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Undead Labs has left the Xbox umbrella through a management buyout after a sale to a new owner did not go through. Studio head Philip Holt told The Game Business that layoffs announced on September 23 mean State of Decay 3 needs changes, but the game is already at the alpha stage and does not require a major scale-down. Virtuos, Wushu and Blind Squirrel are supporting co-development. Full-scale production began around 2022-2023.
Undead Labs announced layoffs on September 23, 2026, saying it had "said goodbye to many of our teammates." The studio, known for the State of Decay series, recently moved from under the Xbox umbrella to become an independent studio. The statement says State of Decay 3 production continues, and the game remains planned for PC, PS5, and Xbox Series X|S with a day-one Game Pass release.
Undead Labs showed State of Decay 3 in playable form at gamescom 2026. The open world, built with Unreal Engine 5, is about four times the size of a single State of Decay 2 map. Plague Nests expand if ignored, and up to three bases with 36 survivors can run in parallel. A closed beta starts within the year, ahead of a 2027 launch.
Microsoft's Xbox division is reportedly planning the largest workforce reduction in its history, with up to 400 or more layoffs expected in early July, according to GamesBeat and other outlets citing insider sources. The restructuring, dubbed "Xbox Reset" by new CEO Asha Sharma, follows a June 10 internal memo reviewing business plans. Four studios are said to be at risk of closure if no buyers are found: Double Fine Productions, Undead Labs, Compulsion Games, and Ninja Theory. Undead Labs, developer of the delayed 'State of Decay 3,' was added to the list on June 30. The closures could eliminate approximately 435 jobs. Additional cuts are expected at Activision Blizzard and Bethesda. Bloomberg reported that Microsoft's "accountability margin" for Xbox has dropped to 3%, far below a 30% target. Microsoft workers affiliated with the Communications Workers of America held an online press conference criticizing the layoffs and calling for protections. A Microsoft spokesperson said the company respects workers' rights and will continue negotiating with the CWA. The division has not officially commented on studio closures.
Brian Menard released early alpha footage of State of Decay 3, filmed during a visit to Undead Labs. The video shows combat, exploration, survivor management, base construction, resource gathering, and trading. The game is scheduled for a 2027 release on PC, PS5, and Xbox Series X|S.
Xbox Game Studios announced during the Xbox Games Showcase 2026 livestream on June 8 that State of Decay 3 will launch in 2027. The game is the latest entry in the open-world zombie survival series developed by Undead Labs. A new gameplay trailer accompanied the announcement, showing combat against hordes of zombies and narrative scenes. The trailer confirmed that the game will be released on PC, PS5, and Xbox Series X|S. It will also be available on Xbox Game Pass from day one of release. The trailer focuses on gameplay footage, including battles against evolved zombie types. Players will lead a survivor community, making decisions about where to live, what to build, and who to welcome into their group. The announcement follows a six-year gap since the initial concept trailer for State of Decay 3, which was shown in 2020. That earlier trailer featured a zombie deer that the developers later said would not appear in the final game. The 2026 showcase provided the first substantial look at actual gameplay and a concrete release window.