Undead Labs, the developer of the zombie survival series State of Decay, has officially separated from Microsoft and is now operating as an independent, employee-owned studio. The announcement comes after a period of significant restructuring and layoffs at Xbox.
Despite the separation, Undead Labs confirmed it is continuing development on State of Decay 3. The game is currently in alpha, with plans for a closed beta before the end of 2026. A full release is targeted for 2027 across Xbox, Game Pass, PC, and PlayStation. This transition marks a new phase in the relationship between Undead Labs and Microsoft, which has spanned over 15 years, beginning with the publication of the original State of Decay in 2013 and the acquisition of Undead Labs in 2018.
"Independence brings us closer to our community and lets us focus on what matters most: making the best games we can and earning the continued support of the people who choose to spend their time with us," said Philip Holt, studio head of Undead Labs. "State of Decay exists because millions of players have made that choice over the years, and we’re dedicated to honoring their trust." The studio is still accepting applications for State of Decay 3 playtesting.
Other studios that were part of Microsoft's divestment, including Double Fine and Compulsion Games, also completed their separation and retained their intellectual property, back catalogs, and funding. However, Ninja Theory is facing potential closure after acquisition deals fell through. Xbox is also reportedly in consultations to divest from Arkane Studios. Earlier in September, Microsoft announced a broader restructuring of its studios, consolidating development for franchises like Halo and Forza.