What is confirmed
Undead Labs announced that it had completed its separation from Xbox and was operating as an independent, employee-owned game development studio. That was on September 22. Xbox's Matt Booty covered the same event in an internal memo the same day. In it he said that Compulsion and Double Fine returned to management in August, and that Undead Labs had "successfully transitioned on similar terms". He added that a new publisher would release State of Decay 3 day one on Game Pass.
Note on sourcing: the Booty memo wording comes from Xbox Wire. The Game Pass detail is also reported by GameSpot, which says Microsoft confirmed the game will still launch on Xbox Game Pass day-one.
Undead Labs' own post said the game is in alpha, with a closed beta planned before the end of the year. It also said the game is still targeted for 2027 on Xbox, Game Pass, PC and PlayStation.
A caution on terminology: Xbox did not close this studio. It was one of five studios Xbox planned to divest, and it continued independently. Xbox said it would begin consultation on a proposed closure for Ninja Theory after two separate agreements fell through. That is a different outcome.
Holt's account of the three months
The following comes from Holt's interviews with GamesIndustry.biz and The Game Business. It is his account, not independently audited fact.
- A shock, with a little warning. Holt told GamesIndustry.biz he had slight notice before the July announcement. Even so, the mood inside the studio was "deeply unsettling", with staff fearing unemployment and fearing they would never ship State of Decay 3.
- Weekly updates. He said he briefed the whole company weekly for a period and held candid one-to-one conversations. He told The Game Business he had been "irresponsibly transparent", and that people were prepared on layoff day.
- A buyer first, then an employee buyout. Holt said Microsoft initially wanted an acquirer. He believed the studio could make a credible offer of its own because the game was close to shipping. He told The Game Business that he submitted a management-led acquisition offer and Microsoft thought it was a good idea.
- Investors wanted control. Holt said the studio was pre-revenue, so many investors wanted a majority position. The studio shifted to seeking publishing money.
- No outside investors. He said cash on hand plus publisher funding lets the studio finish the game without investors. The publisher is still unnamed in every source reviewed.
An aside on a conflicting detail. The Game Business said it understood Splash Damage was going to pick up the studio, and that Xbox had announced a buyer in early July. That is that outlet's report. The Xbox statements reviewed here do not name any buyer, so treat the Splash Damage claim as unconfirmed.
How the ownership works
Holt told GamesIndustry.biz that a new company, "basically a Delaware C corporation", acquired Undead Labs. He said equity is now being issued to all employees. The Game Business names the acquisition vehicle as Full Measure. It reports that all of Full Measure's shareholders are Undead Labs employees and that stock options are being issued to all staff.
Holt told GamesIndustry.biz that:
- Employees do not all hold equal stakes. He said the amounts depend on "a lot of factors."
- He does not own a majority. He used multiple classes of stock with super-voting rights so that he keeps voting control while holding a minority of the equity.
- Shares can currently be sold back to the company. An outside acquisition could mean a windfall for staff. Dividends are possible if profit allows.
Only GamesIndustry.biz carries the share-class detail. The Game Business confirms the employee shareholding but not those governance mechanics, so attribute them to Holt.
The cost: layoffs and a smaller studio
Undead Labs said in a post that it was parting with "a significant number of our colleagues". Holt has declined to give a figure. He told The Game Business he would not want to reduce the impact on individuals to a statistic.
GamesIndustry.biz reports Holt saying the studio had "just over a hundred" staff before and has fewer now. It lists offices in Seattle, Champaign and Orlando plus some remote staff. These headcount and location details are not corroborated elsewhere in the material reviewed.
Holt told The Game Business that the cuts forced "some changes" to the game but no radical rescope.
Why the timeline looks odd
State of Decay 3 was first shown in 2020, so the wait looks very long. Holt told The Game Business a small team had worked on it since around 2020, but development did not really pick up until 2022 or 2023. GamesIndustry.biz adds that much of the studio supported State of Decay 2 until 2024.
Holt describes a creative pivot away from an MMO-style vision associated with founder Jeff Strain, who left in 2019. He says that pivot meant the studio "basically rewrote the entire" game. That characterization is Holt's.
He also told The Game Business that the 2020 reveal was partly a marker, made out of worry that Xbox might swallow or divest the studio before it could show its vision. For readers, that means the reveal date is a poor guide to the real production timeline.
Game Pass and PC
Game Pass is still central to the plan. Holt told The Game Business that Game Pass helped the franchise reach 25 million players. He said that of the players the game keeps, it keeps them for a long time, and he called the four-player co-op shared world the studio's biggest investment.
On hardware, he told GamesIndustry.biz the studio is keeping its "minimum spec as broad as we can make it". He said the studio wants to be where players are, not on the cutting edge. For PC and older-console owners, that is a useful signal. It is a stated intent, not a published spec sheet, and no official requirements have been reviewed here.
GamesIndustry.biz reports about 8,000 players testing the game and a post-launch roadmap in the works. Only that outlet carries these claims.
What this means
- For Game Pass subscribers: Xbox's public statement keeps the day-one promise even though the studio left the company. Third-party publisher deals on the service are a pattern to watch.
- For Xbox's strategy: Holt said it "appears that they are coalescing around their mega franchises." That is one outsider's read, not a Microsoft statement. The facts are that Xbox is operating fewer business units and has folded studios into larger groups.
- For the studio: The risk has shifted. Holt contrasts first-party life with independence, where a missed milestone can be a matter of survival. An unnamed publisher also means the commercial terms are unknown.
Employee ownership may boost morale, as Holt argues. Even so, the studio is pre-revenue, smaller than before and dependent on one game. The 2027 release will be the real test.