State of Decay 3 at Risk of Cancelation Amidst Undead Labs Sale Talks

There is fresh concern for State of Decay 3 and its developer Undead Labs this morning, after reports overnight suggested both are under threat of closure as part of impending layoffs at Xbox.

Gamesbeat reported on work being done behind the scenes to find a buyer for Undead Labs, which is based in Seattle, Washington — a report that was backed up by Windows Central. If a buyer can't be found, the reports indicate, Microsoft may cancel State of Decay 3.

Undead Labs is one of a number of Microsoft-owned studios reportedly fighting to prevent a closure order. Psychonauts developer Double Fine, South of Midnight developer Compulsion, and Hellblade developer Ninja Theory are also said to be in talks with Microsoft over potentially buying themselves out. Hundreds of jobs are at risk either way, not just at these studios, but across Microsoft’s gaming business, which includes Bethesda and Activision Blizzard studios and publishing operations.

State of Decay 3, like Ninja Theory’s Senua, was at Microsoft’s Xbox Games Showcase earlier this month. According to Game File, Microsoft allegedly planned to close or spin off Ninja Theory when it revealed Senua at the showcase event, and it did so thinking that “the promise of a newly announced game would help draw investor interest in the studio.” Game File’s Stephen Totilo suggests Ninja Theory management may not have even been aware of Microsoft’s plan.

State of Decay 3’s Xbox Games Showcase announcement brought confirmation of a PlayStation 5 version and a release window in 2027, but there was no firm release window, disappointing some fans. This July marks six years since the third entry in the zombie survival franchise was announced, and while we are now seeing plenty of gameplay footage emerge from playtests (you can still put your name down to be added to the waiting list), State of Decay 3 will not be released this year. The latest reports, however, suggest it could never be released at all.

Concern for Xbox kicked off with Xbox CEO Asha Sharma’s “reset” memo, which most took as a signal that Microsoft planned big layoffs and studio closures. Microsoft published the memo just days after Xbox Games Showcase — which had gone down well with core Xbox fans. In it Sharma revealed that Microsoft's gaming business has a 3% accountability margin (assumed to mean profit margin), which is down year-on-year. "Excluding Activision Blizzard King, over the past five years, we have spent over $20 billion on ongoing investments in our content, platform, and hardware subsidy, but our annual revenue has declined nearly half a billion during that time. Going forward, this cannot continue," Sharma said.