Undead Labs spent eight years as an Xbox studio and still didn't make State of Decay 3

Studio dysfunction, Xbox dysfunction, or industry dysfunction? Probably all three

The last era of Xbox before whatever this one is truly began on June 10, 2018, when then-CEO Phil Spencer used Xbox's E3 showcase to announce the acquisition of four studios: Ninja Theory, Playground Games, Compulsion Games, and Undead Labs. It was a big moment. At the time, it was a firm sign that Microsoft was getting back into first-party game development after a few years in retreat. In retrospect, it was the start of a historically huge acquisition spree that would end in the buyouts of Bethesda and Activision Blizzard.

A few months before the announcement, Undead Labs had released State of Decay 2. On Monday, a little over eight years later, Microsoft announced that Undead Labs would be leaving Xbox for new ownership. The studio has yet to release State of Decay 3, and it didn't release anything else under Microsoft's ownership.

The fortunes of the other three studios were mixed. Compulsion Games and Ninja Theory are also leaving Xbox; Compulsion will return to independence after a management buyout, while Ninja Theory, like Undead Labs, has a mysterious buyer. Compulsion released one game under Xbox, 2025's South of Midnight. Ninja Theory released two: 2020 multiplayer battle game Bleeding Edge, which spent less than a year in operation, and Senua's Saga: Hellblade 2 in 2024. Playground Games released three Forza Horizon games, all big hits, and has Fable in the wings. Microsoft is hanging onto that one.

Xbox is also letting go of Double Fine (three games released under Xbox) and probably Arkane Lyon from the Bethesda group (one game). It is clearly not just a matter of productivity. Obsidian Entertainment and inXile Entertainment, both acquired later in 2018, are both staying with Xbox. Obsidian has released five Xbox Game Studios games in the intervening time. inXile has released zero, though is currently working on Clockwork Revolution. (2020's Wasteland 3 was published by Deep Silver.) But Microsoft sees value in holding onto both, perhaps because they can be dragooned into making Fallout games.

Undead Labs' case stands out, though. The State of Decay games were popular, and State of Decay 3 sounds ambitious, but did anyone expect it to take seven years to make? And could anyone have intervened? There has reportedly been dysfunction within the studio. There has certainly been widespread dysfunction within the industry, where game development time is ballooning across the board. But it's impossible to rule out dysfunction within Xbox, which (except for Mojang and Minecraft) has an absolutely terrible record of running game studios, as I have pointed out more than once. Xbox never seems to have a confident handle on the projects its many studios are making.

Well, it has quite a few less to track now. That task currently falls to chief content officer Matt Booty — just as it did in 2018, and across all the years since. Booty is the one constant in this sad history, and as thousands of Xbox employees face unemployment, he's still in post. Go figure.