Undead Labs Breaks Ties With Xbox, Becomes Independent, Employee-Owned Studio

Undead Labs, the studio behind the long-awaited zombie survival sequel State of Decay 3, has officially severed its decades-long relationship with Xbox, announcing today that it has completed its separation from Microsoft and is now an independent, employee-owned game developer. The move marks the culmination of a restructuring process that began in July, when Xbox revealed plans to spin off several studios into standalone indie companies amid a wave of layoffs. Undead Labs was among those selected, and the team has now finished the transition while confirming it remains fully committed to delivering its upcoming title.

The announcement arrives at a pivotal moment in the industry’s ongoing shift toward smaller, self-directed studios. After more than a decade under Xbox ownership, Undead Labs has reclaimed full creative and operational control of its future, a change the studio says will allow it to operate more closely with its fanbase and prioritize the games that matter most to its players. Crucially, the news did not come with any hint of a slowdown on the studio’s flagship project: State of Decay 3 is still very much in development.

From Xbox Games Studio to Full Independence

The studio’s journey to this point traces back to 2013, when Undead Labs launched the original State of Decay with Xbox’s backing. Two years later, in 2018, the studio released State of Decay 2, and Microsoft subsequently acquired Undead Labs, folding it into its broader Xbox Games Studio portfolio. For the better part of the following years, the team remained an integral part of that larger structure while steadily advancing its third installment.

The separation unfolded as part of a larger industry realignment. In July, Xbox publicly announced plans to lay off thousands of employees and spin off select studios into independent companies, and Undead Labs was named among those affected. The transition has now been finalized, with the studio confirming on September 22 that it had completed the process and is operating as a fully indie, employee-owned entity. The change reflects a growing trend of established studios breaking away to pursue more autonomous development models.

“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, Undead Labs Studio Head

The sentiment from the studio’s leadership underscores a central theme of the announcement: the value of a direct relationship with its audience. By removing the layers of a larger corporate structure, Undead Labs aims to streamline decision-making and align its priorities more closely with the expectations of the community that has supported the franchise since its debut.

State of Decay 3 Development Continues

Despite the organizational upheaval, the studio’s most important project remains on track. Undead Labs confirmed that State of Decay 3 is currently in alpha, with the team still working toward the previously announced closed beta, which was slated to arrive before the end of the year. The sequel maintains its target launch window of 2027, with plans to release across PS5, Xbox, and PC, and it will continue to be available on Game Pass.

The transition to independence does not appear to have disrupted the development pipeline. According to the studio, the move is being handled in a way that preserves momentum on the game, allowing the team to focus its energy on the title without the complications that often accompany corporate restructuring.

The announcement has drawn attention from the broader gaming community, particularly given the studio’s history. Behind the scenes, reports have surfaced that Undead Labs employees alleged burnout, harassment, and a toxic work environment during the game’s extended development. While Undead Labs has not directly addressed these claims in its official statement, the studio’s pivot to independence and its emphasis on community trust may signal a renewed focus on workplace culture and player relationships.

Looking Ahead

The news sits within a larger wave of studio transitions across the industry. Undead Labs is not the only studio to have pursued independence, with developers like Double Fine and Compulsion Games having already made the leap to indie status. However, the path is not always smooth: Xbox recently confirmed that two other studios attempting similar transitions fell through, including Ninja Theory, which is now in the process of closing down.

For Undead Labs, the road ahead centers on proving that independence can coexist with sustained development and a reliable release schedule. With State of Decay 3 still in alpha and a closed beta on the horizon, the studio’s next steps will be closely watched by fans and industry observers alike. As it navigates its new status as an employee-owned company, Undead Labs has made clear that its commitment to the State of Decay franchise—and to the players who have followed it for over a decade—remains firmly intact.