Undead Labs has publicly declared that it has become an independent, employee‑owned game development studio. The company confirmed that it has fully completed its separation from Microsoft’s Xbox division, a move that was part of a broader restructuring effort announced by the platform holder yesterday. During the transition, the studio said that a "significant number" of its staff members were let go.
Undead Labs described those departing employees as "exceptionally talented developers who have devoted years to the State of Decay franchise, tackling tough technical challenges, supporting one another, and shaping both the upcoming title and the studio’s culture." The statement emphasized that the contributions of those former team members will continue to be reflected in Undead Labs’ work and in State of Decay 3, regardless of where their careers may lead next. Despite the personnel reductions, the development of State of Decay 3 is still "actively underway" as the studio moves into its new phase of operation.
The game is targeted for a 2027 launch across multiple platforms, including Xbox, Xbox Game Pass, PC, and PlayStation. A closed‑beta test is planned to take place before the end of the current year, giving players an early look at the evolving experience. "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, studio head at Undead Labs. Holt added that the studio is deeply grateful for the years spent under the Xbox umbrella and for the opportunities that partnership provided.
"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 noted. The shift to employee ownership coincided with a larger wave of job cuts across Microsoft’s gaming divisions.
Yesterday, 268 positions were eliminated across Halo Studios, other first‑party developers, and Xbox Game Studios as part of a company‑wide reset. In parallel, the UK‑based studio Rare and the Halo franchise were transferred to Activision, while Obsidian joined Bethesda. Playground Games and Turn 10 were merged into a single entity, and Activision also expanded its remit to include the Age of Empires studio Worlds 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." A small team at Halo Studios will continue to support the existing Halo community and maintain live services for current games.
The restructuring also affected several other studios. Ninja Theory, known for the Hellblade series, faces closure after two separate partnership attempts failed. The studio was among five that were 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 phase. An email from a senior Blizzard leader, reported by Game Developer, clarified that Blizzard Entertainment is not directly impacted by the layoffs announced yesterday. Undead Labs’ move to an employee‑owned model reflects a growing trend in the industry where developers seek greater creative control and a more direct share of the financial upside. By distributing ownership among its staff, the studio hopes to foster a stronger sense of partnership, align incentives, and retain key talent despite the recent reductions.
The upcoming State of Decay 3 remains a central focus for the newly independent studio. The title promises to build on the open‑world survival mechanics that defined its predecessors while introducing new systems for community building, resource management, and narrative depth.
Early gameplay footage suggests a more expansive map, improved AI, and a deeper emphasis on player choice influencing the world’s evolution. Fans can expect regular updates from Undead Labs as the closed‑beta approaches. The studio has pledged transparency throughout the development cycle, promising to share progress reports, developer diaries, and community feedback sessions. This open communication strategy aims to maintain the trust cultivated during the studio’s years under Xbox and to demonstrate the benefits of its new ownership structure.
In summary, Undead Labs has transitioned to an employee‑owned studio, announced a sizable layoff, but reassured the public that State of Decay 3 remains on schedule for a 2027 release with a beta later this year. The broader industry shake‑up includes the transfer of Rare and Halo to Activision, the merging of other studios, and the uncertain future of Ninja Theory. Despite these challenges, Undead Labs is positioning itself to continue delivering high‑quality experiences while forging a more autonomous path forward.