Xbox pulls out of partnership with Hitman developer IO Interactive

1 hour ago 2

Published Jun 30, 2026, 2:49 PM EDT

IO Interactive remains '100% committed to' Project Fantasy

title art for IO Interactive’s next project, a fantasy RPG. Three figures are backlit by a setting sun; one appears to be an elf, another a human, a third a dwarf in bulky armor.

007 First Light and Hitman 3 developer IO Interactive announced an unexpected project in 2023, an online fantasy RPG. Unlike its last two games, IO Interactive wasn't planning to self-publish the currently named Project Fantasy, but instead work with a third-party to fund and publish it. Turns out that third-party was Xbox, and now Xbox is pulling out of its deal with IO Interactive.

On Tuesday, IO Interactive announced the news in a post on X, but didn't specifically name Microsoft or Xbox, instead saying a "relationship with an external partner on our own IP, Project Fantasy, has come to an end." IO Interactive stated that it will have to make "staffing decisions" in response to its deal falling through, which certainly hints that layoffs are a possibility for the company. "We are fully committed to supporting those affected through this challenging transition," it stated.

It was long suspected Xbox would publish Project Fantasy. Shortly after IO Interactive's announcement, Bloomberg confirmed as such, reporting that the "external partner" was Xbox. According to Bloomberg, Xbox was slated to fund and publish the game, but is now "re-evaluat[ing] investment decisions." An Xbox spokesperson said, "We're not reducing our overall investment in games [...] What's changing is where we're investing and the kinds of projects we're backing."

IO Interactive will continue on developing Project Fantasy. It will either self-publish or seek a new partner to fund and publish the game. As mentioned, IO Interactive developed and published 007 First Light, which was released in May. It rode a wave of positive reviews (and Game of the Year buzz) on the way to 3 million copies sold within a matter of weeks.

Xbox backing out of its deal with IO Interactive comes ahead of potential layoffs throughout the company. Xbox's fiscal year ends on Tuesday, and mass layoffs and likely studio closures are expected in July. Compulsion Games, Undead Labs, and more are all at risk of being shut down and their employees laid off.