Undead Labs, the studio behind the zombie survival franchise State of Decay, has revealed that it announced State of Decay 3 as far back as 2020 partly to keep itself on Microsoft’s radar during a period when the tech giant was aggressively acquiring other publishers. Speaking to The Game Business, studio boss Philip Holt explained that the early reveal—eight years before the game’s anticipated launch—was a strategic move designed to protect both the project and the studio from being swallowed up or divested without ever getting the chance to show the world what it had built.
The revelations come as Undead Labs transitions into an independent, employee-owned company after leaving the Xbox Game Studios portfolio. The developer was one of several studios affected by Microsoft’s sweeping “Xbox reset,” which has seen scores of jobs slashed throughout 2026. As Undead Labs entered this new era, it also had to cut staff, though Holt insisted that nothing went wrong behind the scenes and that the studio’s departure from Xbox was less a story of drama than one of timing and opportunity.
A Strategic Reveal
During the eight years State of Decay 3 spent under Microsoft’s umbrella, Undead Labs never released a single new game in the series—though it did deliver 38 updates to its predecessor, State of Decay 2. Holt explained that a small team had been working on the sequel since 2020, with development ramping up a few years later. Announcing the title so early was intended to prevent the studio from being lost in the shuffle during Microsoft’s buying spree of major publishers such as Bethesda and Activision Blizzard.
“I didn’t think Microsoft was done being acquisitive, and I didn’t think they’d continue buying small developers; I assumed they’d start buying big things. I was a little worried about getting swallowed up or divested before we had a chance to present to the world what we were working on. So, it was a bit of a marker on the table. I was saying, State of Decay 3, we’re announcing it, the audience knows it’s in development, and here’s a trailer to demonstrate our vision.”
Philip Holt, Studio Boss at Undead Labs
Holt added that the studio ultimately made a proposal to Microsoft that was accepted without incident. “It was an accelerated period of time for Microsoft’s divestiture,” he said. “We had a lot of interest. I also thought that because we were so close to being in revenue, the amount of capital that we needed to finish [State of Decay 3] was not an insurmountable amount that we couldn’t go raise it ourselves. I knew other studios were doing management buyouts, so I submitted an offer for a management-led acquisition, and Microsoft thought that would be a good idea.”
The Road to Independence
Undead Labs now joins Double Fine and Compulsion Games as former Xbox studios navigating life outside the Microsoft gaming division. The transition has not been without challenges; like several other departing developers, Undead Labs had to reduce its workforce as it restructured for independence. Yet Holt framed the move as an opportunity rather than a setback, allowing the studio to focus on both serving its audience and operating sustainably.
“We need to make a profit, we need to be sustainable, we need to pay ourselves and our partners—and it is a goal. This is not a charity. But it’s not the number-one most important objective.”
Philip Holt, Studio Boss at Undead Labs
Holt credited Game Pass with helping the horror franchise reach 25 million players and confirmed that State of Decay 3 will still launch day-one through the subscription service. The partnership is expected to continue even as the studio operates independently, giving Undead Labs a built-in audience while it pursues profitability on its own terms.
The broader context of Microsoft’s restructuring has left some observers uneasy about the future of other studios in the portfolio. Undead Labs joins Double Fine and Compulsion Games as departing Xbox developers, but the outlook is far bleaker for Ninja Theory, the studio behind Hellblade and DmC: Devil May Cry. After deals to acquire the developer fell through, it now appears that the studio will soon be shut down, underscoring the turbulence that has defined Microsoft’s gaming division throughout 2026.
Looking Ahead
As an independent, employee-owned studio, Undead Labs must now balance its creative ambitions with financial sustainability. While no firm release date for State of Decay 3 has been set, the early announcement and long development cycle suggest that Holt’s original vision remains intact after more than a decade in the making. The studio will rely on Game Pass to reach players while building a business model suited to life outside Microsoft.
For now, Undead Labs is focused on finishing its sequel and proving that independence can coexist with profitability—a goal Holt was candid about but careful not to overstate. As the franchise looks toward its next chapter, fans will be watching closely to see whether the studio’s management-led acquisition and early reveal strategy ultimately pay off when State of Decay 3 finally reaches players.
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