Undead Labs is officially a free agent. The studio behind State of Decay cut ties with Xbox in September after a planned acquisition by Splash Damage reportedly fell through, and now it is operating as an employee-owned independent company with all shareholders being Undead Labs employees. Wild, right?
Zombie Studio Shambles Into Freedom
The Seattle-based team, which Microsoft acquired back in 2018, kept its intellectual property in the split. A new unnamed publisher is handling State of Decay 3, which is still targeting a 2027 release and a day-one Game Pass launch. Undead Labs is getting development support from Virtuos, Wushu, and Blind Squirrel while the game sits in alpha.
In an interview with The Game Business, studio head Philip Holt laid out what independence actually means. During that conversation, interviewer Christopher Dring framed the stakes. As part of a multi-trillion-dollar company, a slight delay or a missed deadline can be managed. As an independent studio, those same problems could be life or death. Holt did not dispute that framing. He knows the rent is due now.
Full Measure: A Weird Corporate Vehicle
According to Insider Gaming, Holt acquired Undead Labs through a company called Full Measure. He is the first to admit the setup is unusual. He did not start as employee one, and he did not raise the startup capital himself. He also did not shoulder all of the commercial risk. Because of that history, he believes the company’s value belongs to the people who actually built it.
All current shareholders are Undead Labs employees, and the studio is issuing stock options to every staff member. My opinion? That is how it should work. Too many studios get gutted while the people who made the games watch from the unemployment line.
Anxiety Built This Announcement
Here is the part nobody wants to talk about at the party. Undead Labs laid off a significant number of employees as part of the transition. The studio called them exceptionally talented developers and said they would hire them again in a heartbeat. That is cold comfort for people who just lost their jobs. The announcement also came the same day Xbox eliminated 268 positions across Halo Studios and other first-party teams on Sept. 22. The games industry keeps bleeding, and we keep pretending everything is fine.
Insider Gaming also reported on the strange backstory behind the 2020 State of Decay 3 announcement. At the time, the team barely had anything to show. Holt was worried the studio might get swallowed up or divested before it could present its work to the world. He wanted a marker on the table, a public declaration that this game existed. So Xbox showed a cinematic trailer, and the world got hyped for a game that had, in Holt’s words, “we had a very small team” working on it. Anxiety as a marketing strategy. Genuinely unhinged.
Holt is grateful to run without outside investors, though he does not think investment is inherently evil. His point is simpler than that. Most financial institutions would want a majority share in a pre-revenue studio. That would mean trading one corporate overlord for another. Under Xbox, the studio had to serve multiple objectives and directives. Now there is a cleaner, clearer line of sight to the audience. That is the actual win here. Not just independence. Purpose.
Undead Labs Lives, Barely
The pressure on State of Decay 3 has not gone anywhere. If anything, it is worse now. According to Holt, ownership of their work matters more than ever precisely because the consequences hit different without Microsoft’s balance sheet as a safety net. One missed deadline could tank the whole operation. That is terrifying. It is also why the employee ownership thing is not just a nice gesture. It is a survival mechanism. Everybody has skin in the game because there is no rich parent to call when the money runs out.
Undead Labs is still standing. Barely, maybe, but standing. The studio has a game to ship, a team to rebuild, and a publisher it will not name. State of Decay 3 remains in active development, and the zombie survival sim will hit PlayStation alongside Xbox and PC for the first time in franchise history. That is a genuine shift for a series that spent over a decade as a Microsoft-platform exclusive. Independence, it turns out, means selling your game to everyone.
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