Microsoft seeks buyer for Undead Labs to avoid studio closure

Microsoft seeks buyer for Undead Labs to avoid studio closure

Microsoft is negotiating the sale of Undead Labs, the Seattle-based developer of the State of Decay series, in an effort to prevent the studio from being shut down entirely. The move comes as part of a broader restructuring of the Xbox gaming division, according to reports from GameBeat.

If a buyer is not secured, approximately 110 jobs at the 17-year-old studio are at risk. Undead Labs is the fourth first-party studio recently identified as facing potential closure; other studios in negotiations to regain independence or find new owners include Double Fine Productions, Compulsion Games, and Ninja Theory. According to Dean Takahashi of GameBeat, these four studios combined represent roughly 435 jobs at stake, with Double Fine facing 100 potential losses, Compulsion 90, and Ninja Theory 135.

The instability arrives amid a general "reset" of the gaming division announced by Xbox CEO Ashma. While smaller acquired studios face total closure, larger divisions such as Bethesda and Blizzard are expected to undergo percentage-based job cuts. One source suggests this may be the most significant series of cuts in the history of the Xbox brand.

The situation has drawn scrutiny from labor representatives. Frank Arce, the Communications Workers of America (CWA) union District 9 vice president, indicated that the union expects Microsoft to initiate layoffs across the Xbox division soon.

"Multiple reports in the press indicate that in days ahead Microsoft may initiate layoffs across its Xbox division, the very people who build its best-selling games,"

Frank Arce, CWA District 9 vice president, via VGChartz

The potential collapse of Undead Labs casts doubt on the future of State of Decay 3. Microsoft acquired the studio in 2018, but the team has not released a new game under the Xbox Game Studios banner in eight years. Although the project was announced in 2020, developers later admitted the initial trailer was intended only to confirm the project existed, while the game itself was essentially a text document.

Actual gameplay was not revealed until the Xbox presentation in June 2026. Despite the current instability of the developer, the game is currently scheduled for a 2027 release on PC, Xbox Series X|S, and PlayStation 5. This marks the first time the title is slated for a PlayStation console.

Critics have described the timing as a public relations disaster, noting a pattern where Microsoft showcases high-gloss presentations for games like State of Decay 3 and Ninja Theory's Senua's Saga while simultaneously dismantling the teams behind them. Because of the studio's uncertain status, the 2027 release date is considered highly volatile; the project could be canceled, transferred to another publisher, or completed through significant cost-cutting.

Microsoft has not provided official comment regarding the rumored layoffs. While some studios like Mojang, The Coalition, Playground Games, and Halo Studios are viewed as more secure, others such as Obsidian, Rare, Turn 10, World’s Edge, and inXile—which has Clockwork Revolution due next year—are considered vulnerable to the restructuring.