Undead Labs was one of the lucky game studios to escape the current Xbox reset through a sale back to management, but the State of Decay 3 maker didn’t achieve independence completely unscathed. It reported late yesterday that it had actually parted ways with a “significant” number of developers working on the game.
“Today, we announced that Undead Labs is becoming an independent, employee-owned studio,” the studio wrote on LinkedIn. “Our focus going forward is simple: making the best games we can and earning the continued support of the people who choose to spend their time with us. 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 layoffs may have impacted up to 40 of the studio’s developers, according to one source who spoke with Kotaku. Undead Labs did not immediately respond to a request for comment on the total change in headcount following the divestment from Xbox.
The studio has promised a closed beta test for State of Decay 3, the long-awaited next entry in its popular zombie survival sim, as early as the end of 2026. The sequel was first announced back at Xbox’s 2020 summer gaming showcase, but has faced ongoing challenges throughout its development.
“State of Decay 3 remains in active development, and these changes will not impact the game’s launch,” studio head Philip Holt told IGN in a statement. “The team is continuing its work on schedule, and we remain committed to delivering the experience our community has been waiting for. We’re grateful to everyone who has contributed to the game.”
The smaller studios that have been released by Xbox, including Undead Labs, have departed with “their IP, back catalogs, and runway funding,” suggesting that whatever deals were finalized with Microsoft included some amount of post-divestment funding. State of Decay 3 reportedly has a “new publisher,” though who that is exactly hasn’t been announced yet.
“Today the studio that I have been at since its inception 15 years ago fought its way back to independence, at great cost,” FX director John Gronquist posted on LinkedIn yesterday. “Sadly I won’t be making that final leg of the journey with them, being included in the latest round of layoffs. The company and leadership have gone above and beyond to be transparent and treat the process with humanity and respect that is rare in this industry, and I leave with no regrets other than not being there with them at the finish line to ship State of Decay 3.