Undead Labs has become an independent, employee-owned studio after separating from Xbox, but the transition has included substantial job losses. The developer says a “significant” number of people working on State of Decay 3 have left the company.
Undead Labs returns to independence
In an announcement about the studio’s future, Undead Labs said its priority is to make the best games possible and maintain the support of its players. The same announcement confirmed that many colleagues would not continue with the company after the change in ownership.
A source familiar with the situation estimated that as many as 40 developers may have been affected. Undead Labs did not immediately provide a total headcount change following its departure from Xbox.
The development follows a broader reset in the Xbox publishing and studio group. For more gaming and industry updates, visit RETROCADE’s Arcade Blog.
State of Decay 3 remains in development
State of Decay 3 is still scheduled to receive a closed beta as early as the end of 2026. The zombie-survival sequel was announced during Xbox’s 2020 summer showcase and has experienced development difficulties in the years since.
Studio head Philip Holt said told IGN that the game remains in active development. He said the staffing changes would not affect its launch, with the team continuing to work to schedule and remaining committed to delivering the experience players are waiting for.
While the project’s development continues, its eventual publisher has not been named. Reports indicate that State of Decay 3 has a new publishing arrangement following the studio’s separation from Xbox.
Funding and staff departures
The studios released by Xbox, including Undead Labs, reportedly retained their intellectual property, back catalogues and runway funding. That suggests the agreements included financial support to help the independent teams continue operating after the divestments.
John Gronquist, Undead Labs’ FX director, said he had worked at the studio since its creation 15 years ago but was included in the latest round of redundancies. In a post on LinkedIn yesterday, he described the return to independence as having come at a significant cost and said he regretted not being there to help ship the game.
Gronquist also praised the company’s leadership for handling the process transparently, humanely and respectfully. His comments underline the personal impact of the restructuring, even as Undead Labs maintains that the game itself remains on track.
What happens next?
The next major milestone for State of Decay 3 is expected to be its closed beta, potentially arriving before the end of 2026. Until the studio or its new publisher shares more details, the game’s launch timing and publishing identity remain unconfirmed.
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