Undead Labs Goes Independent From Xbox, Cuts Staff, but Keeps State of Decay 3 on Track for 2027

The State of Decay studio has left Xbox Game Studios to become an independent, employee-owned company, but the move came with layoffs.

Undead Labs, the studio behind the State of Decay franchise, is officially no longer part of Xbox Game Studios. It now operates as an independent, employee-owned company, with no outside shareholders and no corporate ties to Microsoft.

The announcement came through a LinkedIn post, and it arrived alongside much tougher news: to make the split happen, Undead Labs let go of a significant number of people from its team. The studio hasn't shared an official headcount, but reporting from outlets like Kotaku and Push Square puts the number at roughly 40 people.

Studio head Philip Holt framed the independence as an opportunity, saying it brings the team closer to its community and lets them focus on what matters most: making the best games they can and earning the continued support of the people who choose to spend their time with them. He also thanked Xbox, noting that Microsoft has been part of the State of Decay story since the very beginning.

The tone shifted when talking about the colleagues who left. The studio wrote that it's difficult to reach this moment knowing not everyone who helped get them here gets to make the rest of the journey with them, a line that captures the gap between the reinvention narrative and the real human cost behind it.

As for the game itself, the good news is that State of Decay 3 isn't changing course, according to Holt: development remains active and on schedule, with a closed beta still planned before the end of 2026 and a 2027 launch targeting Xbox Series X|S, PC and PS5, plus a day one spot on Game Pass. As part of the split, Undead Labs kept its IP, its back catalog and runway funding provided by Microsoft, and reports suggest the studio already has a new publisher lined up, though it hasn't been named yet.

This kind of spin-off has basically become the playbook inside the Xbox ecosystem: Microsoft lets smaller studios go with their brand and catalog intact, but stops covering the full payroll, leaving whoever remains to prove they can sustain themselves. Calling it independence isn't false, it just doesn't tell the whole story. Most players will only care about the release date, but for the people who worked there, this announcement meant losing a job during an already rough stretch for the industry.

Worth watching over the next few months: if Undead Labs confirms that new publisher and actually ships the closed beta by December like promised, that would go a long way toward proving this independence is sustainable, and not just a cheaper way to keep the project alive until 2027.