Undead Labs, the studio behind the State of Decay series, is leaving Xbox after an eight-year tenure as a first-party developer. Microsoft announced the studio's departure, confirming it will be under new ownership, without having released any new titles during its time with Xbox Game Studios.
Undead Labs was acquired by Microsoft in 2018, a few months after the release of State of Decay 2. The studio's flagship project during its time with Xbox, State of Decay 3, remains unreleased. Reports from the time of its acquisition and subsequent years have pointed to potential internal dysfunction, mirroring broader challenges within the game development industry that have seen project timelines balloon.
Alongside Undead Labs, Xbox is also cutting ties with other studios. Ninja Theory, acquired in the same 2018 announcement that brought Undead Labs into the fold, is also departing. Ninja Theory released two games under Microsoft: Bleeding Edge in 2020 and Senua's Saga: Hellblade 2 in 2024. Compulsion Games, another studio acquired in 2018, is returning to independence via a management buyout. Its sole release under Xbox was South of Midnight, slated for 2025. Double Fine, acquired by Xbox in 2019, is also reportedly being divested, having released three games during its tenure.
The departures contrast with the continued partnership with other acquired studios like Obsidian Entertainment, which has released five games for Xbox, and inXile Entertainment, which has zero released titles but is working on Clockwork Revolution. Despite mixed fortunes for some studios, Microsoft appears committed to retaining others, possibly for their potential to contribute to established franchises.
The situation at Undead Labs is particularly notable given the years spent without a new release. While development challenges are common, the studio's extended period without shipping a product under Microsoft's ownership has drawn attention, especially as the company continues to re-evaluate its first-party portfolio.