Undead Labs breaks free from Xbox as an employee-owned studio — State of Decay 3 still on track for 2027
Undead Labs has officially separated from Xbox and is now operating as an independent, employee-owned studio — and State of Decay 3 is still coming in 2027. The split is part of Xbox's sweeping 2026 restructuring under CEO Asha Sharma, which has seen more than 1,800 employees cut and multiple studios reshuffled or spun off. For anyone waiting on State of Decay 3, the short version is: nothing changes for players.
The buyout
The studio announced the completed separation on its own site, confirming that the team effectively bought itself out — the same path taken by Halo moves to Activision, Obsidian merges with Bethesda, and Ninja Theory faces closure during the same Xbox restructuring wave. What's unusual here is what Undead Labs hasn't said: the identity of its new financial backer or publisher remains undisclosed. Compulsion and Double Fine at least outlined their new arrangements; Undead Labs has offered no equivalent clarity. The studio says more details about its future plans will come later.
The separation caps a relationship with Microsoft stretching back more than 15 years. The original State of Decay launched in partnership with Microsoft in 2013, and the studio was acquired outright in 2018 — since when it has released no new games.
Game Pass commitment holds
Despite the independence, Undead Labs confirmed it will honour its original Xbox deal: State of Decay 3 will be available on Game Pass from day one. That's a meaningful commitment — studios that leave the Xbox umbrella don't typically retain subscription launch guarantees. The game is also confirmed for PC via Steam and PlayStation 5, marking the first time the franchise breaks from Xbox exclusivity. That wider platform reach makes commercial sense for a newly independent studio that needs to maximise its audience.
State of Decay 3 is currently in alpha. A closed beta is targeted before the end of 2026, keeping the 2027 launch window on schedule. The game has had a long road since its Microsoft is funding State of Decay 3 — but no longer guaranteeing it hits Game Pass earlier this year — and an even longer one since the original 2020 announcement, during which the concept shifted considerably. One notable casualty of development: the infected deer from the reveal trailer won't appear in the final game.
Xbox's broader studio situation remains turbulent. The latest round of layoffs is still unfolding, and Undead Labs' quiet exit — with no named backer — is one of the stranger footnotes in an already chaotic year for Microsoft's gaming division.
