Xbox’s biggest restructuring has put State of Decay 3’s Game Pass future in doubt. Undead Labs is being sold to a new owner, and the deal doesn’t require the game to be on Game Pass. The zombie survival sequel is still targeting 2027.
State of Decay 3 is no longer guaranteed to launch on Xbox Game Pass. As part of Xbox’s largest-ever restructuring announced on 6 July 2026, developer Undead Labs is being sold to a new owner, and the deal reportedly does not require the zombie survival sequel to appear on Game Pass. The game is still in active development with a 2027 release window, but its distribution strategy could look very different from what fans expected.
What Happened at Xbox?
Xbox CEO Asha Sharma confirmed that approximately 3,200 positions will be eliminated across fiscal year 2027, with 1,600 layoffs taking effect immediately on 6 July. That accounts for roughly 20 percent of Xbox’s total workforce. In Sharma’s own words from the internal memo shared publicly: “We are beginning the most significant restructure in Xbox history.”
Four studios are leaving Xbox as part of this reset:
- Compulsion Games (South of Midnight) and Double Fine Productions (Psychonauts 2) are returning to independent ownership under their original founders, keeping their IP and game catalogues.
- Ninja Theory (Hellblade) and Undead Labs (State of Decay) are being sold to new owners, with funding secured to finish their current projects.
Sharma stated: “Ninja Theory and Undead Labs have entered terms to join new ownership with funding to complete and grow Senua and State of Decay 3.” No publicly announced games are being cancelled as part of the restructuring.
Why Is Game Pass at Risk?
The crucial detail comes from Stephen Totilo’s reporting at Game File. According to the report, the deal between Microsoft and Undead Labs’ new owner guarantees continued funding and the release of State of Decay 3. However, the agreement “will not obligate the game to any Xbox-controlling terms, such as having to be on Game Pass.”
Windows Central corroborated this, noting: “While that doesn’t necessarily mean State of Decay 3 won’t launch on Game Pass, it does mean the new owner won’t be contractually required to put it there.”
This is a significant departure from the status quo. As a first-party Xbox studio, Undead Labs’ games were expected to arrive on Game Pass on day one, following the standard Microsoft playbook. State of Decay 2 launched directly into Game Pass in 2018 and remains in the service’s library. With Undead Labs now leaving the Xbox family, that precedent no longer applies automatically.
Who Is Buying Undead Labs?
The new owner has not been announced. Game File reports that the buyer’s identity could be revealed later in the summer of 2026, but no firm date has been given. Neither Microsoft nor Undead Labs has disclosed the acquirer or the specifics of the transaction.
Undead Labs itself posted a statement confirming the transition: “Today marks a new chapter for Undead Labs. We’re beginning a transition where we move on from Xbox, and while we can’t share all the details yet, we can guarantee this: State of Decay 3 is coming.”
Founded in 2009, Undead Labs has approximately 110 employees and has been under Microsoft’s ownership since 2018. As Polygon noted, the studio “spent 8 years as an Xbox studio and didn’t release a single game” during that period, making the sale a pointed conclusion to a long and unproductive chapter for both parties.
Is State of Decay 3 Still Happening?
Yes. The game has not been cancelled. Both Microsoft’s official restructuring announcement and Undead Labs’ own statement confirm that development continues with secured funding. At the Xbox Games Showcase 2026, Undead Labs showed State of Decay 3’s first proper gameplay reveal, featuring open-world exploration, up to four-player co-op, settlement building, weapon crafting, and large-scale zombie combat.
The official release target is 2027. The Xbox Store page still lists the game for 2027 across Xbox Series X|S, PC (including Steam), and PlayStation 5. The playable world is described as roughly four times the size of a single State of Decay 2 map, fully open from the moment players join.
State of Decay 3 on PlayStation 5: Confirmed
The PS5 version was confirmed at the Xbox Games Showcase 2026. This will be the first State of Decay title to appear on a PlayStation platform. There has been no announcement regarding State of Decay 1 or 2 coming to PS5. Xbox Play Anywhere support is also confirmed for the console and PC versions.
How Does This Affect Xbox’s Broader Strategy?
The layoffs and studio sales signal a fundamental shift in how Xbox approaches game development and publishing. Sharma’s memo bluntly stated that “our business today is not healthy,” marking a clear pivot from the aggressive acquisition strategy Xbox had pursued since the late 2010s.
Beyond the four departing studios, Arkane Lyon’s management has begun consultations with its Works Council to “explore potential strategic options,” suggesting further changes could follow. The restructuring also comes amid reports that Xbox’s approach to third-party Game Pass deals is tightening, though Windows Central’s Jez Corden clarified there are “no blanket plans to end funding for third-party games on Game Pass.”
For Game Pass subscribers, the implications are clear: the era of every Xbox first-party game arriving on Game Pass at launch may be narrowing. With Call of Duty titles already confirmed to skip day-one Game Pass inclusion going forward, and now State of Decay 3 potentially following suit, the service’s value proposition for new releases is under more scrutiny than ever.
What Are the Possible Outcomes for Players?
Three realistic scenarios exist for State of Decay 3’s Game Pass status:
- New owner strikes a separate Game Pass deal: The acquiring company could negotiate its own agreement with Microsoft to place the game on Game Pass at launch. In this case, nothing changes for subscribers.
- Full-price release without Game Pass: The game launches as a standard retail title. Game Pass subscribers would need to purchase it separately.
- Delayed Game Pass addition: The game launches at full price first, then joins the Game Pass library months or a year later, similar to how some third-party titles are handled.
Until the new owner is revealed and their publishing strategy becomes clear, none of these outcomes can be confirmed or ruled out. The Xbox Store page still lists Game Pass, but that listing predates the ownership change.
Things Players Usually Ask
Has State of Decay 3 been cancelled?
No. Microsoft confirmed that no publicly announced games are being cancelled. Undead Labs has secured funding to finish and release the game, targeting 2027.
What platforms will State of Decay 3 be on?
Xbox Series X|S, PC (Steam and Xbox on PC), PlayStation 5, and Xbox Cloud Gaming. Xbox Play Anywhere is confirmed for console and PC.
Who is buying Undead Labs?
The buyer has not been disclosed. Game File reports the identity may be revealed later in summer 2026.
Will I be able to play State of Decay 3 on Game Pass?
Currently uncertain. The Xbox Store still lists Game Pass, but the new ownership deal does not contractually require it. The final decision depends on the new owner’s strategy.
Is State of Decay 2 still on Game Pass?
Yes. State of Decay 2: Juggernaut Edition remains available in the Game Pass library as of July 2026.
How big is State of Decay 3’s open world?
According to Undead Labs, the playable area is approximately four times the size of a single State of Decay 2 map, and the entire world is open to players from the start.
