8 Years Without a Game, Undead Labs Now on Xbox's Kill List

Three weeks ago, State of Decay 3 had a proper gameplay reveal at the Xbox Games Showcase, a 2027 release window locked in across PS5, Xbox, and PC, and alpha testing already underway. By any normal measure, Undead Labs looked like a studio with a future. Now it's reportedly looking for a buyer just to survive.

According to Games Beat, Undead Labs is the fourth Xbox-owned studio facing potential closure as part of Microsoft's sweeping effort to "reset" its games business. The Seattle-based developer joins Double Fine, Ninja Theory, and Compulsion Games on the chopping block. Around 110 jobs are at stake if no buyer materialises. Windows Central's Jez Corden has since corroborated the report.

Here's the part that makes this sting differently from the other three: Undead Labs has not released a single game since Microsoft acquired it in 2018. State of Decay 2 launched that same year, before the acquisition closed. In the eight years since, the studio supported State of Decay 2 with post-launch content and then spent years on a sequel that was, by the developer's own admission, nothing more than "a Word document" when its cinematic reveal trailer dropped in 2020. By the time State of Decay 3 hits its 2027 window, it will have been nine years between releases.

I don't say this to blame the developers. Studios don't choose to spend nearly a decade in pre-production and development hell; that's a management and publisher problem. But from Microsoft's spreadsheet perspective, this is an acquisition that burned money for eight years without generating a single new product. If you're an executive looking for studios to cut, the math practically makes the argument for you.

A Showcase, Then a Chopping Block

What makes this especially grim is the timing. Undead Labs and Ninja Theory both had prominent slots at this month's Xbox Games Showcase, revealing games scheduled for 2027. Multiple sources now suggest those showcase appearances may have served a dual purpose: marketing the games to players while simultaneously attracting potential buyers for the studios behind them. If that's true, it reframes the entire Showcase presentation should make fans uncomfortable.

The situation at Undead Labs is part of what industry veteran George Broussard has described as potentially the largest single layoff in gaming history. Beyond the four studios facing outright closure or sale, divisions like Blizzard and Bethesda are expected to take percentage-based cuts. The Communications Workers of America, representing over 3,500 unionised Xbox employees, held a press conference specifically to push back against the pending layoffs.

Microsoft hasn't commented publicly on any of the reported closures. State of Decay 3's fate if Undead Labs shuts down before completing it remains unclear. Bloomberg's Jason Schreier noted it's "possible, even likely" that the list of affected studios extends beyond the names reported so far. Microsoft's fiscal year ends today, June 30, and the layoffs are expected to follow shortly after.