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Undead Labs becomes employee-owned while State of Decay 3 remains on track
Developed over time first seen 2 months ago
Undead Labs has completed its separation from Microsoft and is now operating as an independent, employee-owned studio, marking a successful outcome amid Xbox's broader restructuring. The studio behind the State of Decay franchise will continue developing State of Decay 3, which is currently in alpha, with the game maintaining its planned release across Xbox, Game Pass, PC, and PlayStation in 2027. This separation represents a rare positive resolution within the studio diversification announced as part of Xbox's "major reset," allowing the team to operate independently whilst preserving its business relationship with Microsoft.
The separation follows Xbox's announcement in July of 3,200 job cuts across two fiscal years and plans to divest from several studios. Microsoft's restructuring has yielded mixed results among affected studios: whilst Undead Labs, Double Fine, and Compulsion Games have separated successfully with their intellectual property and secured funding, Ninja Theory faces potential closure after two acquisition deals fell through. State of Decay 3 is targeted for a closed beta before the end of 2026, with both companies emphasising the continuation of their 15-year partnership, which began when Microsoft published the original game in 2013 and acquired the studio in 2018.
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In short
- Undead Labs successfully separates from Microsoft, remains independent game developer
- State of Decay 3 proceeding to 2027 release on multiple platforms including Game Pass
- Reflects mixed outcomes from Xbox's sweeping restructuring and studio diversification strategy
How this story developed
- 2 months ago Arkane Studios has been added to the list of studios under consideration for divestment as Microsoft's gaming restructuring expands.
- 2 months ago Ninja Theory faces potential closure after two acquisition attempts failed, whilst Undead Labs emphasises its continuing business relationship with Microsoft despite separating.
- 2 months ago Undead Labs studio head Philip Holt has stated that independence allows the team to focus on creating quality games, whilst Microsoft announced further restructuring including the transfer of Halo development to Activision, moving Obsidian to Bethesda, and combining the Forza and Fable teams.
- 2 months ago Undead Labs has separated from Microsoft to become an independent, employee-owned studio amid a broader Xbox restructuring that has included 3,200 job cuts and the divestment of several other studios.
- Push Square State of Decay Dev Survives Xbox Layoffs, Goes Independent as Third Game Targets PS5
- IGN Undead Labs Goes Independent After Xbox Separation, Confirms State of Decay 3 Is Still In Development
- Push Square State of Decay 3 Dev Hit with 'Significant' Layoffs After Going Independent
- Polygon Undead Labs becomes employee-owned while State of Decay 3 remains on track
Full account
Microsoft's gaming division underwent a significant restructuring in July, with approximately 3,200 jobs cut across the industry giant and several prominent studios divested from the Xbox portfolio. Undead Labs, the Seattle-based developer best known for its open-world zombie survival franchise, emerged as one of the fortunate casualties of this purge. The studio has now formally transitioned to independent status, operating as an employee-owned enterprise following successful negotiations to sever its ties with the publisher.
The path to independence proved fortuitous for Undead Labs, in sharp contrast to some of its fellow separated studios. Whilst Double Fine and Compulsion Games secured their intellectual property and received financial runway to sustain operations, other Xbox acquisitions fared far worse. Most notably, Ninja Theory, the celebrated developer behind the Hellblade and DmC franchises, finds itself facing potential closure after two prospective buyout arrangements collapsed, leaving Microsoft to consult on a possible shutdown. Undead Labs' apparent financial security positioned it favourably during negotiations, enabling a clean break from corporate ownership.
Development on State of Decay 3 continues unabated despite the institutional upheaval. The long-gestating sequel—originally announced over half a decade ago—currently exists in alpha stage, with the development team targeting a closed testing phase before the close of 2026 ahead of a full release scheduled for 2027. The game will launch across multiple platforms including personal computers, PlayStation, Xbox, and notably Game Pass, suggesting that Microsoft's relationship with the studio, whilst transformed, has not been entirely severed. This continued presence on Microsoft's subscription service represents an unexpected continuity given the studios' formal separation.
Undead Labs' leadership emphasised that independence permits the studio to prioritise direct engagement with its community whilst concentrating development efforts on quality. Philip Holt, the studio's head, characterised the separation as marking a new epoch in a partnership spanning over fifteen years, with Microsoft having originally published the franchise in 2013 before acquiring the developer five years later. This framing suggests the split represents evolution rather than acrimony, a sentiment underscored by the studio's continued presence on Game Pass and the apparent orderliness of the separation process.
Where outlets differ
From the full account, which is AI-written from the sources:
Source 1 emphasises the surprise of continued Game Pass inclusion post-separation; Source 2 does not address this point.
Source 1 lists all release platforms; Source 2 specifically highlights PlayStation 5, reflecting its outlet's gaming focus.
Source 1 provides broader Xbox restructuring details (Activision, Bethesda, Forza, Fable combinations); Source 2 omits these contextual details.
Source 1 emphasises the studio is 'employee-owned'; Source 2 describes it simply as 'independent' without detailing ownership structure.
Source 2 notes the transition was 'previously confirmed a few months back', providing temporal context Source 1 lacks.
Source 2 highlights the six-year gap since the game's original announcement; Source 1 does not reference this timeline.
Explained simply
Microsoft announced a major restructuring of its gaming division in July, which included laying off 3,200 employees and divesting from several studios it owned. Undead Labs, the developer of the State of Decay zombie survival game series, was one of the studios separated from Microsoft after more than 15 years of ownership. The studio has now become an independent, employee-owned operation.
When large publishers divest from studios, the outcomes vary considerably. Some studios manage to continue independently with their properties intact, whilst others face uncertain futures or closure. Undead Labs has achieved a successful transition with its intellectual property, in contrast to some of the other studios affected by Microsoft's restructuring who have faced different circumstances.
State of Decay 3 is currently in active development and represents the continuation of the zombie survival series for which Undead Labs is known. The game is planned for release in 2027 across multiple platforms, with a closed beta targeted for the end of 2026. The franchise has developed a loyal player base since its inception, and the new title is a key focus for the newly independent studio.
Coverage · 4 sources
- PolygonUndead Labs becomes employee-owned while State of Decay 3 remains on track
- Push SquareState of Decay Dev Survives Xbox Layoffs, Goes Independent as Third Game Targets PS5
- IGNUndead Labs Goes Independent After Xbox Separation, Confirms State of Decay 3 Is Still In Development
- Push SquareState of Decay 3 Dev Hit with 'Significant' Layoffs After Going Independent
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Originally published by Polygon as “‘State of Decay 3’ Gets Encouraging Update as Studio Escapes Xbox Layoffs”.