Xbox is reportedly considering the closure or sale of Undead Labs, the developer behind the State of Decay series, according to recent reports. This potential move is part of a larger strategic "reset" within Microsoft's gaming division, which has been rumored to involve substantial layoffs across multiple studios.
Undead Labs is currently developing State of Decay 3, a zombie survival game that was recently showcased and is slated for a 2027 release. However, the studio's future, and that of its ongoing project, is uncertain if Xbox proceeds with its plans. Employees at Undead Labs could face job losses, with reports indicating up to 110 positions might be affected if the studio is shuttered.
This situation extends beyond Undead Labs. Compulsion Games, Double Fine, and Ninja Theory have also been identified as studios at risk of closure or significant staff reductions. These potential closures could impact hundreds of employees across the affected studios. Bloomberg initially reported on Xbox's plans for major layoffs, and GamesBeat has since corroborated and expanded upon this information, naming the specific studios in jeopardy.
Beyond these specific studios, other Xbox divisions, including Blizzard and Bethesda, may also experience percentage-based layoffs. Industry figures have suggested these cuts could represent the largest single series of layoffs in Xbox's history. George Broussard, co-founder of 3D Realms, indicated that a list of potential Xbox studio closures was shared with him prior to anticipated layoffs in July, describing it as potentially "the largest single layoff event in gaming history."
While official confirmation is pending, the consistent reporting from multiple outlets points toward significant workforce reductions at Xbox occurring after the close of Microsoft's fiscal year. The full extent of these changes will become clearer once the layoffs are implemented, but the current indications suggest a substantial reshaping of Microsoft's first-party development landscape.