State of Decay 3 Devs, Undead Labs Joins the List of Xbox Studios Microsoft May Close

Microsoft is preparing to cut jobs across the Xbox division in early July, just after its financial quarter closes on June 30. GamesBeat reported that the company is ready to shut down multiple game studios if no buyers are found, and named four at risk: Double Fine Productions, Undead Labs, Compulsion, and Ninja Theory. Eurogamer added that Undead Labs, maker of the State of Decay series, had not been publicly tied to the closure list until now.

The numbers attached to the four studios are specific. Double Fine could lose 100 jobs, Undead Labs 110, Compulsion 90, and Ninja Theory 135, about 435 positions in total. Other divisions, including Blizzard and Bethesda, are expected to face percentage-based cuts on top of that. A source familiar with the plans, not authorized to speak, called it likely the biggest single cut series in Xbox history.

The Communications Workers of America, which now represents more than 3,500 Microsoft employees, held a press call on June 29 to confront management before the cuts land. CWA District 9 vice president Frank Arce opened by confirming the union expects layoffs across Xbox, then framed the fight as one over how those workers are treated. He pointed to the price increases Microsoft has pushed onto players: console hikes of as much as $150, the third increase since 2025, which the company has tied to a RAM shortage.

"The money is there. Leadership is simply choosing where it goes and who pays. Every company faces real business challenges and pressures. That is a fact. But let me tell you this: it's our CWA members who make the gains that make Xbox valuable."

— Frank Arce

Arce laid out what the union wants: fair severance, a voice in vendor contract decisions, and internal placement so qualified employees can move into open roles instead of being cut. He noted that workers in World of Warcraft marketing saw movement from management on layoff protections over the weekend, and said Blizzard leadership was taking those concerns seriously. He used that as evidence the demands are achievable, and argued there is no reason for Microsoft not to extend the same terms across every Xbox studio.

The backdrop is Asha Sharma, appointed Xbox CEO earlier this year to replace Phil Spencer. Sharma has said Xbox needs a reset, pointing to revenue that fell even after $20 billion in acquisitions, a figure that does not count the $68.7 billion Activision Blizzard deal, and an "accountability margin" that slipped to 3%. In her memo, she argued it is better to phase out contractors and bring more work in house. Her reset plan, according to Eurogamer, is expected to include layoffs and closures across the division as Microsoft works to make it profitable.

The closure threat reaches games already announced and dated. State of Decay 3 was part of the Xbox Games Showcase earlier this month, with a 2027 release confirmed across PC, Xbox Series X/S, and PlayStation 5. The studio revealed the State of Decay 3 gameplay at that showcase after years of near silence, then ran additional playtests and let content creators share footage from recent testing sessions. That release timing makes Undead Labs the second studio with a publicly announced, in-development game at risk, the other being Ninja Theory with the next Senua project. The unusual flow of new footage after a deliberately limited first reveal reads differently against the closure reporting.

I run a channel covering open-world games, and I know how rare it is for a studio to surface that much new footage so soon after a showcase, which makes the timing here hard to read as routine. The reset framing treats institutional knowledge as a line item, when the people who carry it are the same ones who built the franchises Microsoft is selling at a higher price.

Several union members spoke on the call, each with a record inside the company. Morgan Goin, a senior encounter designer at ZeniMax Online, has worked in games for 11 years and was laid off at Hangar 13 and at Arkane Austin, which Microsoft closed in May 2024 with no warning. She transferred to ZeniMax Online but lost a month of employment and some tenure in the move. ZeniMax workers approved a union in December 2024.

"We're being treated as expendable, valued one week and cut the next. Why would a game developer bother to put forward their best work under these conditions? Hard work and great games do not save you from layoffs under Microsoft."

— Morgan Goin

Goin also said Microsoft cut its bargaining time from about 12 hours a month to four. She noted the average career in game development runs around five years before burnout or layoffs force a worker out.

Allison Veneto, a senior editor for franchise development at Blizzard in California, has worked on cinematics for more than a dozen games and sits on the bargaining committee for her story and franchise unit. She described being moved into the office of a laid-off employee and finding a small bracelet with a child's name on it, left behind when the worker packed up ten years of belongings. Veneto listed the union's specific asks: advanced notice of planned layoffs, strong severance, subcontractors released before employees where possible, a voluntary severance program, two years of recall rights, transfers into open roles, and a hiring freeze so affected employees get first chance at openings. She wants layoffs treated as a last resort, not a quarterly fix.

Mahreen Fatima, a senior environment artist at Blizzard, worked on Halo Infinite at Halo Studios before joining her current team and joined the union in October 2024. She said the gap between contract and full-time status has collapsed in practice.

"In this climate of layoffs, it feels like there's really no difference between being contract and being full time, we're all just as equally dispensable in the eyes of the company. Leadership points to revenue margins to justify fighting us. And then this week they raised console prices on players for the third time since 2025. They are not short on money."

— Mahreen Fatima

Andrew Snell, a QA tester at Activision Publishing for more than six years across Call of Duty games, said Microsoft tried to head off his division's union by converting contractors to full time in July 2022. The division organized anyway. After the Activision Blizzard acquisition closed, the team got a full return-to-office order that Snell said cost them good people, followed weeks later by a layoff announcement.

United Video Game Workers treasurer Sherveen Uduwana of CWA Local 9433 grounded the argument in the gap between worker pay and executive pay, noting Satya Nadella made $96 million last year. Uduwana tied the value of the games directly to the people making them, pointing out that more people saw the Minecraft movie than Superman last year and that titles like Pentiment and South of Midnight won awards for storytelling, work Xbox leadership was promoting in April. He named Xbox, Sony, and EA as the wealthiest studios in North America and said the executives running them are not struggling to make ends meet.

The cuts have already started in places. Eurogamer reported that at least a dozen people recently announced departures from Compulsion. Microsoft has not publicly addressed the closure and layoff reports. In a statement, a spokesperson said the company respects workers' right to make their voices heard and is continuing to negotiate in good faith with the CWA across Xbox.

Whether any of the four named studios survives may come down to buyers. The report leaves open the possibility that some could find an outside purchaser, or buy themselves out from Xbox and regain independence, before the closures take effect.

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