Undead Labs, the studio behind the open-world zombie survival series State of Decay, has officially completed its separation from Microsoft and is now operating as an independent, employee-owned company. The announcement confirms that the developer remains actively working on State of Decay 3, which is currently in alpha development with a full release slated for Xbox, Game Pass, PC, and PlayStation in 2027.
The news arrives amid significant turmoil at Microsoft’s gaming division. In July, the company announced a massive wave of layoffs affecting 1,600 employees immediately and another 1,600 over the next fiscal year. As part of those cuts, Xbox said it would divest from several renowned studios, including Double Fine, Ninja Theory, Compulsion Games, and Undead Labs.
A New Chapter for Undead Labs
If there is a small silver lining in Microsoft’s restructuring, Undead Labs appears to have emerged intact. The company announced that it has completed its separation from the tech giant and now operates independently while remaining employee-owned. Crucially, the studio confirmed it continues development on State of Decay 3, with the game currently in alpha.
The team outlined an ambitious timeline for the sequel: a closed beta before the end of 2026, followed by a full release across Xbox, Game Pass, PC, and PlayStation platforms in 2027. Notably, the game will still launch on Game Pass despite the recent split, suggesting that the relationship between Undead Labs and Microsoft has not completely deteriorated. According to the press release, this transition “marks a new chapter in a relationship between Undead Labs and Microsoft that spans more than 15 years.” Microsoft published the original State of Decay in 2013 and acquired Undead Labs in 2018.
“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 of Undead Labs
The studio noted that further details about its operations will be announced in the future, while playtesting applications for State of Decay 3 remain open. Players interested in participating can still submit their applications to help shape the game’s development.
The Fate of Microsoft’s Divested Studios
As for the other studios caught up in Xbox’s ongoing major reset, outcomes have varied considerably. Double Fine and Compulsion Games both successfully separated from Microsoft last month, acquiring their intellectual property, back catalogs, and runway funding to continue operating independently.
Ninja Theory, however, remains in a precarious position. The studio behind games like Hellblade: Senua’s Sacrifice, DmC, Enslaved: Odyssey to the West, and more is currently the odd one out. Microsoft said two separate acquisition deals fell through and that it is now beginning “consultation with employees on a proposed closure while continuing to explore other paths forward.” Xbox is also consulting to divest from Arkane Studios, the team behind Dishonored, Prey, and Deathloop.
The instability shows no signs of slowing. Earlier today, Microsoft announced it will restructure most of its remaining studios, bringing Halo development under Activision, moving Obsidian under Bethesda, combining the Forza and Fable teams, and more in a sweeping overhaul of its gaming division.
Looking Ahead
For State of Decay 3 fans, the path forward offers genuine optimism. With Undead Labs now operating independently and fully committed to the sequel, players can expect a closed beta before the end of 2026 as development progresses toward its 2027 release window across multiple platforms.
The studio’s independence appears to have provided the stability needed to move forward after months of industry-wide uncertainty. As Undead Labs carves out its future as an employee-owned independent developer, State of Decay 3 stands as a flagship title that will define the studio’s next chapter and honor the trust built by millions of players over more than fifteen years.
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