Microsoft reportedly sells Undead Labs: State of Decay 3 on Game Pass now in doubt

Microsoft is reportedly looking to sell Undead Labs, the studio making State of Decay 3, even though State of Decay 3 is still in development. That alone doesn’t point to a cancellation. Reports say Microsoft still plans to fund the game through launch. The bigger issue is what a sale would do to its release terms, because if Undead Labs leaves Xbox’s usual first-party setup, a day-one Xbox Game Pass launch suddenly looks far less guaranteed.

So if you had State of Decay 3 marked down as one of the big Xbox Game Pass launches, this is something to keep an eye on. Microsoft would reportedly need to work out a separate deal with whoever ends up buying the studio. And right now, nobody knows who that buyer is. That name isn’t expected to come out until later this summer.

It also fits the larger Xbox reset that’s been taking shape, with layoffs and reported plans to sell off studios like Ninja Theory, Double Fine, and Compulsion Games. That lines up with Microsoft’s expanding multi-platform strategy. State of Decay 3, as things stand, is planned for 2027 on PC, PlayStation 5, and Xbox Series X/S.

State of Decay 3 was announced back in 2020, and a lot of people will remember the earlier reports about workplace problems at Undead Labs. The timing hasn’t helped, either. The reported sale of Undead Labs landed right after State of Decay 3 showed up again at the latest Xbox showcase, and it’s only added more fuel to the criticism surrounding Xbox’s restructuring.