Xbox is reportedly considering closing State of Decay developer Undead Labs

Microsoft is reportedly considering closing Undead Labs, the Seattle-based developer behind the State of Decay franchise, as part of a broader restructuring initiative led by new Xbox CEO Asha Sharma. According to GamesBeat and confirmed by Windows Central, the company is attempting to find a buyer for the studio; if unsuccessful, Undead Labs and the in-development State of Decay 3 could be shut down entirely.

Undead Labs is one of four Microsoft-owned studios currently at risk of closure. Alongside Undead Labs, Double Fine, Compulsion Games, and Ninja Theory have also been identified as studios facing potential closure as part of Xbox’s strategic “reset.” Microsoft is reportedly in talks with the developers about potentially buying themselves out of Microsoft’s ownership.

The potential impact is significant. Undead Labs alone employs approximately 110 people, while the four studios combined employ hundreds of workers at risk of losing their jobs if closures proceed. The layoffs are part of a broader wave of cuts across Microsoft’s gaming division, with Bethesda and Blizzard also reportedly facing significant workforce reductions. Industry observers have characterized this as potentially one of Xbox’s largest single reduction series, exceeding the approximately 1,900 gaming workers Microsoft laid off in January 2024.

The timing adds particular urgency: State of Decay 3 was featured at the Xbox Games Showcase earlier in June and is currently running playtests. The studio’s future appears contingent on Microsoft’s success in finding new ownership for Undead Labs. Union representatives are reportedly negotiating with Microsoft management to protect jobs or secure adequate severance packages for affected employees.

Xbox is reportedly considering closing State of Decay developer Undead Labs

Sources