Undead Labs, the Microsoft-owned studio behind the State of Decay series, is reportedly in buyout talks as part of Xbox’s latest round of staffing cuts. According to GamesBeat, the team is negotiating with Xbox management to purchase the studio. If the talks fail, around 110 jobs could be lost, casting fresh doubt on the release of State of Decay 3.
The discussions reportedly center on a potential buyout rather than an internal restructuring. That distinction is important: if Undead Labs becomes an independent developer, it might preserve part of its staff and continue the franchise with a new publisher or investor. Without a buyer, the project risks joining a long list of stalled games trapped in development hell for years.
State of Decay 3 is currently slated for release on PC, Xbox Series X/S, PlayStation 5, and Xbox Game Pass in 2027. The planned launch on PlayStation 5 highlights Microsoft’s shift away from strict exclusives toward broader multiplatform reach – a notable pivot for a company traditionally focused on exclusive content to drive console sales. Against this backdrop, shuttering an owned studio appears part of a strategic portfolio pruning.
Other Xbox teams – including Compulsion Games, Double Fine Productions, and Ninja Theory – are also reportedly facing cuts. These layoffs could extend beyond studios to major divisions such as Blizzard Entertainment and Bethesda Softworks, potentially marking the largest layoff wave in Xbox’s history.
Xbox studio layoffs and restructuring history
This isn’t Microsoft’s first major gaming cutback in recent years. In January 2024, the company cut roughly 1,900 jobs across Xbox, Activision Blizzard, and ZeniMax shortly after completing its $68.7 billion acquisition of Activision Blizzard. Executives described the move as necessary to eliminate redundancies and reduce costs post-merger.
In spring 2024, Xbox closed Arkane Austin and Tango Gameworks, and wound down Alpha Dog Games and internal studio Roundhouse Games. Tango Gameworks’ closure drew attention because it had released Hi-Fi Rush – one of Bethesda’s standout titles – but that wasn’t enough to save it. Krafton later bought Tango’s assets, offering the studio a fresh start outside of Microsoft. For Undead Labs, a similar buyout would be the ideal lifeline.
Meanwhile, Xbox’s commercial strategy is shifting. Earlier this year, the company raised prices on Xbox Series X/S consoles and adjusted Xbox Game Pass terms. The subscription service became pricier for the second consecutive year, and new Call of Duty titles no longer launch day-and-date on Game Pass under previous deals. This signals a move away from an aggressive content investment model toward stricter profitability standards.
Undead Labs also faces challenges from its own development history. State of Decay 3 was announced six years ago but has had few public updates since. For a studio inside a giant corporation with no new releases since 2018, that’s a risky combination: costs continue rising while the team’s value depends solely on a promised future launch. Xbox now has multiple such studios after recent acquisitions.
This trend is not unique to Microsoft. Embracer Group underwent extensive studio closures and reorganizations in 2023 and 2024 after a failed major investment deal. Sony cut roughly 900 employees within PlayStation Studios and shuttered some service projects in 2024. Major publishers increasingly favor a narrow portfolio of high-profile franchises over sprawling midsize initiatives. State of Decay fits in the vulnerable middle tier – recognized but not a system seller for the platform.
The fate of State of Decay 3 will likely become clearer in the coming months as Microsoft completes another review of its gaming assets. If Undead Labs manages to break away from Xbox, the 2027 release window could still be met. If not, it will join the growing list of studios Microsoft has cut from its late-2010s acquisition spree.