Rumors of Closure: State of Decay Studio Undead Labs at Risk, Bethesda and Blizzard Also Hit by Layoffs

Microsoft Gaming Studios Facing Potential Layoffs

Reports have surfaced suggesting that Microsoft may be considering shutting down Undead Labs, the developers of State of Decay, as part of a larger restructuring of Xbox projects. Alongside Undead Labs, studios such as Bethesda and Blizzard are also rumored to be facing significant layoffs in what has been described as “the biggest single cut series for Xbox” by an anonymous insider. This potential move comes on the heels of Microsoft laying off approximately 1900 gaming workers back in January 2024.

According to Games Beat, Xbox executives are looking to accelerate the release of titles from studios like Bethesda, including Elder Scrolls and Fallout. However, the decision to downsize these studios could pose challenges to achieving this goal, as internal communication within Microsoft appears to be lacking.

Additional reports from Bloomberg suggest that other Microsoft-owned studios, such as Double Fine, Ninja Theory, and Compulsion, could also be at risk of closure or sale. The recent trailer for Senua during Summer Game Fest 2026 was rumored to be a strategic move to attract potential buyers for Ninja Theory. The memo from division heads within Microsoft hints at the possibility of reductions across all gaming subsidiaries.

Despite these concerning developments, there is hope for some form of mitigation. In recent years, there has been a growing trend of labor organization within Microsoft and Xbox, fueled in part by the extensive cutbacks resulting from the company’s expansion during the Covid lockdown period. Hundreds of developers working on popular titles like World of Warcraft, Diablo, Overwatch, and Doom have opted to unionize.

Undead Labs boss Jeff Strain, a former Blizzard developer, had previously advocated for unionization within the gaming industry following allegations of abuse at Activision Blizzard in 2021. While Microsoft management has pledged neutrality in allowing unionization efforts, the absence of an in-house union at Undead Labs raises concerns about the studio’s future.

Recent discussions organized by the Communication Workers of America shed light on the challenges faced by union members at Blizzard, ZeniMax Online, and Activision Publishing. Employees expressed frustration over the recurring layoffs and the toll it takes on morale and creativity within the workforce.

Amidst these layoffs, concerns have been raised about Microsoft’s substantial investments in AI technology and executive salaries. Employees feel undervalued and dispensable in the face of revenue-driven decisions, such as price hikes on consoles. The ongoing financial reports to investors may shed more light on the extent of the cuts as Microsoft wraps up its fiscal year.