Headlines | State of Decay 3 Developer Undead Labs Reportedly at Risk of Closure

June 30, 2026 - 21:06

The video game industry is bracing for what could be one of its worst waves of layoffs yet as July approaches. New reports suggest that Undead Labs, the developer behind the popular State of Decay series and the upcoming State of Decay 3, is at risk of being shut down.

Sources indicate that the studio, which has been working on the third installment for several years, is facing significant internal turmoil. While Microsoft has not made any official announcement, multiple reports claim that the team has been hit by budget cuts and restructuring. Some employees have already been let go, and those remaining are reportedly uncertain about the project's future.

State of Decay 3 was first announced in 2020 with a cinematic trailer, but the studio has remained mostly silent since then. Fans have been waiting for updates, but this news suggests the game's development may be in serious trouble. Undead Labs was acquired by Microsoft in 2018 and has been a key part of the Xbox first-party lineup. If the closure happens, it would mark another major loss for the industry, which has already seen thousands of job cuts across multiple companies this year. Neither Microsoft nor Undead Labs has commented on the reports.