From Uncertainty to Ownership: How Undead Labs Survived the Xbox Split

Following the decision by Microsoft, employees faced a "deeply unsettling" atmosphere, grappling with fears of unemployment and the potential cancellation of State of Decay 3. To combat this uncertainty, Philip Holt implemented a policy of radical transparency, holding weekly company-wide updates and candid discussions to maintain trust within the team during the most turbulent months.

The road to independence involved several failed attempts to secure traditional investment. While the studio initially sought an acquirer or venture capital, most investors were interested in gaining majority control. This conflict of interest led Undead Labs to pivot toward a publishing model. By securing an agreement with an unnamed publisher and utilizing existing cash reserves, the studio has successfully reached a point where it can finish its current project without external equity investors.

This journey has resulted in a rare corporate structure: Undead Labs is now an employee-owned company. Through a new legal entity, the studio is issuing equity to its staff, ensuring that the creators have both commercial and operational control. To maintain leadership stability, Philip Holt utilizes multiple classes of stock, allowing him to retain voting control while remaining a minority owner. This model aims to align the financial success of the studio directly with the people who build its games.

However, independence necessitated difficult decisions regarding scale. In September, the studio underwent a significant downsizing. While Philip Holt declined to provide exact layoff figures out of respect for those affected, he confirmed that the workforce, which exceeded 100 employees prior to the Xbox announcement, has been reduced. To manage production, the studio relies on a lean core team and co-development partners like Wushu Studios, focusing on maintaining institutional knowledge within the central team.

The centerpiece of their current efforts, State of Decay 3, is slated for a 2027 release. The development of the title has seen a major creative pivot, moving away from an MMO-centric vision to a more focused experience. This shift required a near-complete rewrite of the game, a process that delayed the project but avoided the pitfalls of the ambitious online-only models. Currently, approximately 8,000 players are involved in testing, with a post-launch roadmap already in development.

Looking ahead, Undead Labs is focused on its community rather than the shifting strategies of Microsoft. Philip Holt emphasizes that the studio's priority is not maximizing returns for distant financiers, but creating engaging content that sustains a dedicated audience. By prioritizing player entertainment over aggressive capital growth, the studio aims to build a sustainable, independent future.