Undead Labs announces its transition to being an "employee-owned studio," while a "significant number" of its workforce will experience layoffs

Undead Labs has officially become an independent entity, now operating as an "employee-owned game development studio." This transition marks its separation from the Xbox brand, as part of a broader reorganization by the platform holder.

Following this change, a "significant number" of staff were let go. The team described these developers as exceptional talents who have significantly contributed to the State of Decay series through problem-solving and collaboration. Their influence and work continue to be part of Undead Labs and the upcoming State of Decay 3, despite their departure.

The development of State of Decay 3 is ongoing, with plans to release the game in 2027 across Xbox, Game Pass, PC, and PlayStation platforms. A closed beta is expected to be conducted before the conclusion of the year.

State of Decay 3. A person wearing a blue baseball cap, grey sweater, and camouflage pants holds a crossbow, with a large backpack on their back. In the background, a weathered sign for 'USED CARS' is visible against a cloudy sky. — Image credit: Undead Labs

Phillip Holt, head of Undead Labs, expressed that gaining independence allows the studio to foster closer ties with its community and concentrate on producing high-quality games. Holt acknowledged the positive impact of their past association with Xbox and appreciated Microsoft’s role in the journey of State of Decay.

This announcement came amid wider industry shifts, where 268 roles were reduced across Halo Studios and other Xbox Game Studios. Additionally, Rare and the Halo series were transferred to Activision, and Obsidian joined Bethesda. In another consolidation, Playground Games and Turn 10 merged into one studio.

Future plans for the Halo series involve leadership from a newly established team apart from ongoing projects, while a smaller group will continue to provide support for existing Halo games.

Activision's new responsibilities now extend to World's Edge, known for the Age of Empires series. Ninja Theory, however, faces closure following unsuccessful negotiations, part of a July divestment involving five studios, including Compulsion Games, Undead Labs, Double Fine Productions, and Arkane Lyon. While Compulsion Games and Double Fine have confirmed their newfound independence, Arkane Lyon remains in consultation.

Amid these changes, Blizzard remains unaffected, as per an internal communication reported by Game Developer.

This article has been updated to incorporate details about the layoffs at Undead Labs.