Undead Labs Goes Independent From Xbox, Confirms Layoffs as State of Decay 3 Continues

Undead Labs has completed its split from Xbox, becoming an independent, employee-owned studio after more than 15 years inside Microsoft's stable of first-party developers. The Seattle-area studio behind the State of Decay series confirmed the change on September 22, pairing the news of its newfound independence with a significant round of layoffs on the same day.

A Clean Break From Xbox

In a post on the official State of Decay website, Undead Labs said it has "completed its separation" from Xbox and now operates on its own, with employees holding a stake in the studio itself. The move ends a relationship that began in 2011, when Undead Labs first partnered with Microsoft Game Studios to bring the original State of Decay to Xbox 360, and deepened in 2018 when Microsoft folded the studio into Xbox Game Studios outright.

Studio Head Philip Holt framed the split as a chance to answer to players rather than a publisher's balance sheet. "Independence brings us closer to our community and lets us focus on what matters most: making the best games we can and earning the continued support of the people who choose to spend their time with us," Holt said. "State of Decay exists because millions of players have made that choice over the years, and we're dedicated to honoring their trust."

Layoffs Land the Same Day

The independence announcement was not the only news out of Undead Labs this week. The studio also confirmed a "significant number" of layoffs in a statement, acknowledging that not everyone who built the studio to this point would be continuing the journey. Undead Labs has not disclosed a specific headcount for the cuts, and the studio's public statements have not tied the layoffs to a single cause, leaving open whether they stem from the cost of buying out of Microsoft's ownership, a broader restructuring ahead of launch, or both. That detail remains unconfirmed, and readers should treat any specific percentage or headcount figure circulating online as unverified until Undead Labs says otherwise.

State of Decay 3 Keeps Its Timeline

Despite the upheaval, Undead Labs says development of State of Decay 3 is unaffected in terms of scope or release target. The game remains in alpha, with the studio still aiming to move into a closed beta before the end of 2026 and to ship in 2027. Platform plans are also unchanged: State of Decay 3 is still slated for Xbox, PC and PlayStation, and Undead Labs reiterated that the game will be available on Game Pass on day one, mirroring how State of Decay 2 launched into the subscription service in 2018.

That day-one Game Pass commitment is notable precisely because Undead Labs no longer has to make it. As an independent studio, Undead Labs could in theory have renegotiated distribution entirely, but the studio chose to keep the arrangement that has defined the franchise's relationship with Xbox subscribers for years.

What Independence Actually Changes

Undead Labs retains the rights to the State of Decay franchise as part of the split, according to the studio's own statement, which is what makes an arrangement like continued Game Pass day-one availability possible without Xbox's direct involvement in future decisions. The studio's public communications frame the change as primarily structural: employee ownership and independent operation, rather than a shift away from the survival-sandbox identity the series has built since the first State of Decay in 2013.

What has not been detailed is any change to publishing or marketing support going forward, or whether Undead Labs plans to self-publish State of Decay 3 outright versus working with a new partner. Those specifics were not part of this week's statement, and Undead Labs has not indicated when, or if, more detail is coming before the closed beta.

A 15-Year Chapter Closes

For a studio that spent its entire post-2011 existence tied to Xbox, in some form, the split marks one of the more unusual outcomes of this console generation's consolidation wave: a first-party studio buying its way back out rather than being shut down or merged into another team. Undead Labs said in its statement that it remains "enormously grateful" for its years as part of Xbox and for what that relationship made possible, even as it now charts a course as its own employee-owned company.

“Independence brings us closer to our community and lets us focus on what matters most: making the best games we can and earning the continued support of the people who choose to spend their time with us. State of Decay exists because millions of players have made that choice over the years, and we're dedicated to honoring their trust.”Philip Holt, Studio Head, Undead Labs