Undead Labs independent again after management buyout; State of Decay 3 remains in development

• Studio head Philip Holt says State of Decay 3 is still in development, but the studio needs to adjust after the restructuring.
• The reports do not name a new publisher, give an exact layoff count, or confirm an earlier sale to Splash Damage.

What happened

Undead Labs has become independent again after years under Xbox Game Studios. Kotaku reports that the studio secured funding for a management buyout, completing its split from Xbox. The reporting also says the studio had to let staff go as part of the process, though no exact number has been confirmed.

Studio head Philip Holt says the focus now is on building a financially sustainable business structure. According to him, as an independent studio, Undead Labs needs to make sure costs remain manageable after State of Decay 3 launches, rather than relying on the role the game might previously have played within Xbox.

Holt also says State of Decay 3 is still in development, but that the game will need adjustments following the layoffs and restructuring. He would not say who the new publisher is or how many employees left. The supplied sources also say an earlier sale of Undead Labs to Splash Damage ultimately did not go through.

The game was first revealed in 2020 with a cinematic teaser. Holt previously said only a small team was working on it at the time, and that serious development did not really begin until 2023. Later reporting says State of Decay 3 is now being alpha tested by a closed group of players, with a stated release target of 2027.

Background

Kotaku describes how State of Decay was once seen inside Xbox as a possible first-party tentpole franchise, provided the studio received enough support. Holt now describes a different situation: as an independent studio, Undead Labs must prioritize financial durability and a cost structure that still works after release.

IGN previously reported that Holt partly explained the early reveal of State of Decay 3 by saying he feared the studio might otherwise be "swallowed up or divested" before the game could be shown publicly. That same reporting also says the game was still being made by a small team in 2020 and that production only really picked up in 2023.

Sources

• Kotaku: State of Decay 3 studio head talks about leaving Xbox and how the calculus has shifted from creating a tentpole first-party IP to ensuring survival
• IGN: State of Decay 3 revealed early out of anxiety over Xbox future
• Eurogamer: Undead Labs Xbox layoffs / State of Decay 3
• GameSpot: State of Decay 3 was announced early to keep Undead Labs on Microsoft’s radar