Microsoft appears set to carry out one of the largest layoffs in gaming history, putting multiple Xbox-owned studios under threat. Among those potentially impacted is Undead Labs, the developer behind the upcoming State of Decay 3, which is scheduled for launch in 2027 across PC, PlayStation 5, and Xbox Series X|S platforms. This development raises questions about the studio’s future amid Microsoft’s effort to reshape its first-party portfolio for greater profitability.
According to information shared by the Communications Workers of America (CWA), which represents over 3,500 unionized Xbox employees, four studios are at particular risk: Double Fine Productions, Ninja Theory, Compulsion Games, and Undead Labs. While the first three were previously suspected of possible cuts, Undead Labs’ inclusion is a more recent confirmation supported by reports from industry insiders. Undead Labs last released new content in 2018 and has not launched a full game since State of Decay 2, despite ongoing post-launch support.
Undead Labs’ situation mirrors that of Ninja Theory, which recently announced a new project, Senua’s Saga: Hellblade II, also targeting a 2027 release. Nintendo Theory launched Hellblade II in 2024 but has nonetheless been flagged for restructuring. Microsoft’s sweeping round of layoffs signals a rollback of many acquisitions made around 2018-2019. Studios such as The Initiative have already closed, while others like Playground Games remain relatively secure.
Obsidian Entertainment and inXile Entertainment are also part of the wider first-party portfolio. Obsidian has produced various titles over the last eight years but none that reached blockbuster status. InXile is developing Clockwork Revolution, a highly ambitious steampunk-themed RPG slated for 2027, and is believed to be in a safer position due to its status as a confirmed Xbox exclusive alongside marquee franchises like Gears of War.
Industry rumors extend beyond Xbox-owned studios. Bethesda and its parent company ZeniMax may also see significant workforce reductions, with speculation that only teams actively working on core series such as Elder Scrolls and Fallout will remain untouched. These layoffs could potentially affect thousands of employees, signaling the most substantial workforce adjustment gaming has seen in recent memory.