Undead Labs has publicly declared that it is now operating as an employee‑owned game development studio, marking a decisive shift away from its former affiliation with Xbox. The company confirmed that it has "completed its separation from Xbox" as part of the broader restructuring announced by the platform holder yesterday.
This transition, while offering greater autonomy, also resulted in the departure of a "significant number" of staff members. Undead Labs described those affected as "exceptionally talented developers who have devoted years to the State of Decay franchise, tackling complex challenges, supporting one another, and shaping both the upcoming title and the studio itself." The studio emphasized that the contributions of these employees will remain embedded in Undead Labs' legacy and in State of Decay 3, regardless of where their professional paths lead next.
Despite the workforce reductions, the development of State of Decay 3 is still "actively underway" as Undead Labs moves into its new independent phase. The game is slated for a 2027 launch across multiple platforms, including Xbox, Xbox Game Pass, PC, and PlayStation, with a closed‑beta test planned before the end of the current year.
Studio head Philip Holt explained that independence brings the team closer to its community and allows a sharper focus on delivering the highest‑quality experience possible. "Our priority is to make the best games we can and to earn the continued support of the players who choose to spend their time with us," Holt said. Holt also expressed deep gratitude for the years spent under the Xbox umbrella, noting that Microsoft has been involved in the State of Decay story from its inception. "We are proud of everything we have accomplished together," he added.
The separation coincided with a larger wave of restructuring across Microsoft’s gaming divisions, which saw 268 positions eliminated across Halo Studios, other first‑party developers, and Xbox Game Studios. The restructuring also affected several other well‑known studios. The UK‑based Rare and the Halo franchise were transferred to Activision, while Obsidian joined Bethesda.
Playground Games and Turn 10 were merged into a single entity. 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.
Activision, in addition to taking over Rare and Halo, will expand its remit to include the Age of Empires studio World's Edge. Meanwhile, 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.
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 itself was not directly impacted by the day's announcements. The article has been updated to reflect the layoffs announced at Undead Labs.
The shift to an employee‑owned model is expected to reshape Undead Labs' internal dynamics. By giving employees a stake in the company's equity, the studio hopes to foster a stronger sense of ownership, encourage innovative risk‑taking, and align incentives across the team. This model, while still relatively rare in the video‑game industry, can lead to more transparent decision‑making and a culture where creative direction is directly influenced by those who are building the product. From a business perspective, the move also signals a broader trend of large publishers divesting non‑core studios to streamline operations and reduce overhead.
For Undead Labs, independence may open new avenues for funding, partnerships, and publishing arrangements beyond the Microsoft ecosystem. However, the studio will also need to navigate challenges such as securing financing for a multi‑year development cycle, handling marketing responsibilities, and maintaining the momentum of an ambitious project like State of Decay 3. State of Decay 3 itself remains a focal point for fans and industry watchers.
The game promises to build on the open‑world, zombie‑survival formula that defined its predecessors, with deeper systems for community building, resource management, and narrative choice. The upcoming closed beta will provide the first hands‑on look at these features, offering valuable feedback that can shape the final product.
By targeting a 2027 release, Undead Labs signals a commitment to a thorough development process, allowing ample time for polishing, testing, and possibly expanding the game's scope. In summary, Undead Labs' transition to an employee‑owned studio marks a pivotal moment for the company and its flagship franchise. While the layoffs represent a painful but perhaps inevitable part of the restructuring, the studio's core mission—to deliver a compelling, next‑generation State of Decay experience—remains unchanged. With a clear roadmap, a dedicated community, and a new ownership structure that empowers its staff, Undead Labs aims to navigate this new chapter successfully and bring State of Decay 3 to players worldwide in 2027.