Microsoft Shifts XBOX Funding Strategy as IO Interactive Deal Ends

Microsoft’s XBOX funding cuts are reportedly expanding beyond internal studios, as the company reviews where it spends money across its gaming business.

Microsoft is reportedly preparing a major round of layoffs across its XBOX division, with cuts expected to begin in July. Early reports claimed that several studios could face serious changes, including Compulsion Games and Arkane Studios, with insiders claiming that additional layoffs might be massive.

The restructuring may not only affect XBOX-owned teams. Reports have also pointed to several layoffs at Assembly, a major XBOX partner that provides PR, communications, media planning, and marketing services.

XBOX Restructuring May Reach More Studios

Newer reports suggest that more first-party XBOX studios could also be affected as Microsoft looks at its gaming costs. The company appears to be reviewing both internal development and external publishing deals.

That means the cuts may not stop at studios directly owned by Microsoft. Third-party projects funded or supported by XBOX could also face changes.

This shift comes as Microsoft tries to make XBOX more sustainable after years of heavy spending on studios, content, and major acquisitions.

IO Interactive’s Fantasy Game Loses Microsoft Partnership

IO Interactive has announced that its partnership with an unnamed “external partner” has ended. According to Bloomberg, that external partner was Microsoft.

The studio has reportedly spent the past five years working on a fantasy game that has long been rumored to be connected to XBOX. The project was also believed to be a potential XBOX exclusive.

IO Interactive says the game has not been canceled and remains planned. However, the end of Microsoft’s involvement raises questions about how the studio will continue funding development.

The company has warned that the end of the partnership could lead to layoffs on the development team.

It remains unclear whether IO Interactive will fund the fantasy game itself, scale the project down, or look for another publishing partner. The studio has said the project will continue, but losing Microsoft support could still force changes.

Microsoft Says It Is Reassessing Gaming Investment

Microsoft says it is reassessing where it invests in gaming and focusing on its “highest priorities.”

The company also says it is not reducing its overall gaming investment. Instead, Microsoft claims it expects to spend roughly the same amount on content as it did last year.

The difference appears to be where that money goes. Microsoft may continue spending heavily on gaming, but it may now prioritize safer projects, major franchises, and content with clearer financial returns.

This fits with recent comments from Microsoft leadership that XBOX needs to become more self-sufficient. The company has invested heavily in gaming for years, but it now appears to want stronger results from that spending.