Microsoft is restructuring its Xbox gaming division under CEO Asha Sharma, resulting in terminated vendor contracts and impending studio cuts expected to begin on July 6, 2026.
As part of these strategic adjustments, Hitman developer IO Interactive lost its publishing agreement with Xbox for an upcoming online fantasy role-playing game originally announced in 2023.
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Reports from Bloomberg and The Verge indicate that five internal studios—Compulsion Games, Double Fine, Ninja Theory, Undead Labs, and Arkane Studios—face potential closure or sale, with Arkane's Blade game also facing cancellation.
IO Interactive addressed the sudden shift in development backing through an official corporate announcement regarding their independent intellectual property.
"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," stated an official release from IO Interactive.
The independent studio affirmed that development on the project would continue despite losing the initial exclusive publishing arrangement.
"100% committed to [Project Fantasy], now and in the future," added the representative from IO Interactive.
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Microsoft Clarifies Investment Strategy
In response to the public disclosure of the terminated contract, Microsoft clarified its broader financial commitment toward game development.
"Taking a fresh look at where we invest so we’re focusing on our highest priorities," said an official Xbox representative.
The technology giant specified that the redistribution of resources does not indicate a reduction in the division's overall software production budget.
"We’re not reducing our overall investment in games. We expect to invest about the same in content as we did last year.
What’s changing is where we’re investing and the kinds of projects we’re backing," clarified the Xbox spokesperson.
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The anticipated corporate downsizing follows previous cost-cutting measures, including Microsoft's closure of Arkane Austin and several other subsidiary studios in May 2024.
