Undead Labs Says Game Pass Helped State of Decay Reach 25 Million Players Before Xbox Exit

Undead Labs may no longer be part of Xbox, but studio head Philip Holt says Game Pass played a major role in helping State of Decay grow into a franchise with roughly 25 million players. Speaking in his first major interview following the studio's return to independence, Holt discussed the employee buyout, the restructuring that followed, and why State of Decay 3 will still launch on Game Pass despite the studio separating from Microsoft.

Undead Labs officially completed its separation from Xbox on 9/22/2026, becoming an independent, employee owned developer after nearly 8 years inside Microsoft. State of Decay 3 remains in development and is targeting a closed beta before the end of 2026, followed by a 2027 launch across Xbox Series X|S, PC, PlayStation 5, and Game Pass.

The separation did not happen through a conventional acquisition by another gaming company. Holt explained that several parties expressed interest in Undead Labs before he proposed a management led buyout. With State of Decay 3 already moving toward the stage where it could begin generating revenue, he believed the remaining development costs could be financed without handing control of the studio to another owner.

"I knew other studios were doing management buyouts, so I submitted an offer for a management led acquisition, and Microsoft thought that would be a good idea."
— Quote by: Philip Holt

The transition still required difficult changes. Undead Labs confirmed a significant workforce reduction after becoming independent, although Holt did not disclose the number of affected employees. He said the studio needed a sustainable operating structure capable of surviving beyond the launch of State of Decay 3 rather than continuing with the cost base of a company backed by Microsoft.

Development is continuing with support from Virtuos, Wushu Studios, and Blind Squirrel Entertainment, while an unnamed publishing partner is providing additional financial support to bring State of Decay 3 to market.

Game Pass remains an important part of that strategy. Holt credits the subscription service with significantly expanding the audience for State of Decay and helping the franchise reach players who may not have purchased the games directly.

"I don't know that we'd be in the place we are today if not for the Game Pass audience."
— Quote by: Philip Holt

Holt estimates that the State of Decay franchise has now reached roughly 25 million players, with several thousand people still entering the games each day through Game Pass. He also said the franchise has unusually strong long term engagement, with around half of its monthly active players having remained active for close to 2 years and approximately 25% for more than 5 years.

At the same time, Holt acknowledged that Game Pass creates significant churn. Many subscribers try State of Decay briefly and leave, but the players who remain can become highly engaged members of the community. That dynamic is particularly important for State of Decay 3 because the studio's largest development investment is its new 4 player shared world co op system.

"Our biggest investment by far is the four player co op shared world, so a large audience that comes through Game Pass becomes a huge benefit."
— Quote by: Philip Holt

The multiplatform release should expand that opportunity further. State of Decay 3 is planned for Xbox Series X|S, PC, Steam, PlayStation 5, and Game Pass, allowing Undead Labs to build a larger connected audience while operating independently from Microsoft.

The game introduces a shared world structure where up to 4 players can build communities together, expand settlements, gather resources, and respond to an evolving zombie threat. For a game built around cooperation and long term player retention, launching into a large subscription ecosystem gives Undead Labs an immediate pool of potential players.

The studio now operates through Full Measure, the acquisition vehicle created by Holt to purchase Undead Labs. All Full Measure shareholders are Undead Labs employees, with stock options also being issued across the workforce. The structure gives the development team greater ownership over the company while keeping State of Decay at the center of its future strategy.

Undead Labs' relationship with Microsoft is therefore changing rather than disappearing completely. The studio is independent again, but State of Decay 3 remains closely connected to Xbox through Game Pass, platform support, and the franchise audience built during its years inside Microsoft.

Undead Labs offers an interesting example of how Game Pass can work particularly well for long term games built around retention, experimentation, and multiplayer communities.

Removing the initial purchase barrier helped millions of players discover State of Decay. Many left quickly, but a meaningful portion became long term players, giving the franchise an audience that Undead Labs can now carry into its independent future.

That audience will be especially important for State of Decay 3. Its 4 player shared world design depends on maintaining an active player base, and launching across Xbox, PC, PlayStation 5, and Game Pass gives the studio several ways to build that community.

The bigger challenge is sustainability. Undead Labs now has greater control over its future, but it also carries more direct responsibility for financing development and building a viable business after State of Decay 3 launches. Game Pass helped establish the audience. The next test is whether that audience can support the studio as an independent company.

Do you think Game Pass remains the right launch strategy for State of Decay 3 now that Undead Labs is independent, or should the studio focus more heavily on traditional game sales?