Undead Labs Goes Independent as XBOX Layoffs Continue

Undead Labs leaves XBOX after more than 15 years of working with Microsoft, becoming an independent, employee-owned game development studio.

The move comes as XBOX announces a fresh round of layoffs and restructures several of its major gaming teams.

According to the studio’s latest announcement, Undead Labs has completed its separation from XBOX and Microsoft. Microsoft acquired the State of Decay developer in 2018 after working with the studio since the original game launched in 2013.

Studio Head Philip Holt said independence will allow Undead Labs to work more closely with its community while focusing directly on game development.

State of Decay 3 remains in development

Despite leaving Microsoft, Undead Labs will continue developing State of Decay 3.

The game is currently in alpha, with the studio planning to move it into a closed beta before the end of 2026.

State of Decay 3 remains targeted for a 2027 release across XBOX, Game Pass, PC, and PlayStation.

Undead Labs also thanked Microsoft and XBOX for supporting the studio and State of Decay throughout their long partnership. The developer said it will share more details about its future as an independent studio later.

The separation comes during a wider restructuring across Microsoft’s gaming business. Halo is now headed by Activision, while Playground Games and Turn 10 are being combined.

Reports also indicate that layoffs could hit Blizzard as Microsoft continues making changes across its gaming organization.