Undead Labs Leaves Xbox as Employee-Owned Studio, State of Decay 3 Still Targeted for 2027

What happened​

Christopher Dring of The Game Business reported that Undead Labs went independent after a planned acquisition by UK developer Splash Damage fell through. Splash Damage's private equity backer, Emona Capital, was funding that deal. After it collapsed, Undead Labs leadership and staff found a way to take control of the studio themselves.

The vehicle for that buyout is called Full Measure. Holt created it as the acquisition vehicle. According to The Game Business, all of its shareholders are Undead Labs employees, and the company is issuing stock options to all staff. Kotaku's account of the interview adds that the stock is due to reach staff in the coming weeks. No ownership percentages, financing amounts or governance terms have been disclosed.

Undead Labs is one of five studios Xbox has divested in its "reset". Double Fine and Compulsion Games also returned to independence. Undead Labs kept its IP, and an unnamed publisher now handles State of Decay 3.

The cost: layoffs​

The independence came with job losses. Undead Labs posted on LinkedIn that it was saying goodbye to a "significant number" of colleagues. Kotaku has reported that layoffs hit the studio as part of the shift to full independence. A single unnamed source told Kotaku the cuts may have affected up to 40 developers. Treat that as an unconfirmed estimate. Holt declined to give a headcount in the interview, and he also declined to name the new publisher.

Holt's shift: from tentpole to survival​

Holt told The Game Business that, inside Xbox, the goal was for State of Decay to grow into a tentpole brand given proper support. As an independent, he said, the priority is to survive. That means a "durable cost structure" that carries the studio through launch and is then supported by the revenue the game earns.

He also said the name Full Measure comes from Lincoln's Gettysburg Address and the phrase "the last full measure of devotion". He framed employee ownership and honest communication, including bad news, as how a company earns its team's commitment.

The Game Business reports that Holt contrasted this with a financially driven environment. In that kind of environment, the person in charge's main job is maximizing margin. He presented independence as the alternative.

Some perspective on those statements:

• They are Holt's own framing. They are not a financial forecast or a disclosed budget.
• Nothing in the reporting gives a cash runway. Kotaku calls the outcome a happy ending for the studio, but notes the layoffs.
• An earlier Kotaku report said the smaller divested studios left Xbox with their IP, back catalogs and "runway funding". That suggests some post-divestment financial support from Microsoft. The terms are not public.
• The development timeline has slipped before. Kotaku says a studio without Xbox's full backing must manage it tightly or risk more layoffs.

History and context​

• The Game Business notes that Undead Labs released no new game in its eight years as an Xbox studio. Holt pointed to 38 updates for State of Decay 2 in that time.
• State of Decay 3 was announced in 2020. Kotaku previously reported that the original teaser was a hype video for a game that barely existed yet, not footage of finished work.
• Holt said that early reveal was meant to put a marker on the table for the studio's ambitions during Xbox's acquisition spree.

Game status and platforms​

Xbox Wire's June 2026 gameplay reveal gives the following:

• The game is still targeted for 2027, and the new publisher is unnamed.
• Xbox's June post said it would be available on Xbox Series X|S, Xbox on PC, cloud and Steam. It also lists PlayStation 5, Game Pass inclusion and Xbox Play Anywhere.
• Xbox's June post describes a survival sandbox with settlement building and solo play. It also describes shared-world co-op for up to four players.
• Creative director Kevin Patzelt said the playable map is about four times the size of a single State of Decay 2 map. It is open from the start.
• The game is built in Unreal Engine 5, according to Patzelt.

Those platform and Game Pass commitments came from Xbox's pre-divestiture announcements. With a new publisher and a new ownership structure, readers should watch for updated confirmation before treating them as settled.

Testing​

An alpha began in April 2026. Xbox Wire said closed beta playtests were planned before the end of 2026. Kotaku says PC sign-ups for the closed beta will open soon, with a full alpha test planned for 2027. A social media post circulating this week says the first beta wave is PC-only, with consoles to follow. That is an unverified claim and not an official specification. Nothing confirms that a beta is open or when console testing would start.

Why it matters to Xbox and PC players​

• Platform strategy: The game is still tied to Xbox on PC and Steam. Independence changes who owns and funds the studio. It does not change the platform plans announced so far.
• First-party shrinkage: Xbox is handing smaller studios their IP and letting them find outside publishing. That shifts risk away from Microsoft.
• Open questions: The publisher's identity, the buyout terms, the stock terms, the exact layoff count and the beta platforms are all unconfirmed.

The buyout gives Undead Labs control of its own future. It does not guarantee a hit, and shipping in 2027 will be the real test.