Undead Labs finds a new path for State of Decay 3

Undead Labs has emerged from Microsoft’s decision to divest the studio with a new employee-owned structure, fresh publishing money and a clearer path towards State of Decay 3. CEO Philip Holt described the period after the announcement as “a pretty harrowing three months”, but said the studio can now finish the game without outside investors.¹

Microsoft acquired Undead Labs in 2018, but announced in July that it planned to divest five studios. Holt told GamesIndustry.biz that the news created an unsettling atmosphere inside the team, with employees worried about unemployment and whether the long-in-development zombie sequel would ever ship.¹

The studio first explored a buyer and spoke to investors. Holt said those discussions generally involved demands for control, so Undead Labs shifted towards finding publishing finance instead. The agreement it eventually secured remains unnamed, but, together with the studio’s cash reserves, it should allow the team to complete State of Decay 3 independently.

Undead Labs has also registered a new Delaware corporation and is issuing equity to its employees. Holt retains voting control through multiple share classes but said he does not hold a majority stake. The arrangement is designed to give the people making the game a direct stake in its success rather than placing the studio under an investor seeking a large return.

The transition was not painless. Undead Labs made a significant number of layoffs in September, although Holt has declined to publish an exact figure. The studio had slightly more than 100 employees before the cuts and is now smaller, with development supported by co-development partners including Wushu Studios in the UK.¹

Holt also explained why State of Decay 3 has taken so long. A small team worked on the project around its 2020 reveal, while much of the studio supported State of Decay 2 until 2024. The sequel then underwent a major creative pivot away from an MMO-style direction, effectively rewriting the game. The project is currently targeting 2027, with around 8,000 players testing it and a post-launch roadmap already being considered.

The official Xbox gameplay reveal shows the project is still being positioned as a broad, systems-driven survival game rather than a hardware showcase.² Holt said the team is aiming for a wide minimum specification so players can meet the game where they are, a practical choice for a studio that wants to grow its community without requiring the newest console or PC.

Our opinion

Undead Labs’ employee-owned reset is more interesting than another corporate rescue headline. It does not remove the risk around a delayed, expensive game, and the layoffs are a serious part of the story rather than a footnote. But the new structure gives State of Decay 3 a coherent reason to exist: the studio is trying to build a sustainable team around its audience, not simply preserve a brand inside a larger portfolio. The 2027 window still needs to be treated as a target, not a promise, but this is a notably more grounded position than the project occupied after years of uncertainty.