Undead Labs completed its separation from Xbox on September 22, becoming an employee-owned studio while immediately cutting a significant number of staff to make the transition viable. The studio's LinkedIn post described the departing developers as "exceptionally talented" contributors who shaped the State of Decay franchise, adding that the team would hire them back in a heartbeat if possible. State of Decay 3 development continues uninterrupted, with a closed beta planned before the end of 2026 and a 2027 launch targeted across Xbox, PC, and PlayStation.
The layoffs follow a pattern seen at other former Xbox studios that gained independence, including Double Fine's reduction of roughly a quarter of its staff and Compulsion Games pivoting toward co-development work. Xbox Game Studios shed 268 positions in the latest round, with Undead Labs among five studios Microsoft opted to part ways with earlier in the year. Kotaku reported the cuts may have affected up to 40 developers, though Undead Labs did not disclose exact headcount changes.
Studio head Philip Holt stated independence allows closer focus on community support and game quality, while confirming State of Decay 3 remains on schedule despite the restructuring. The moves mirror broader industry contraction as Microsoft resets its gaming division, leaving multiple studios navigating ownership shifts and reduced resources.
The employee-owned structure positions Undead Labs as one of the few success stories amid the shakeup, though the immediate cost in talent underscores the financial realities of leaving corporate backing.
