IO Interactive is closing its Istanbul studio and laying off an unspecified number of employees following Microsoft's decision to pull funding from a major project in development at the company.
The project, internally called Project Dragon but referred to as Project Fantasy in the studio's official statement, was an online fantasy RPG that had been in development for years with Xbox financial backing. With Microsoft executing sweeping cost cuts across its gaming division, IO Interactive now faces the consequences of losing that external partnership.
In a statement posted to social media today, IO Interactive said it had "regained full ownership" of the project and its intellectual property. The studio plans to continue development independently alongside its other titles, but acknowledged that maintaining its long-term independence required difficult restructuring. Beyond the Istanbul closure, the company is "starting a process to part ways with colleagues" while maintaining operations at its Copenhagen headquarters and satellite offices in Barcelona, Brighton, and Malmö.
The wording of IO Interactive's announcement echoes a similar statement released by Romero Games last year when Xbox similarly withdrew project funding, signaling a pattern of Microsoft scaling back external development partnerships.
IO Interactive had previously signaled that layoffs were inevitable if Xbox ended its funding support. The company framed today's decision as necessary to prioritize what it calls its "main internal core titles" rather than external projects and mobile game spinoffs. In its statement, the studio pledged to support affected employees and appealed to the gaming community for networking help in placing laid-off staff members.
The news compounds recent setbacks for IO Interactive. The studio's plans for 007: First Light sequels now face new complications after Amazon acquired the James Bond franchise's publishing rights, shifting control of one of gaming's most prestigious licenses.
Microsoft's pullback on IO Interactive's project is part of a broader Xbox restructuring announced yesterday by CEO Asha Sharma. The company is cutting 1,600 positions immediately with another 1,600 departures planned over the next year. Sharma characterized the reorganization as Xbox's "most significant in history." Four studios have already exited Microsoft entirely as part of the shake-up, with a fifth studio's future still undecided.
Sharma acknowledged that Microsoft's overall gaming strategy had underperformed, with Game Pass subscription numbers falling significantly short of internal projections. Microsoft had expected roughly 77 million Game Pass subscribers by this year, but the service currently has approximately 30 million. Microsoft's 2030 target of 100 million subscribers, revealed during the 2023 FTC trial against the company, now appears unrealistic. In response, Sharma announced a new metric: Xbox aims to reach one billion daily players, up from its current billion players annually.
Author Emily Chen: "IO Interactive's independence comes at a steep price, and betting the studio's future on Project Fantasy while losing Xbox's bankroll is a high-wire act that deserves watching."
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