stating they were ‘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,’ an Xbox spokesperson added. ‘We expect to invest about the same in content as we did last year. What’s changing is where we’re investing and the kind of projects we’re backing.’
According to The Verge, Microsoft is ‘weighing’ closing at least five studios, including Arkane. The team is best known for the Dishonored series and is currently working on Marvel’s Blade, which is now at risk of being cancelled. It’s claimed the title is running over budget and was supposed to be released later this year, but the internal ship date slipped to late 2027. However, much like the other studios on the chopping block, it’s claimed Microsoft is ‘exploring’ the idea of selling off Arkane instead.
Shift to Established Franchises
Xbox’s cuts have already affected other studios beyond the company’s remit. There have been reports that Sharma wants to accelerate development on The Elder Scrolls, Halo, and Fallout specifically, which makes sense from a business perspective, but it means original IP, like Project Fantasy, will likely be left in the dust. Project Fantasy isn’t dead; IO Interactive is still developing the title, but it will have to seek funding from elsewhere or publish the game itself.
The one outlier appears to be Hideo Kojima’s upcoming horror game OD. According to IGN, the Microsoft published title is ‘set to survive’ Xbox’s reset, although no explanation is given as to why – especially as horror games aren’t typically big sellers. However, considering Kojima’s influence and reputation within the industry, Xbox likely doesn’t want to damage its relationship with him.
Timeline and Scale of Layoffs
The job cuts at Xbox are expected to begin on or around Monday, July 6, so we’ll likely know the full extent of the situation next week. Based on all the reports so far though, it could be the largest, and most damaging, round of layoffs ever seen in the industry.
