Undead Labs, the Seattle-based studio behind the beloved State of Decay franchise, has announced a major shake-up following its split from Xbox. The studio, which is now an “independent, employee-owned entity,” has revealed that it will be laying off a significant number of employees as part of this transition.
The news comes on the heels of Microsoft’s decision to divest Undead Labs earlier this year, and while the exact number of layoffs isn’t clear, we do know that some of those impacted were working on State of Decay 3. In a heartfelt statement on LinkedIn, the studio acknowledged the difficulty of having to let go of talented developers who have been instrumental in shaping the franchise.
“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 statement reads. “They are exceptionally talented developers who have poured years into the State of Decay franchise: solving hard problems, looking after one another, and helping shape both this game and this studio.”
The layoffs come as no surprise in an industry where studios are constantly evolving and adapting to changing market conditions. However, it’s clear that Undead Labs is committed to its new direction, with a focus on becoming an independent entity.
As part of this transition, the studio will be working with a new publisher to release State of Decay 3, which is still set for a day one launch on Xbox Game Pass. This move marks a significant shift in Undead Labs’ business model, and it will be interesting to see how the studio navigates its new relationship with its publishing partner.
The news of Undead Labs’ layoffs comes amidst a broader trend of industry consolidation, with Microsoft laying off 268 workers across its video game division earlier this year. Other studios, including Rare, Treyarch, World’s Edge, Activision, and The Coalition, have also been impacted by these cuts.
In related news, it’s worth noting that Undead Labs’ split from Xbox follows a similar pattern to that of Double Fine and Compulsion, which also parted ways with the platform holder earlier this year. Both studios retained their IP, back catalogs, and runway funding as part of their separation agreements.
The future of Undead Labs is bright, despite these challenging times. With its new independent status and commitment to employee ownership, the studio is poised to take on new challenges and push the boundaries of what’s possible in VR gaming. State of Decay 3, which has been in development for years, is one of the most anticipated games of the year, and it will be fascinating to see how Undead Labs navigates its new relationship with its publishing partner.
As we look ahead to the future of VR gaming, it’s clear that studios like Undead Labs are paving the way for a new era of innovation and creativity. With their independence and commitment to employee ownership, these studios are well-positioned to take on the challenges of the industry and push the boundaries of what’s possible in immersive gaming experiences.
Source: Game Developer XR — 2026-09-23