State of Decay 3 Developer Undead Labs Reportedly Facing Closure Amidst Xbox Cuts

Xbox is set to shut down several of its game studios as part of a business reset that will likely see significant layoffs at Microsoft's gaming division. First-party developers like Compulsion Games, Ninja Theory, and Double Fine are said to be in peril and are reportedly negotiating with Microsoft to spin off from Xbox or find new buyers. A new report claims that State of Decay developer Undead Labs is at risk of closure, as well.

According to a GamesBeat report Monday, the Seattle-based developer is among the studios facing closure at Xbox. Undead Labs, along with Senua developer Ninja Theory, Kiln developer Double Fine, and South of Midnight maker Compulsion Games, is looking for a buyer to avoid being shut down.

Around 435 developers could lose their jobs if the studios are closed, the report said, including 110 at Undead Labs. Other bigger studios at Xbox, like Bethesda and Blizzard, are expected to be hit with layoffs, as well. The impending layoffs will likely be “the biggest single cut series for Xbox,” as per a GamesBeat source familiar with Microsoft's plans.

Undead Labs Showed State of Decay 3 Gameplay 

The report about Undead Labs' facing closure comes weeks after the studio showed a new trailer for State of Decay 3 at Xbox Games Showcase. The survival horror game is scheduled to release on PC, PS5, and Xbox Series S/X in 2027. The future of the game is now in doubt amidst Undead Labs' search for a new buyer.

Ninja Theory and its upcoming action-adventure title Senua are facing similar uncertainty. The game was revealed at Xbox Games Showcase on June 7 and confirmed for a 2027 launch on PC, Xbox, and PlayStation. By then, Microsoft reportedly had already decided to shut down Ninja Theory. The Xbox parent went ahead with the Senua announcement hoping it would help the studio attract investors, according to a Game Fire report earlier this month.

Undead Labs was acquired by Microsoft in 2018 following the launch of State of Decay 2. The studio has since not released a single game as State of Decay 3 has suffered multiple delays.

Microsoft will reportedly announce a major round of layoffs at Xbox and close several of its studios in July, following the end of its current fiscal year. The cuts will be the beginning of a “reset” outlined by Xbox CEO Asha Sharma last month, who said the company needed to overhaul its business across hardware, content, and services.