IO Interactive Closes Istanbul Studio as Xbox Funding Ends

IO Interactive will close its Istanbul studio and lay off staff after Xbox pulled out of a deal to fund and publish Project Fantasy, the Danish developer’s most ambitious new game. The decision hands one of the industry’s few fully independent AAA studios a problem money usually solves: how to bankroll a big-budget online role-playing game with no outside financier behind it.

In a statement posted to its social channels, IO said it had regained full ownership of Project Fantasy and its intellectual property after the end of its external finance partnership, and would keep building the game with internal money. The studio did not name the partner. Bloomberg reported in late June 2026 that the backer was Microsoft’s Xbox, which had agreed to both fund and publish the title.

Losing a single backer

Project Fantasy, an online RPG first shown in 2023, was designed as a live-service game meant to run for years, the kind of project that needs sustained investment well past launch. Losing Xbox strips out the money and the publishing reach behind it, and leaves IO to self-finance a genre it has never shipped.

The studio framed the cuts as a defense of its independence, saying it had to “find a new balance for the long-term future of the studio, focused on the success of our main internal core titles instead of external projects and potential mobile game derivatives.” In practice that means pulling back from third-party publishing and mobile spin-offs to concentrate cash on its owned franchises: Hitman, the 007 series, and Project Fantasy.

It is a sharp reversal for a company that spent recent years expanding. IO has been employee-owned since a 2017 management buyout from Square Enix that returned the Hitman rights and made it a rare AAA developer with no parent publisher. That autonomy is what the Istanbul closure is meant to protect, and what the Xbox deal had, until now, helped underwrite.

Caught in the Xbox reset

The timing points straight back to Microsoft. On July 6, 2026, Xbox detailed a restructuring that will cut 3,200 jobs and divest five studios, with 1,600 roles going immediately. IO’s announcement came a day later. Xbox told Bloomberg it had stepped back from Project Fantasy after reassessing which projects fit its priorities.

New Xbox chief Asha Sharma has cast the reset as a move toward the company’s highest-priority franchises after years of heavy spending. New, unproven IP from an external studio was exactly the kind of bet that fell outside that list, and Microsoft, whose fiscal year ends June 30, routinely reshapes its portfolio at that turn.

For IO, the damage is concentrated in one office. The Istanbul studio opened in 2023 in the Maslak area of the city’s Sariyer district as a base for AAA development in Türkiye, and its team worked on 007 First Light, upcoming Hitman games, and Project Fantasy. Its closure drops IO from five studios to four, leaving the Copenhagen headquarters and offices in Brighton, Barcelona, and Malmö. The studio did not say how many jobs would go and indicated the changes reach beyond Istanbul.

What it means for Project Fantasy

Self-funding a live-service RPG is a very different proposition from the arrangement IO just lost. Under the Xbox deal, Microsoft carried the development risk and would have handled publishing; now the studio absorbs both. IO’s one clear advantage is 007 First Light, which launched in May 2026 and, by the studio’s account, ranks as the fastest-selling game in its history, a revenue cushion heading into the transition.

But a single hit does not finance a years-long online game, and IO has disclosed no release window, platforms, or business model for Project Fantasy beyond confirming it remains in active development. The studio has asked its network to help place departing staff, a sign the layoffs extend past the Istanbul team it is winding down.

The episode exposes a structural risk that runs underneath the independent-studio story. Staying unowned often means relying on a single deep-pocketed partner to finance the biggest projects, and when that partner resets its portfolio, the independent takes the hit. The 2026 layoff wave has already pushed the industry toward damage control, including a hardship fund for laid-off developers, while distressed studios and assets change hands as publishers retrench, as when Slitherine bought the Blood Bowl license from a struggling Nacon.

For now, Project Fantasy carries on as a fully independent project: a leaner team, no outside financier, and the weight of a live-service ambition resting on a studio that has just proved it can ship a hit.