The Zombie Studio That Bought Itself Back From Xbox

The zombie studio behind State of Decay 3 now answers to itself. In new interviews this week, Undead Labs boss Philip Holt revealed how the Seattle team bought its own company back from Microsoft — and confirmed the upcoming zombie sequel is still headed for a day-one launch on Game Pass.

The buyout caps one of the strangest sagas in recent game-industry history. When Xbox announced in July 2026 that it would divest five studios as part of a corporate reset, Undead Labs was expected to move into new ownership. According to The Game Business, a planned acquisition by UK developer Splash Damage fell through — and the people making the game ended up buying the studio themselves.

That outcome makes the zombie studio employee-owned. Holt formed a new company, Full Measure, as the vehicle for the management buyout, with staff becoming shareholders. The company is now issuing stock options to all employees, according to The Game Business.

How the zombie studio bought itself back

Holt told The Game Business that the sale process drew genuine interest from outside buyers, but the studio's leadership believed it could raise the money to finish the game on its own. When asked why no outside buyer was chosen, Holt said: "I [wouldn't say] that anything went wrong." He described an accelerated divestiture timeline in which the studio spoke with a number of potential owners — then submitted its own management-buyout offer, which Microsoft accepted.

Undead Labs is not alone in the escape. Double Fine and Compulsion Games took the same path back to independence in August 2026, making the zombie studio the third former Xbox team to buy its freedom. The fourth, Ninja Theory, may not be so lucky — Xbox is closing the studio behind Hellblade after its own sale talks reportedly collapsed.

The independence came at a cost. The zombie studio laid off a "significant" number of staff during the split, as reported by Kotaku. One unnamed source told the outlet the cuts may have affected up to 40 developers — an estimate that remains unconfirmed. Holt declined to give a current headcount, describing the team only as "small and lean."

What State of Decay 3 looks like now

Despite the shakeup, the game itself is largely intact. Holt says the studio is "pretty close to finishing" State of Decay 3 and has no plans to shrink its scope in any dramatic way. When asked whether the team has what it needs to finish the game, his answer was one word: "Absolutely."

The sequel remains targeted for 2027, with a closed beta planned before the end of this year. According to Xbox's June 2026 gameplay reveal, it will land on Xbox Series X|S, Xbox on PC, cloud, and Steam, plus PlayStation 5, with Game Pass and Xbox Play Anywhere support. Kotaku reports that PC sign-ups for the beta will open soon, with consoles to follow.

The Game Pass commitment just got a fresh reaffirmation. In a new interview this week, Holt said State of Decay 3 is still planned as a day-one Game Pass release in 2027, according to Pure Xbox. That promise carries extra weight now that Microsoft no longer owns the studio. Holt's reasoning is practical: State of Decay 2 still pulls in several thousand players a day, and roughly half of its monthly players have stuck around for close to two years. He sees Game Pass as the pipeline that turns newcomers into long-term fans.

For the sequel itself, the zombie studio's biggest investment is four-player shared-world co-op. The playable map is set to be about four times the size of a single State of Decay 2 map and fully open from the start, with settlement building and solo play alongside co-op, according to Xbox's June gameplay reveal. The game is being built in Unreal Engine 5, and the studio is working with three co-development partners.

Why the zombie studio's buyout matters

Worker-owned studios are rare in the game industry, and this one arrived with the keys to a valuable franchise. Undead Labs kept its intellectual property in the split — a critical detail, since the original State of Decay began as a Microsoft-published partnership back in 2013 before Microsoft acquired the studio in 2018. Holt even says the name Full Measure comes from Lincoln's Gettysburg Address, framing honest communication — including bad news — as how a company earns its team's trust, according to The Game Business.

But the counterpoint is hard to ignore. The buyout gives the zombie studio control of its own future, not a guarantee of a hit. The new publisher is still unnamed. The exact layoff count is undisclosed. And a studio that released no new game in eight years under Xbox — though it shipped 38 updates for State of Decay 2, by Holt's count — must now deliver its most ambitious project on a 2027 clock without a corporate parent's safety net.

For players, the takeaway is simpler. The franchise that turned zombie survival into a settlement-building obsession is still alive, still aiming at 2027, and still free on day one for Game Pass subscribers. If Holt's bet pays off, the scrappiest team in the zombie business will have pulled off the rarest move in games: buying itself back — and finishing the job. Keep up with the shakeup on our Tech & Games beat.