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The zombie apocalypse might claim another victim, and this time it’s not a fictional one. Multiple reports dropping this week suggest Microsoft is quietly shopping around Undead Labs, the studio behind State of Decay, and if nobody bites, the whole thing could get shut down.
Let’s be clear about what we actually know, because the internet is currently a mess of panic and half-truths.
The Hard Facts
State of Decay 3 is real. It was shown off at the Xbox Games Showcase back in 2024, complete with a trailer and in-engine footage, and it’s confirmed for PS5, Xbox Series X|S, and PC. As of right now, the game still carries a 2027 release window, and, this is the part that makes the rumors sting even more, playtests are actively running. People are signing up for alpha access as we speak.
Undead Labs itself sits at around 110 employees. The studio wrapped up support for State of Decay 2 back in 2024 to throw everything at the sequel, and that game even got a fresh Steam release in mid-2025.
The Rumor Mill
Here’s where things get shaky. Windows Central and other outlets reported this week that Microsoft is actively seeking a buyer for Undead Labs, and if that search comes up empty, closure is reportedly on the table. That would put State of Decay 3, a game that’s been shown publicly and is deep into testing, at genuine risk of cancellation.
Undead Labs isn’t apparently alone on this list either. Names like Double Fine, Compulsion Games, and Ninja Theory are being floated as part of a broader wave tied to what’s being called a Microsoft “reset,” reportedly overseen by new gaming CEO Asha Sharma.
Adding fuel to the fire: 3D Realms co-founder George Broussard posted on X claiming he’d seen an early copy of Xbox’s closure list, calling it potentially “the largest single-day layoff in gaming history.”
What’s Not Confirmed
And that’s the key phrase everyone should be repeating: not officially confirmed. Microsoft has not issued a single statement on any of this. No confirmation of a sale, no confirmation of closure, and no confirmation of cancellation. The rumored July 6 announcement date? Unconfirmed. The full list of studios? Unconfirmed.
There’s also history here worth noting, a 2022 report flagged internal toxicity issues at Undead Labs that reportedly caused staff departures and slowed development, and a 2025 report already pointed to layoffs at the studio, though the scale was never made clear. This isn’t the first time Undead Labs has been in the headlines for the wrong reasons.
Bottom Line
Right now, State of Decay 3 is alive, playtesting, and aiming for 2027. Whether Undead Labs survives long enough to ship it is genuinely uncertain, and every outlet reporting on this is careful to frame it as a developing situation, not a done deal. Until Microsoft says something official, this stays in rumor territory.
