Undead Labs Goes Independent, Immediately Lays Off Staff

Undead Labs has completed its separation from Xbox and is now an independent, employee-owned studio, with State of Decay 3 still slated for a 2027 release on Xbox, Game Pass, PC, and PlayStation. The transition, part of Microsoft's broader restructuring that eliminated another 268 positions across its gaming division this week, came with a familiar cost: a significant number of colleagues were let go hours after the independence announcement.

Studio head Philip Holt framed the move as a return to community focus, noting that independence allows the team to concentrate on making the best games possible while honoring player support built over years. The studio's LinkedIn post struck a more somber tone, acknowledging the difficulty of the moment and expressing hope that the industry notices the talent exiting, people the studio said it would hire back in a heartbeat. One laid-off designer, Geoffrey Card, opted into the cuts himself after 13 years to maximize his own severance and potentially spare another colleague.

The layoffs follow earlier summer reports of potential closure or sale for the studio and align with a wider pattern of Xbox studios being restructured, merged, or parted with as Microsoft trims its first-party portfolio. Undead Labs joins Double Fine and Compulsion in successfully going independent, while others like Ninja Theory face different outcomes. State of Decay 3 development remains actively underway despite the reduced headcount.

These announcements continue to arrive with the same measured language and quiet finality.

COMMENTS

DAY1_BUYYYPre-Order Gang +67 -34

BRO THIS IS BIG. Undead Labs free from microsoft means State of Decay 3 is coming with NO RESTRICTIONS and will be an absolute GAME CHANGER. WALLET ALREADY OUT

Colin "The Drain" WhitakerSTAFF

The studio also eliminated 23 positions during the transition. Our internal projections show a 40% reduction in team velocity through 2026. We anticipate limited impact on the 2027 State of Decay 3 release schedule.

ZeroChill_ReviewOptimism Is Cope +92 -18

Ah yes, the classic "going independent" marketing angle right before they nuke the staff. Employee-owned but employee-less. Marketed incompetence is still incompetence.

Kai "Clutch" NguyenSTAFF

The layoffs suck, but at least they can make their own terrible decisions instead of just Microsoft's terrible decisions now. Circle of corporate life.

Employee-owned status changes the tax burden structure by approximately 11% but does not materially affect state-mandated severance obligations. The post-acquisition decision structure remains opaque.