Undead Labs has successfully disentangled itself from Xbox amid a messy reset of Microsoft’s gaming division. While a deal to sell to Splash Damage ultimately fell through, the Seattle-based studio working on zombie survival sim State of Decay 3 managed to get financing for a management buyout instead. Now comes the hard part of actually shipping the team’s first new game in over eight years.
Studio head Philip Holt has opened up about how the transition to independence has gone and what new challenges Undead Labs faces in an interview this week with The Game Business. Holt wouldn’t say who State of Decay 3‘s new mystery publisher is or how many people were laid off last month as part of its divestiture from Xbox, but he was candid about what the process means for a studio that has spent nearly a decade as part of Xbox Game Studios.
“Inside of first party, the idea for State of Decay has always been that given proper support, it could ascend to tentpole status alongside some of the biggest brands inside Xbox,” he said. “As an independent company, we have to make sure that we can survive and that we have a durable cost structure that’s going to not only get us through launch, but we’ll be supported by the revenue that we produce.”
State of Decay 3 was first revealed all the way back during E3 2020 with a cinematic teaser that was essentially a mood board of what the team hoped to aim for with the game, rather than a reflection of any work that it had already completed on hammering that vision out. An infamous zombie deer that some fans took to be confirmation of infected animals in the sequel turned out to be a red herring.
UPDATE | State of Decay 3 Beta will be announced soon
“First wave PC only, expand to consoles in the future.”
Sign-up to State of Decay 3 Playtesthttps://t.co/L7kJKusOUB pic.twitter.com/MeR2JeXI0R
— Idle Sloth (@IdleSloth84_) October 5, 2026
Holt said the early reveal was part of a strategy to put a “bit of a marker on the table” regarding Undead Labs’ future ambitions amid a frenzy of ongoing acquisitions within Xbox.
But without the full backing of Xbox and the dozens of staff recently cut, the studio now needs to ruthlessly manage a development timeline that has slipped in the past or risk even more layoffs. Holt said going forward, Undead Labs will be employee-owned, with stock to be issued to staff in the coming weeks. The acquisition vehicle he created to buy the studio is called Full Measure.
“The name Full Measure is a reference to the Gettysburg Address,” Holt said. “Lincoln talked about ‘the last full measure of devotion.’ To your question about being independent and the life-and-death nature of hitting milestones, there’s this commitment that we have to engender in our studio. I can’t say require, because commitment is something we freely choose to do. So, I selected that name because any company’s obligation is to be worthy of a team’s commitment.”
He continued, “That’s the philosophical idea. How does that translate into the things we do? Employee ownership is part of that. Being transparent, and sharing the good news, and especially the bad news. Those are part of how a company can be worthy of that commitment.”
State of Decay 3 will be starting sign-ups for the closed beta on PC soon, with a full alpha test planned for 2027.
