Undead Labs Completes Xbox Separation, Remains at Work on State of Decay 3

Undead Labs has officially completed its separation from Microsoft and Xbox. The developer behind the open-world zombie survival series State of Decay is now an independent, employee-owned studio after spending more than a decade within the Xbox organization. Crucially for fans awaiting the next entry, the team has also confirmed that development on State of Decay 3 is continuing.

The announcement, made September 22, finalizes a transition that had been signaled earlier in the year as Xbox outlined plans to reduce its workforce and allow selected internal studios to return to independent operation. Undead Labs was among the teams identified for that path. Its move is now complete, changing the studio's ownership structure without changing its commitment to the long-running zombie franchise.

State of Decay 3 is currently in alpha development. Undead Labs remains focused on reaching a previously announced closed beta planned before the end of the year, while the game continues to target a 2027 release across PlayStation 5, Xbox, and PC. It is also still expected to launch through Game Pass.

An employee-owned future for Undead Labs

For Undead Labs, independence means the people making its games now own the studio themselves. Employee ownership can give a development team greater direct control over its priorities, its business decisions, and the long-term direction of its work. The practical impact will become clearer over time, but the immediate message from the company is one of continuity: the studio is still building State of Decay 3, and it still intends to serve the community that has supported the series since its debut.

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"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," studio head Philip Holt said. "State of Decay exists because millions of players have made that choice over the years, and we're dedicated to honoring their trust."

That statement places the transition in terms of both creative purpose and audience accountability. The State of Decay games have always been built around replayable survival stories: scavenging for resources, building communities, confronting internal conflicts, and managing the ever-present threat of the undead. An employee-owned studio will now be responsible for carrying those ideas forward independently, even as it continues to work with Xbox on the upcoming game's Game Pass release.

The fact that State of Decay 3 remains on Game Pass is particularly notable. Independence does not necessarily mean abandoning established publishing or distribution relationships. In this case, Undead Labs is separating from Xbox ownership while maintaining the planned Game Pass availability of its next game. The title's confirmed PS5 release also ensures that the next chapter will reach a broader console audience than earlier entries in the series.

State of Decay 3 remains in alpha

Undead Labs did not provide a new gameplay showcase, a precise beta date, or a narrower launch window alongside the ownership news. Still, the studio's update provides several meaningful status points for players who have been watching the project's long development:

• Development is ongoing: Undead Labs is still actively making State of Decay 3.
• The game is in alpha: This indicates the project is in a major internal development phase, though it does not by itself reveal how close the game is to completion.
• A closed beta is still planned: The studio is working toward a closed beta before the end of the year.
• The target release remains 2027: No revised year has been announced.
• Platforms remain PS5, Xbox, and PC: The game is intended for all three.
• Game Pass remains part of the plan: The transition to independence has not changed that commitment.

Alpha is an important milestone, but players should be cautious about reading too much into the label. Game development milestones vary from team to team, and an alpha build can include systems that are still being tested, content that is incomplete, and significant technical work still ahead. The planned closed beta should offer a more tangible indication of how Undead Labs wants to involve players before release, although the studio has not detailed eligibility, timing, or platforms for that test.

The 2027 target also underlines the scale of the remaining work. Rather than being presented as a near-term launch, State of Decay 3 continues to be positioned as a major project with time left for development, testing, iteration, and eventual release preparation. For a series centered on interconnected survival systems, that extended runway may be especially important. Community behavior, co-op experiences, world simulation, combat, and long-term progression all need to work together if the sequel is to meet expectations.

A franchise with deep Xbox roots

The relationship between Undead Labs and Xbox stretches back to the beginning of the franchise. The original State of Decay launched in 2013 with Xbox support, establishing the studio's take on an open-world zombie apocalypse. Its blend of action and community management helped distinguish it from games built entirely around linear campaigns or wave-based survival.

In 2018, Undead Labs released State of Decay 2. Xbox then acquired the studio and brought it into the Xbox Game Studios portfolio. The acquisition made Undead Labs one of Microsoft's dedicated internal development teams, and work on State of Decay 3 followed during that period of ownership.

Now the studio's journey has come full circle in a way. It is once again independent, but it does not appear to be discarding the partnerships formed during its Xbox years. The continued Game Pass plan for State of Decay 3 is evidence of that, while the confirmed PlayStation 5 version marks a new platform direction for the franchise.

For players, the multi-platform release could be one of the most consequential parts of the announcement. Previous State of Decay games were closely associated with Xbox and PC. A PS5 launch means the sequel is planned to reach an additional console audience from day one, assuming the announced targets remain unchanged. That wider reach may also support a bigger community around the game as Undead Labs begins life as an employee-owned company.

A difficult development history remains part of the conversation

The road to State of Decay 3 has not been straightforward. Earlier reporting included allegations from employees concerning burnout, harassment, and a toxic workplace environment at Undead Labs. Those accounts may help explain why the game's development has stretched over a lengthy period, though the precise effect of any internal issues on the project's schedule cannot be measured from the information currently available.

Those allegations remain important context as the studio presents a new chapter centered on employee ownership and closer engagement with its community. A change in ownership can create an opportunity to establish different internal practices, but it is not by itself proof that past problems have been fully resolved. The meaningful test will be how the studio supports its staff and manages production over the coming years.

At the same time, the announcement is not framed as a cancellation, a sale to another publisher, or the end of the State of Decay series. It is a continuation under a new corporate structure. Undead Labs retains its identity as the developer of the franchise, its employees now own the company, and its largest current project remains on track for the platforms and services already announced.

Part of a wider Xbox studio reshuffle

Undead Labs is not the only developer affected by Xbox's recent restructuring. Other teams have also been discussed as candidates to return to independent status, including Double Fine and Compulsion Games, which have already made that transition. The outcomes have not been uniform across every studio, however.

Two proposed deals involving Hellblade developer Ninja Theory reportedly fell through. Ninja Theory is now, alongside Arkane, in consultation over a potential closure. The contrast makes Undead Labs' completed employee-owned separation especially significant: it represents one of the successful outcomes of a turbulent period for Xbox's development organization, but not a template that has been available to every team.

For Undead Labs, the next challenge is turning that organizational independence into a successful game launch. The studio has an established series, a stated path to closed beta, an announced 2027 target, and planned releases on PS5, Xbox, and PC. It also has a renewed responsibility to demonstrate what an employee-owned developer can accomplish while completing a long-awaited sequel.

There are still plenty of unanswered questions. Undead Labs has not shared the exact date of the closed beta, details on how players will participate, or a fuller breakdown of what to expect from State of Decay 3. But the central update is clear: the developer is no longer owned by Xbox, its employees now own the studio, and the zombie survival sequel remains alive, in alpha, and moving toward its planned 2027 launch.