Report claims Xbox may also shut down State of Decay studio

Microsoft’s internal restructuring continues to raise concerns across Xbox’s first‑party studios. Earlier this month, reports indicated that Compulsion Games, Ninja Theory and Double Fine were all in negotiations to avoid closure. Now, a new report suggests that Undead Labs, the studio behind the State of Decay franchise, may also be on the chopping block.

As reported by GamesBeat, workers represented by the Communications Workers of America (CWA) have criticised Microsoft’s management and warned of pending layoffs affecting multiple Xbox teams. Within that report, Undead Labs is specifically named as one of the studios potentially at risk. This is particularly surprising given that Undead Labs only recently began releasing deep‑dive videos for State of Decay 3, which is currently planned for release in 2027.

If Undead Labs were to be shuttered, State of Decay 3 would join a growing list of Xbox projects facing uncertainty. It wouldn’t be the first game shown at this year’s Xbox Games Showcase to encounter trouble either. Ninja Theory also released a trailer for Senua, a new Hellblade project, but that trailer may have only been shown to attract investors.

This aligns with broader reporting that Microsoft is undergoing a major cost‑cutting phase across Xbox, reducing investment in projects deemed risky or unlikely to deliver strong returns. For now, Microsoft has not commented publicly on the status of Undead Labs or any of the studios reportedly in negotiations, but that is expected to change ahead of the company's next quarterly earnings call, scheduled for late July.

KitGuru Says: Undead Labs being added to the list is a surprising twist, especially with State of Decay 3 finally entering the spotlight.

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