State of Decay 3 Development Team Faces Major Layoffs, Assures Game Progress Remains Unaffected

Undead Labs has managed to navigate the recent Xbox restructuring by transitioning back to management ownership, but the journey hasn’t been without its challenges. The studio announced that it has let go of a “significant” number of developers who were working on State of Decay 3.

In a LinkedIn post, the studio shared, “Today, we announced that Undead Labs is becoming an independent, employee-owned studio. Our focus going forward is simple: making the best games we can and earning the continued support of the people who choose to spend their time with us. Unfortunately, today we are also saying goodbye to a significant number of our colleagues. It’s difficult to reach this moment knowing that not everyone who helped get us here gets to make the rest of the journey with us.”

Reports suggest that the layoffs could affect up to 40 developers, although Undead Labs has not confirmed the exact number following its separation from Xbox.

The studio has committed to a closed beta test for State of Decay 3, the eagerly awaited sequel in its popular zombie survival series, which is expected to begin by the end of 2026. The game was first revealed during Xbox’s 2020 summer showcase but has encountered various hurdles during its development.

“State of Decay 3 remains in active development, and these changes will not impact the game’s launch,” stated studio head Philip Holt. “The team is continuing its work on schedule, and we remain committed to delivering the experience our community has been waiting for. We’re grateful to everyone who has contributed to the game.”

The smaller studios released by Xbox, including Undead Labs, have retained their intellectual property, back catalogs, and some level of financial support, indicating that the agreements with Microsoft included post-divestment funding. There are reports of a “new publisher” for State of Decay 3, though details on who that might be have yet to be revealed.

FX director John Gronquist reflected on the studio’s journey on LinkedIn, saying, “Today the studio that I have been at since its inception 15 years ago fought its way back to independence, at great cost. Sadly I won’t be making that final leg of the journey with them, being included in the latest round of layoffs. The company and leadership have gone above and beyond to be transparent and treat the process with humanity and respect that is rare in this industry, and I leave with no regrets other than not being there with them at the finish line to ship State of Decay 3.”