Undead Labs studio head Philip Holt says he deliberately kept employees closely informed during the company’s separation from Xbox, even when the outlook included possible job losses. Speaking in an interview with The Game Business, Holt described himself as “irresponsibly transparent” during the process because he believed withholding bad news would only increase uncertainty for staff. The State of Decay developer ultimately became an independent, employee-owned studio, but a significant number of employees left as part of the transition.
Holt said he chose to bring employees into the process rather than create what he described as an alternate reality while negotiations and restructuring continued behind the scenes. Staff knew their positions could be at risk, that State of Decay 3’s future had to be secured and that the company’s ownership was changing. According to Holt, sharing those realities early helped reduce some of the anxiety that comes from having no control over a major corporate decision.
The studio also discussed potential layoffs well before the final restructuring was completed. Holt said employees were told that job losses were likely under almost any scenario, meaning the eventual cuts did not arrive without warning. While he acknowledged that preparation does not make losing a job painless, he argued that the direct communication meant people understood why the decisions were being made when the layoffs finally happened.
That account is supported by former Undead Labs employees who have publicly praised the studio’s handling of the process. Longtime art director John Gronquist, who was among those laid off, said leadership had gone unusually far in being transparent and treating employees with respect. Principal designer Geoffrey Card similarly said Holt had kept the team informed throughout the transition, allowing developers to continue working on State of Decay 3 while knowing that reductions were likely.
Undead Labs officially completed its separation from Microsoft in September after years as part of Xbox Game Studios. The studio is now operating independently and is owned by employees through a company called Full Measure, with stock options being distributed to staff. The move followed Microsoft’s broader restructuring of its gaming business, which also included job cuts across multiple Xbox studios and changes to several first-party teams.
The company’s new structure gives current employees a direct financial stake in the studio. Holt explained that employee ownership, open communication and sharing difficult news are intended to form part of the culture Undead Labs wants to establish outside Microsoft. The studio’s transition itself was costly, however, with Holt confirming that a significant number of people left the company as part of becoming independent.
Despite those reductions, State of Decay 3 remains in active development. Undead Labs says the game is still targeting a 2027 launch and is expected to enter closed beta before the end of 2026. Holt acknowledged that the team has had to make some changes following the layoffs, but said the project has not undergone a radical rescope.
The game’s publishing arrangement has also changed alongside the studio’s ownership. Microsoft has said State of Decay 3 will still launch day one on Game Pass through a new publishing deal, while Undead Labs retains control of the State of Decay intellectual property. The broader shift was completed as part of the process that saw Undead Labs become independent while keeping State of Decay 3 on track for 2027.
Holt’s comments provide a rare look at how studio leadership handled the human side of a divestment that included both independence and layoffs. Rather than shielding employees from the possibility of losing their jobs until decisions were finalized, Undead Labs chose to discuss that risk openly while the outcome was still uncertain. Holt believes that approach helped the remaining team avoid seeing the restructuring as an unexpected act against their colleagues, even if the final result was still painful.
