Undead Labs has publicly confirmed that it has severed its corporate ties and is now operating as an employee‑owned game development studio. The shift follows a broader restructuring effort that saw the studio complete its separation from Xbox after Microsoft’s latest round of organizational changes. As part of this transition, a "significant number" of staff members were let go.
The company described those departing as "exceptionally talented developers who have devoted years to the State of Decay franchise, tackling tough challenges, supporting one another, and shaping both the upcoming title and the studio itself." Their contributions, Undead Labs emphasized, will remain embedded in the DNA of State of Decay 3, regardless of where their professional journeys lead next. Despite the workforce reduction, the creation of State of Decay 3 is still "actively underway" as Undead Labs moves into its new independent phase. The sequel is slated for a 2027 launch across multiple platforms, including Xbox, Xbox Game Pass, PC, and PlayStation.
A closed‑beta test is planned before the end of the current year, giving players an early glimpse of the game’s evolving systems 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, studio head of Undead Labs. Holt added that the team remains deeply grateful for the years spent under the Xbox umbrella, noting that Microsoft has been involved in the State of Decay story since its inception.
"We’re proud of everything we’ve accomplished together," he said, acknowledging the partnership that helped the franchise reach its current status. The layoffs at Undead Labs were part of a larger wave that eliminated 268 positions across several Microsoft‑owned studios, including Halo Studios, other first‑party developers, and divisions within Xbox Game Studios. In parallel, the UK‑based Rare studio 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," with a small Halo Studios team continuing to support the existing Halo community and current releases. Meanwhile, Ninja Theory faces possible 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.
Compulsion Games and Double Fine have already confirmed their independence, while Arkane Lyon remains in the consultation phase. An email from a senior Blizzard leader, reported by Game Developer, indicated that Blizzard was not directly impacted by the recent announcements, suggesting that the restructuring primarily targeted other Microsoft‑affiliated studios.
The transition to employee ownership is expected to give Undead Labs greater creative freedom and a more direct line of communication with its fan base. By removing the constraints of a large corporate hierarchy, the studio hopes to streamline decision‑making, allocate resources more efficiently, and prioritize features that resonate most with players of the State of Decay series. This model also aligns incentives, as employees now hold equity stakes and share in the studio’s long‑term success.
While the layoffs are undeniably painful for those affected, Undead Labs has pledged to honor the work of former staff members. Their code, design concepts, and artistic assets will continue to be part of the game's development pipeline, ensuring that the vision they helped craft remains intact.
The studio also plans to provide outplacement support and resources to assist displaced employees in finding new opportunities within the industry. Looking ahead, the 2027 release window gives the newly independent team ample time to refine gameplay mechanics, expand the open‑world environment, and deepen the narrative arcs that have defined the State of Decay franchise.
Fans can anticipate richer survival‑horror elements, more robust community features, and an enhanced multiplayer experience that leverages the cross‑platform capabilities promised for the launch. In summary, Undead Labs has entered a new chapter as an employee‑owned entity, navigating a challenging restructuring that included substantial staff reductions. Despite these hurdles, the studio remains committed to delivering State of Decay 3 on schedule, with a clear focus on community engagement, creative autonomy, and the continued evolution of a beloved series.