Xbox is reportedly considering closing State of Decay developer Undead Labs - Eurogamer

Image credit: Undead Labs, Xbox. News by Sherif Saed Senior Contributor Published on June 30, 2026 90 comments Follow State of Decay 3 Undead Labs, the team behind the State of Decay series, was revealed to be among the Microsoft-owned studios under threat of closure. Undead Labs is currently working on survival shooter and management sim State of Decay 3, and the game was part of the Xbox Showcase earlier this month. The information comes from GamesBeat, which names the studio alongside Double Fine, Compulsion, and Ninja Theory as all being studios that Microsoft could close. While we've known about the other three, this is the first time Undead Labs has been revealed to be at risk of closure as Microsoft seeks to 'reset' the Xbox brand. Should Microsoft fail to find buyers for these studios, according to the report, hundreds of jobs could be lost. That's 110 jobs for Undead Labs, 100 jobs for Double Fine, 90 jobs for Compulsion, and 135 for Ninja Theory. Indeed, it's also possible for some of those studios to regain their independence and buy themselves out from Xbox. Members of those studios represented by the Communications Workers of America (CWA) held a press conference to call out the impending layoffs. The union, which now represents over 3,500 people at Microsoft, said those workers "will not be traded as disposable." The news is particularly shocking, and would make Undead Labs the second studio to have an in-development, publicly announced game set for release next year to be at risk of closure, the other being Ninja Theory with Senua. This might explain why more State of Decay 3 gameplay footage has been coming out recently. The initial showing earlier this month was limited, and we didn't expect another look at gameplay for a while. Despite that, more footage has been popping up since, after Undead Labs allowed content creators to share gameplay from recent testing sessions. The pending layoffs and studio closures are expected to begin in early July, following the end of Microsoft's financial quarter. Already, we've seen members of those studios let go, with at least a dozen recently announcing their departure from Compulsion Games. New CEO Asha Sharma's big 'reset' plan is expected to include multiple layoffs and studio closures across the entire Xbox division, in an effort to make it profitable. Microsoft has not publicly discussed any of those reports.