Undead Labs, the developer of the “State of Decay” series, has become independent from Xbox. Philip Holt, the company’s CEO—who had previously announced layoffs following the split—spoke in an interview with The Game Business about the impact on “State of Decay 3” and the reasons behind its early announcement.
While changes may be necessary due to layoffs, the studio is opposed to a significant scaling back of *State of Decay 3*
Undead Labs was one of the studios targeted for sale as part of the large-scale reorganization of the Xbox business announced in the summer of 2026. Initially, the studio was in negotiations to come under the umbrella of a new owner, but the deal fell through, and the studio became independent following a management buyout. On September 23, the studio also announced staff reductions resulting from its independence.
According to Holt, while the studio aimed to develop “State of Decay” into a major Xbox brand while under the Xbox umbrella, after becoming independent, it needed to transition to a business model that could sustain itself through post-launch revenue.He explained that although the necessary funding to reach launch had been secured through a contract with the publisher, it was necessary to review the cost structure in order to survive as an independent company.
Holt declined to specify the exact number of layoffs, explaining, “They are our friends and colleagues. It was truly heartbreaking to have to part ways with them.” He added, “I don’t want to reduce the impact on each individual to mere numbers or statistics.”
Regarding *State of Decay 3*, which is currently in development, he explained that while changes were necessary due to many staff members leaving the company, the game is already in the alpha stage and does not require a significant reduction in scope. Additionally, three companies—Virtuos, Wushu, and Blind Squirrel—are supporting the joint development.
In the interview, he also touched on why so much time has passed since the 2020 announcement. He revealed that a small team was working on the project at the time, and full-scale development didn’t really begin until around 2022–2023.
He explained that the reason behind the early announcement was concern over Microsoft’s expanding acquisition strategy. Although Undead Labs was acquired by Microsoft in 2018, Holt anticipated that Microsoft would acquire even larger companies. He was worried that the studio might be absorbed by a larger organization or sold off before they had a chance to showcase their creative vision to the world.
For this reason, he explained that they released the trailer to inform players that the game was in development and to indicate the direction they were heading.
Their goal since becoming independent is “to make the best game possible.” While he noted that this had been their primary goal even under the Xbox umbrella, he said that their relationship with players is now clearer, and the company’s success depends on whether they can create games that resonate with players.
He also confirmed that there are no changes to the plan to launch the game on Xbox Game Pass on day one. Holt expressed gratitude to the Game Pass players who have supported the series, stating, “Without Game Pass players, I don’t know if we’d be where we are today.”
He also discussed profit targets as an independent studio, so please check out the interview directly for more details.
"State of Decay 3" is currently in the alpha phase and is scheduled for release on PC (Steam/Microsoft Store), PS5, and XBOX Series X|S.
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