Undead Labs has completed its separation from Xbox, transitioning into an independent, employee-owned studio. The move, confirmed as part of a wider restructuring within Microsoft’s gaming division, allows the developer to regain its autonomy while continuing work on its flagship franchise.
The studio is currently developing State of Decay 3, which has now been confirmed for a multi-platform release. According to project updates, the title is in the alpha stage of development and is targeting a 2027 release on Xbox, PC, and PlayStation 5. Despite the studio’s shift to independence, the game is still slated to be available on Game Pass at launch.
The “Big Xbox Reset” and Studio Independence
The departure of Undead Labs follows the “Big Xbox Reset” strategy announced by Xbox CEO Asha Sharma in July 2026. This initiative aims to streamline operations and is projected to include a total of 3,200 job cuts through the 2027 fiscal year. Undead Labs is not the only developer to exit the first-party ecosystem during this period; both Compulsion Games and Double Fine Productions successfully returned to independence earlier this summer.
While some studios have found a path back to independence, other corners of the Xbox organization are seeing more traditional consolidation and downsizing. As of late September 2026, 268 roles were cut at Halo Studios. Furthermore, stewardship of the Halo franchise has been moved to Activision, marking a significant shift for the property that once defined the Xbox platform.
State of Decay 3 Timeline
Fans of the survival-horror series will have an opportunity to test the new entry ahead of its 2027 launch. Undead Labs plans to enter a closed beta for State of Decay 3 before the end of 2026. This testing phase will be critical for the studio as it navigates its first major release as an independent entity since being acquired by Microsoft in 2018.
The transition to a multi-platform model for State of Decay 3 aligns with recent industry trends where previously exclusive titles are reaching broader audiences on competing hardware. By maintaining its presence on Game Pass while expanding to PlayStation 5, Undead Labs appears to be balancing its new-found independence with the established reach of its former parent company’s services.
