Undead Labs Named in Xbox Studio Closure Wave

Undead Labs, the studio behind State of Decay 3, has been named as a fourth Xbox developer facing potential closure, with around 110 jobs reportedly at stake as it searches for a buyer. The report comes weeks after State of Decay 3 appeared at the Xbox Games Showcase 2026 with a 2027 release date. As reported by Video Games Chronicle, citing Games Beat and its own sources, this is part of Microsoft’s wider ‘reset’ of its games business.

That timing is the gut-punch here. A studio shows its long-delayed comeback to the world, gets a release window, and within weeks is reportedly hunting for someone to keep the lights on. Nothing about any of this is officially confirmed by Microsoft, Xbox or Undead Labs — but the pattern is hard to miss.

Is Undead Labs closing

Undead Labs is reportedly searching for a buyer, with around 110 jobs at risk if it fails to find one. Games Beat named the Seattle studio as the fourth Xbox developer caught in the current restructuring, after earlier reports flagged three others. None of this has been confirmed by Microsoft or the studio itself, so treat it as well-sourced reporting rather than a done deal.

Microsoft acquired Undead Labs in 2018. In the eight years since, the studio has not released a new title under Microsoft — a long stretch with one big project to show for it, and that project is still two years out.

Which Xbox studios are facing closure

At least four Xbox studios have now been named as at risk: Compulsion Games, Double Fine, Ninja Theory and Undead Labs. The first three were named by Bloomberg and corroborated by VGC’s own sources; Undead Labs comes via Games Beat. Those three are said to be in negotiations to go independent in an attempt to avoid being shut down, while Undead Labs is reportedly looking for an outright buyer.

It doesn’t stop at full closures. Other divisions, including Blizzard and Bethesda, are expected to be hit with percentage-based layoffs, according to Games Beat. Its sources describe the whole thing as likely ‘the biggest single cut series for Xbox’ — a phrase that should be read as one outlet’s characterisation, not an official figure.

If you followed the showcase, the irony writes itself: that makes Undead Labs the second studio with a reveal at this month’s event now reported to be up for closure, alongside Ninja Theory, the team behind the Senua series.

Why is Microsoft restructuring its games business

Xbox CEO Asha Sharma described the move earlier this month as a ‘reset’ of Microsoft’s games business, framing that media reports indicated could mean significant job losses and studio closures. The word does a lot of polite work for what the reporting describes underneath it.

This is the same cycle the industry keeps running through — acquisition, years of quiet development, then a hard cut when the spreadsheet stops adding up. Microsoft spent heavily building out its first-party network, and the current wave reads as a sharp contraction of exactly that. We’ve already seen the company soften its stance elsewhere, with first-party games heading to PlayStation.

What it means for State of Decay 3

State of Decay 3 was announced for a 2027 release on PS5, Xbox Series consoles and PC, and its future is now genuinely uncertain. If Undead Labs closes or is sold, whether the game continues, changes hands or gets cancelled is not something any source can answer right now.

The game has a long, awkward history. It was first announced in 2020, with the studio later admitting that reveal trailer was purely there to confirm the game existed — at that point it was, in the studio head’s words, just “a Word document”. It reappeared at this month’s showcase with actual gameplay and a 2027 window, which made the closure report land all the harder.

For Xbox players in the UAE and the wider GCC, there’s no regional detail to go on yet — no confirmation on what happens to the title locally, and the source carries no UAE pricing or release specifics. What’s clear is that a 2027 game many were starting to get excited about again is back in limbo, and the studio making it may not survive to ship it.

What we still don’t know

Plenty remains unconfirmed. There’s no official statement from Microsoft, Xbox or Undead Labs confirming or denying the reports; the names of any potential buyers haven’t been disclosed; the negotiations for Compulsion Games, Double Fine and Ninja Theory to go independent have no stated outcome; and the percentage layoff figures for Blizzard and Bethesda aren’t specified. Above all, nobody outside Microsoft can yet say whether State of Decay 3 survives this.