Undead Labs Goes Independent and Worker-Owned After Xbox Restructuring, But Lays Off “A Significant Number” of Staff

Undead Labs, the studio behind the zombie survival franchise State of Decay, has announced it is going independent and becoming worker-owned following Microsoft’s second round of job cuts this year, while simultaneously laying off “a significant number” of its staff. The announcement came on the studio’s website and LinkedIn on Wednesday, marking the end of a 15-year partnership with Xbox, which published the original State of Decay in 2013 and acquired the studio in 2018. The move arrives as the wider gaming industry grapples with a wave of corporate restructuring, and the studio’s leadership framed the separation as both an opportunity and a painful necessity.

Studio head Philip Holt led the charge in the website statement, positioning independence as a chance to reconnect with fans and sharpen the studio’s creative focus. “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. Yet the same message carried a sobering admission, as the studio took responsibility for the human cost of the transition.

A Hard Decision Amid Industry-Wide Layoffs

The independence comes at a difficult juncture. Undead Labs was among the studios Xbox said it was parting with when Microsoft announced the beginning of its restructuring earlier this summer. At the time, Microsoft said it had found a buyer for the studio but did not name them, repeating a similar pattern with Ninja Theory, another studio it previously owned. The situation has since grown more precarious, with reports suggesting Microsoft may have to close Ninja Theory after two deals fell through.

On LinkedIn, the studio laid bare the emotional weight of the decision. “Unfortunately, today we are also saying goodbye to a significant number of our colleagues. It’s difficult to reach this moment knowing that not everyone who helped get us here gets to make the rest of the journey with us,” the statement read. Holt added that the layoffs were part of a broader trend across the industry, expressing genuine regret at contributing to it. “There have been far too many announcements like this across the industry, and we hate adding to that list. These are people we’d hire again in a heartbeat, and we hope the industry takes notice.”

State of Decay 3 Stays On Track

Despite the upheaval, the studio’s flagship project remains intact. State of Decay 3 is still in development and remains a Game Pass title, though Xbox Studios boss Matt Booty noted in his message to staff on Wednesday that the game now has a new publisher, again without naming them. There had been concern that the title might not launch into Game Pass following the separation, but the studio has reassured staff that the subscription service will remain a platform for the game.

Development is expanding beyond Xbox as well. State of Decay 3 is now in development for PC and PlayStation, alongside Xbox, broadening its potential audience. The studio reiterated its aim for the game to enter closed beta before the end of the year, with 2027 remaining as the release target.

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The community reaction to the announcement has been mixed, with longtime fans expressing concern over the layoffs while welcoming the prospect of a more independent studio. The transition to worker ownership has drawn particular interest, as it aligns with a growing movement of employee-owned studios seeking greater creative and financial autonomy. Technically, the game’s multiplatform ambitions signal a strategic pivot away from Xbox exclusivity, reflecting the studio’s desire to reach players across the industry.

Looking Ahead

As Undead Labs charts its course as an independent, worker-owned entity, the immediate priorities are clear: stabilizing the team, securing the new publishing deal, and keeping State of Decay 3 on schedule. The studio’s 15-year relationship with Xbox, which began with the release of the original State of Decay in 2013 and deepened when Microsoft acquired the studio mere days after State of Decay 2 launched in 2019, has now come to a formal close.

The franchise’s history with Xbox is a defining chapter in the studio’s journey, and the departure marks a significant turning point. With a closed beta targeted before year’s end and a 2027 release window set, Undead Labs faces the challenge of proving that independence can deliver both stability and creativity. The coming months will be telling, as the industry watches to see whether this studio’s transition becomes a model for others navigating the same turbulent waters.