Undead Labs has publicly declared that it has severed its formal ties with Microsoft’s Xbox division and is now operating as an employee‑owned game development studio. The announcement, made in the wake of a broader restructuring effort across Microsoft’s gaming divisions, emphasized that the studio’s core mission and its flagship project, State of Decay 3, remain fully intact.
According to the company’s statement, the separation from Xbox was completed as part of a larger reset of the platform holder’s internal organization that took place yesterday. While the move grants Undead Labs greater autonomy, it also came with a painful side effect: a "significant number" of staff members were let go. The studio described those departing employees as "exceptionally talented developers who have poured years into the State of Decay franchise, solving hard problems, looking after one another, and helping shape both this game and this studio." The company made it clear that the contributions of those former team members will continue to live on in the game’s code, assets, and design philosophy, regardless of where their careers may lead them next. Despite the workforce reduction, Undead Labs affirmed that development on State of Decay 3 is "actively underway" and that the title remains on track for a 2027 launch across Xbox, Xbox Game Pass, PC, and PlayStation platforms.
The studio also disclosed plans for a closed‑beta test that is expected to run before the end of the current year, offering a limited group of players an early look at the game’s mechanics, world‑building, and narrative direction. "Independence brings us closer to our community and lets us focus on what matters most: making the best games we can and earning the continued support of the people who choose to spend their time with us," said Philip Holt, head of Undead Labs. Holt went on to express deep gratitude for the years spent under the Xbox umbrella, noting that Microsoft had been a partner from the very inception of the State of Decay series.
"Microsoft has been part of the State of Decay story from the very beginning, and we're proud of everything we've accomplished together," he added. The restructuring that led to Undead Labs’ independence also affected 268 positions across a range of first‑party studios within Xbox Game Studios. Notable changes include the transfer of the UK studio Rare and the Halo franchise to Activision, the integration of Obsidian into Bethesda, and the merger of Playground Games with Turn 10 into a single entity. Microsoft clarified that the next Halo title will be led by a newly formed, purpose‑built team that operates separately from the ongoing development of the franchise and from Call of Duty plans.
A small, dedicated Halo Studios team will continue to provide support for the existing Halo community and maintain current live‑service titles. Activision, meanwhile, will expand its oversight to include Worlds Edge, the studio behind the Age of Empires series, as part of its broader acquisition strategy.
In parallel, Ninja Theory faces an uncertain future after two separate partnership attempts fell through, placing the Hellblade developer among five studios that were divested during the July round of layoffs. Those studios included 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 phase. An email from a senior leader at Blizzard was reported by Game Developer, indicating that Blizzard itself was not directly impacted by the announcements that triggered the layoffs at other studios.
This clarification helped to allay concerns among Blizzard staff and the wider gaming community. The shift to an employee‑owned model is expected to reshape Undead Labs’ internal culture and decision‑making processes.
By giving staff members equity stakes and a voice in strategic direction, the studio hopes to foster a more collaborative environment that aligns incentives with the long‑term health of the franchise. This structure may also enable more agile responses to community feedback, a factor that is increasingly important for live‑service and open‑world titles like State of Decay 3.
State of Decay 3 itself has been shrouded in anticipation since its initial reveal. The game promises a deeper survival experience set in a post‑apocalyptic world populated by both human survivors and relentless undead threats.
Players can expect expanded base‑building mechanics, more nuanced character progression, and a dynamic world that reacts to player choices. The closed beta slated for later this year will likely serve as a critical testing ground for these systems, allowing the team to fine‑tune gameplay balance, performance, and narrative pacing before the full release. In summary, Undead Labs’ transition to an employee‑owned studio marks a significant milestone for the company and its flagship project.
While the layoffs represent a difficult chapter for many dedicated developers, the studio’s commitment to delivering State of Decay 3 on schedule remains unwavering. The upcoming beta, the promised 2027 launch, and the newfound autonomy all point toward a future where the team can concentrate fully on crafting an immersive, high‑quality experience for fans worldwide.