Microsoft eliminated 268 positions across Halo Studios and other first-party developers as part of its ongoing Xbox restructuring, with State of Decay 3 developer Undead Labs confirming it has completed its separation from the platform holder and now operates as an employee-owned studio.

The cuts coincided with Undead Labs' transition to independence, a process the developer said it finalized this week. A "significant number" of Undead Labs staff were made redundant as part of the move, though the studio did not disclose a specific headcount for its own reductions.

What does the employee-owned structure mean for Undead Labs?

In a statement, Undead Labs framed the new ownership model as a path toward tighter engagement with its player base. Studio head Philip Holt said: "Independence brings us closer to our community and lets us focus on what matters most: making the best games we can and earning the continued support of the people who choose to spend their time with us."

Holt also acknowledged the platform holder's role in the studio's history: "We're enormously grateful for our years as part of Xbox and for everything that relationship has made possible. Microsoft has been part of the State of Decay story from the very beginning, and we're proud of everything we've accomplished together."

What's the status of State of Decay 3?

Development of State of Decay 3 "remains actively underway," Undead Labs said, with the game still scheduled to launch in 2027 on Xbox, Game Pass, PC, and PlayStation. A closed beta is planned before the end of the year, the first concrete testing window the studio has outlined since the project's announcement.

What happens to the affected staff?

Undead Labs paid tribute to the departing employees without naming numbers: "They are exceptionally talented developers who have poured years into the State of Decay franchise: solving hard problems, looking after one another, and helping shape both this game and this studio." The studio added: "Their work remains part of Undead Labs and part of State of Decay 3, regardless of where their careers take them next."

How does this fit the wider Xbox reset?

The 268 eliminated positions span Halo Studios and other first-party teams within Xbox Game Studios. Several structural shifts landed alongside the cuts:

• UK studio Rare and the Halo franchise have been transferred to Activision, with Microsoft saying the next Halo title would be "led by a new, purpose built team that is separate from ongoing development and plans for Call of Duty."
• A small team at Halo Studios will continue supporting live Halo titles.
• Obsidian Entertainment has moved under the Bethesda umbrella.
• Playground Games and Turn 10 have merged into a single studio.
• Activision will "expand its remit" to Age of Empires studio World's Edge.

Where do the other divested studios stand?

Undead Labs was among five studios offloaded in Microsoft's first round of cuts in July, alongside Ninja Theory, Compulsion Games, Double Fine Productions, and Arkane Lyon. Compulsion Games and Double Fine have already confirmed their independence. Arkane Lyon remains in a consultation process, while Ninja Theory is now facing closure after two separate acquisition agreements collapsed.

Game Developer reported that an internal email from a senior Blizzard leader indicated the World of Warcraft studio is not affected by the latest round of announcements.

The 2027 release window for State of Decay 3, and the closed beta pencilled in for the end of this year, now sit at the center of Undead Labs' bet that independence can stabilize a franchise that has survived two ownership transitions without a launch slip.