We at NerdLeaks are tracking a worrying claim that has surfaced about Undead Labs, the studio behind State of Decay 3. Per Insider Gaming, a new report — reportedly from GamesBeat — alleges that Undead Labs could be shut down, with a potential buyer search underway and job losses on the table. Take this with a pinch of salt, but if true this could be one of the biggest shake-ups for Microsoft’s first-party lineup in recent memory.
What Was Reported
Per Insider Gaming, GamesBeat claims that Microsoft is looking for a buyer for the 17-year-old studio Undead Labs. The report alleges that, should no buyer be found, 110 jobs could be lost. The same reporting also notes broader instability across multiple Xbox studios, with rumours and reports circulating about other developers such as Double Fine, Ninja Theory, and Compulsion Games.
The rumour thread is tied directly to the future of State of Decay 3. Per Insider Gaming, State of Decay 3 was announced during the Xbox Games Showcase in 2020, and it allegedly took six years before its first gameplay trailer was revealed during the 2026 Xbox Games Showcase. Insider Gaming reports that, as of publishing, State of Decay 3 is scheduled to release on Xbox, PlayStation 5, and PC sometime in 2027. The report also suggests that Undead Labs could be shut down next month, though that timing should be treated as unconfirmed.
The Source & Credibility
Who Reported It
Insider Gaming attributes the claim to a report from GamesBeat. We are presenting the sequence of this reporting exactly as disclosed: Insider Gaming relays GamesBeat’s claims regarding the buyer search, the potential layoffs, and the fate of Undead Labs.
How Solid Is The Information?
There are multiple caveats embedded in the reporting. Insider Gaming notes that Microsoft has not commented on the alleged layoffs. The report also states that it is unknown exactly how large this latest round will be, while adding that it is believed that hundreds of people are set to be let go. Those phrasing choices — “unknown,” “believed,” and “could” — signal clear uncertainty. In short: the chain of claims rests on a report relayed by Insider Gaming from GamesBeat and includes contradictory or broad estimates about scale and timing. We therefore advise readers to take these details with a pinch of salt.
What It Could Mean
If the core claims are accurate, the immediate implication is that Undead Labs faces a major restructuring or closure if a buyer cannot be found. The reported figure of 110 jobs could be lost is concrete in the reporting, but the same reporting also leaves open the possibility of a much larger round — “believed that hundreds of people are set to be let go” — which dramatically widens the potential impact.
- For Undead Labs: A buyer search implies Microsoft prefers a sale over immediate closure, but the alleged fallback is a shutdown if no buyer emerges.
- For State Of Decay 3: The game is reportedly scheduled for 2027 release across Xbox, PlayStation 5, and PC. If the developer behind it faces closure or mass layoffs, that timeline and the game's development trajectory could be disrupted — again, if true.
- For Microsoft’s Studio Ecosystem: Insider Gaming places this claim alongside rumours about other Xbox studios like Double Fine, Ninja Theory, and Compulsion Games, painting a picture of broader turbulence — though each of those is referenced as part of circulating rumours and reports, not as confirmed fact.
All of the above hinges on the accuracy of the original report and whether Microsoft chooses to make a public statement. At the moment, there is no official comment to confirm or deny these claims.
Why This Matters
This matters because the report directly ties the fate of a first-party studio — Undead Labs — to one of Microsoft’s anticipated properties, State of Decay 3. If a credible buyer is not found and layoffs or a closure occur, that could have downstream effects on the game’s development and on the careers of dozens or potentially hundreds of developers. Equally important is the signal it sends about the stability of studios within Microsoft’s umbrella, especially given the rumoured chatter about other developers referenced in the reporting.
Again: these are allegations based on a report relayed by Insider Gaming from GamesBeat. Microsoft has not commented, and key numbers and timing are described in the reporting with uncertainty. We’ll continue to watch this closely and will update if and when more concrete, verifiable information emerges. For now, take this with a pinch of salt — if true, it’s a story with serious implications for developers and players alike.
