In December 2023, the gaming world was rocked by the sudden cancellation of The Last of Us Online, a highly anticipated multiplayer spinoff from Naughty Dog. The project, which had been in development for nearly seven years and was reportedly about 80 percent complete, was shelved in favor of the studio’s next flagship single-player game, Intergalactic: The Heretic Prophet, for the PlayStation 5. The story behind this decision reveals not only the shifting tides of the video game industry but also the personal heartbreak experienced by those who poured years of their lives into the ill-fated title.
Vinit Agarwal, the game’s director, spent seven years leading the development of The Last of Us Online. In a candid interview with podcaster Lance E. Lee, Agarwal described the moment he learned of the project’s demise. “That was a devastating moment for me because I spent seven years working on that game, and it was soul-crushing,” he said. “I remember honestly finding out that it was getting cancelled 24 hours before it was announced to the public. That’s how I found out about the game getting cancelled, and it was just unfortunate, and they had to do that because they have to control the messaging.”
The roots of the project’s cancellation stretch back to 2020, at the height of the COVID-19 pandemic. As lockdowns forced people indoors, the appetite for online multiplayer games surged. According to Agarwal, “During COVID, the game industry saw a huge growth because everyone was at home. So in 2020, money was flooding into the game industry because people were playing a lot more games all of a sudden because they're at home. What else did they have to do?” Sony, Naughty Dog’s parent company, saw an opportunity and invested heavily in live-service and online games, hoping to ride the wave of increased engagement.
“Online games specifically saw a huge boost because people wanted to play with their friends. They couldn't see their friends, so they had to play online with their friends. So online games got a huge boon. So Sony decided to put a lot of money into online gaming like everyone else was. And so that was part of why The Last of Us Multiplayer got funding, and we got off the ground and we made a lot of progress, and the game was doing really, really well internally. We developed it almost to 80% completion. It was very very close to done,” Agarwal explained.
Indeed, by late 2023, The Last of Us Online was not only far along in development but, according to Agarwal, was “doing really, really well internally.” Neil Druckmann, Naughty Dog’s president and the creator of The Last of Us, had even called it the studio’s “most ambitious project” in January 2023. But as pandemic restrictions eased and players returned to in-person activities, the demand for online multiplayer experiences began to wane. The economic downturn in 2022 and 2023 further compounded the problem, forcing Sony and other industry giants to reassess their strategies.
“All the forces that pushed the game industry in 2020 were the reasons it started declining in 2022, 2023. So as people returned to the office, suddenly people didn't have as much time to play games. You know, that spending reduced. The economy also went down. And so all that money that flooded into the game industry was not going to be able to sustain. Because money was getting pulled out, they had to also kind of collapse the spending they'd spent. They overspent basically. They were overzealous,” Agarwal recounted.
The decision to cancel The Last of Us Online was not made lightly. According to multiple reports and Agarwal’s own words, Naughty Dog faced a stark choice: continue pouring resources into a live-service game that would require years of post-launch support, or focus on their next single-player adventure, which was seen as the studio’s true “bread and butter.” As Agarwal put it, “Basically, at one point, a decision had to be made. ‘Okay, make this game or make the next game that Neil Druckmann was directing, the president of the company.’ And so, kind of naturally, you can understand what happened there. They had to pick the game that was kind of the soul, bread and butter of the studio, rather than this experimental game that I was working on that I believe was going to be really big, but unfortunately couldn't see the light of day.”
For Agarwal, the cancellation was not just a professional setback but a deeply personal blow. He revealed that his inspiration for the game stemmed from a traumatic real-life experience—a late-night robbery in Austin, Texas, where he was held at gunpoint. “This was something I really cared about,” he said. “I had a core inspiration for this game that drove what happened in the game.” He sought to translate the desperation and fear he felt during that event into the gameplay, aiming to capture the sense of survival and scarcity that defines The Last of Us universe. “The goal of the game was to scavenge supplies, and one of the best sources of supplies is to kill the other player, right?... It was therapy for me. It was such a personally meaningful project to me, that it killed me that people couldn't play it.”
The cancellation of The Last of Us Online was emblematic of a broader industry trend. Sony, which had announced plans to launch at least 10 live-service games by 2026, began pulling back as the market cooled. In 2024, the company delayed six games internally, laid off staff at its subsidiary Bungie, and shuttered studios such as Bluepoint Games and Firewalk Studios. Other industry players like Warner Bros. and Sega also faced setbacks, with several online titles canceled or shut down shortly after launch. Even Epic Games, the maker of Fortnite, laid off more than 1,000 employees despite its flagship game’s ongoing success.
Behind the scenes, feedback from Bungie (acquired by Sony in 2022) played a pivotal role in Naughty Dog’s decision. Former PlayStation executive Shuhei Yoshida explained, “The idea for The Last of Us Online came from Naughty Dog and they really wanted to make it. But Bungie explained [to them] what it takes to make live service games, and Naughty Dog realised, ‘Oops, we can’t do that! If we do it, we can’t make Intergalactic: The Heretic Prophet.’ So that was a lack of foresight.”
After the cancellation, Agarwal left Naughty Dog in January 2025 and relocated to Japan, where he founded his own game studio. His journey mirrors that of other prominent developers who left major studios to create new companies and pursue their creative visions. Meanwhile, Neil Druckmann and Naughty Dog press forward with Intergalactic: The Heretic Prophet, and rumors persist that more Last of Us content may be on the horizon, though any potential sequel is likely years away.
For fans and industry watchers alike, the saga of The Last of Us Online stands as a powerful reminder of the unpredictable nature of game development—a world where even the most promising projects can vanish on the cusp of completion, leaving behind only stories and what-ifs.