Undead Labs has publicly declared that it is now operating as an employee‑owned game development studio, marking a significant shift in its corporate structure. The studio, best known for the State of Decay franchise, confirmed that it has "completed its separation from Xbox" following a broader restructuring effort announced by the platform holder yesterday. As part of the separation, the company disclosed that a "significant number" of staff members were let go.
In a statement, Undead Labs paid tribute to those departing, describing them as "exceptionally talented developers who have devoted years to the State of Decay series, tackling tough challenges, supporting one another, and shaping both the upcoming title and the studio itself." The studio emphasized that the contributions of these individuals will remain embedded in Undead Labs' legacy and in State of Decay 3, regardless of where their future careers lead. Despite the workforce reduction, the development of State of Decay 3 is still "actively underway" as Undead Labs moves into this new phase of independence. The title is slated for a 2027 launch across Xbox, Game Pass, PC, and PlayStation platforms, with a closed‑beta test scheduled before the end of the current year.
Philip Holt, head of Undead Labs, explained that gaining independence brings the studio closer to its community and allows it to concentrate on what matters most: delivering high‑quality games and maintaining the support of players who choose to spend their time with the company. Holt also expressed gratitude for the years spent under the Xbox umbrella, noting that "Microsoft has been part of the State of Decay story from the very beginning, and we are proud of everything we have achieved together." He highlighted that the partnership enabled the studio to reach milestones that would have been difficult to achieve on its own, while also underscoring the excitement of moving forward as a self‑governed entity. The layoffs at Undead Labs occurred in the context of a larger reshuffle within Microsoft’s gaming division.
Yesterday, 268 positions were eliminated across Halo Studios, other first‑party developers, and Xbox Game Studios. The restructuring also saw the UK‑based studio Rare and the Halo franchise transferred to Activision, while Obsidian became part of Bethesda.
Playground Games and Turn 10 merged into a single studio, and Activision expanded its oversight to include the Age of Empires studio World's Edge. Microsoft announced that the next Halo title will be "led by a new, purpose‑built team that is separate from ongoing development and plans for Call of Duty," and that a small team at Halo Studios will continue to support the existing Halo community and live‑service titles. In parallel, Ninja Theory faces potential closure after two separate agreements fell through. The Hellblade developer was among five studios divested during the first round of layoffs in July, alongside Compulsion Games, Undead Labs, Double Fine Productions, and Arkane Lyon.
While Compulsion Games and Double Fine have already confirmed their independence, Arkane Lyon remains in the consultation stage. An email from a senior leader to Blizzard employees, reported by Game Developer, indicated that Blizzard was not directly impacted by the announcements made yesterday, suggesting that the restructuring primarily affected studios under the Xbox umbrella. The news of Undead Labs' transition and the associated layoffs has been incorporated into this story as it developed.
While the reduction in staff is a difficult moment for those affected, the studio’s leadership remains optimistic about the future. They plan to leverage the employee‑ownership model to foster a more collaborative and transparent development environment, which they believe will ultimately benefit both the creators and the fans of State of Decay. In practical terms, the employee‑owned structure means that every staff member who remains with Undead Labs will hold a share of the company, aligning incentives and giving them a direct stake in the success of the upcoming game.
This model is intended to empower developers, encourage innovative thinking, and create a culture where decisions are made with the long‑term health of the studio in mind. Looking ahead, the 2027 release window gives the team ample time to refine gameplay mechanics, expand narrative depth, and integrate community feedback gathered during the upcoming closed beta. The beta, slated for later this year, will allow a select group of players to experience early builds, provide valuable insights, and help shape the final product.
Undead Labs has pledged to maintain open lines of communication with its fan base throughout this period, emphasizing that community input will be a cornerstone of the development process. Overall, while the transition brings challenges, Undead Labs is positioning itself to continue delivering the immersive, survival‑focused experience that fans have come to expect from the State of Decay series, now under a model that promises greater creative freedom and shared ownership among its developers.