3M Copies Sold, Then Layoffs: Xbox Cuts IO Interactive

Three million copies of 007 First Light sold in weeks. Positive reviews. Game of the Year buzz. And today, IO Interactive is laying people off.

The studio announced on X that its "relationship with an external partner" on Project Fantasy, an online fantasy RPG first revealed in 2023, "has come to an end." IO didn't name the partner, but Xbox confirmed to Bloomberg that it was the one walking away. "We're not reducing our overall investment in games," a Microsoft spokesperson told Bloomberg. "What's changing is where we're investing and the kinds of projects we're backing."

The connection between Xbox and Project Fantasy has been an open secret since leaked documents from the FTC v. Microsoft trial in 2023 listed the game, then codenamed Project Dragon, as an Xbox and PC exclusive to be published by Xbox Game Studios. IO Interactive's statement today referenced "staffing decisions" already underway, corporate language that clearly signals layoffs. The studio did not confirm how many employees would be affected.

This is a brutal outcome for a studio riding the highest point in its history. First Light was IO's fastest-selling game ever, and the idea that people who helped ship a hit are now losing their jobs because a separate project's funding evaporated is the kind of whiplash that makes this industry so exhausting to watch. Romero Games co-founder John Romero responded on X, writing "As a company, we've been there, and it's extremely difficult." Romero Games itself reportedly lost Microsoft funding during a previous round of cuts in 2025, alongside Avalanche Studios.

IO Interactive insisted that Project Fantasy "will see the light of day," saying the studio remains "100% committed" to the project and will either self-publish or find a new partner. Given that the studio successfully self-published First Light, that's not an empty claim, but finding funding for an online RPG without a proven track record in the genre is a different challenge entirely from shipping a Bond game.

Xbox's fiscal year ends today, and mass layoffs across the division are expected to begin in July, with reports suggesting at least five studios could face closure or be spun off as part of what Xbox CEO Asha Sharma has described as a "reset for a stronger Xbox."