Undead Labs becomes employee-owned studio after Xbox
State of Decay developer Undead Labs has separated from Xbox and is now an employee-owned studio, though a significant number of staff were laid off in the
Undead Labs has announced its independence from Xbox and is now operating as an employee-owned game development studio. The transition involved laying off a significant number of employees, the State of Decay developer confirmed.
Studio head Philip Holt stated that independence brings the team closer to its community and allows a focus on making the best games. "We're enormously grateful for our years as part of Xbox and for everything that relationship has made possible," Holt said. The separation was part of a broader reset announced by Microsoft for its gaming division.
Layoffs and studio transition
Undead Labs confirmed that a significant number of employees were made redundant as part of the separation process. The studio acknowledged their contributions, stating these developers poured years into the State of Decay franchise. "Their work remains part of Undead Labs and part of State of Decay 3, regardless of where their careers take them next," the developer said.
The move aligns with wider changes across Xbox Game Studios. A total of 268 positions were eliminated across Halo Studios, other first-party developers, and Xbox Game Studios. This restructuring also involved transferring several studios and franchises.
State of Decay 3 development status
Development of the highly anticipated State of Decay 3 remains actively underway despite the studio's transition. The game is still scheduled to launch in 2027 on multiple platforms. A closed beta is planned before the end of this year.
The studio's new ownership structure aims to foster a direct connection with its player base. Holt emphasized the goal is to earn the continued support of the community by focusing on game quality above all else.
Wider Xbox studio reshuffle
The separation of Undead Labs occurred alongside other major organizational shifts within Microsoft's gaming division. Several other studios saw changes in ownership or structure as part of the same announcement.
Ninja Theory, the developer of Hellblade, is reportedly facing closure after two separate agreements fell through. It was among five studios divested during an earlier round of layoffs in July. Compulsion Games and Double Fine Productions have already confirmed their independence, while Arkane Lyon is still undergoing its consultation process.
Microsoft also announced that the next Halo title will be developed by a new, purpose-built team separate from Call of Duty development. A small team at Halo Studios will continue supporting the existing Halo games and community. An internal email indicated that Blizzard is not affected by these latest announcements.
The changes represent a significant realignment for Microsoft's first-party studio network as it adjusts its strategy following the acquisition of Activision Blizzard.
