State of Decay studio Undead Labs potentially up for closure, sources claim, with Bethesda and Blizzard also facing layoffs

"They are not short on money": union workers speak out against Microsoft gaming "reset"

Microsoft may close State of Decay developers Undead Labs as part of Xbox's imminent hewing back of projects and livelihoods, with Elder Scrolls studio Bethesda and World of Warcraft creators Blizzard also facing significant layoffs in the course of what an anonymous insider has called “the biggest single cut series for Xbox". To put that quote in context, the company laid off around 1900 Microsoft gaming workers back in January 2024. Xbox unions are even now haggling with management to protect jobs or at least, ensure decent severance packages for anybody affected by the margin-boosting cull.

The claims about Undead Labs, Bethesda and Blizzard are from Games Beat, who don't go into further details. A couple of weeks ago, it was reported that Xbox executives want to pump out Elder Scrolls and Fallout titles faster - I'm not sure thinning the ranks at Bethesda would help with that, but then again, it often feels like different parts of Microsoft leadership aren't on speaking terms.

Bloomberg have previously reported that Psychonauts studio Double Fine, Senua developers Ninja Theory and South of Midnight makers Compulsion are facing closure or a sale – reportedly, the recent Senua trailer during Summer Game Fest 2026 was a bid to drum up interest in buying Ninja Theory. Considering the robotically apocalyptic language in a recent memo from division heads, it seems plausible that every Microsoft gaming subsidiary will face reductions of some kind.

There's some hope of mitigating the worst, however. Partly provoked by the sheer scale of cutbacks brought on by company overexpansion during the Covid lockdown boom, the past few years have seen a lot of labour organisation at Microsoft and Xbox. Many hundreds of developers working on World of Warcraft, Diablo, Overwatch, Doom, and Psychonauts have voted to unionise.

Back in 2021, following allegations of a culture of abuse at Activision Blizzard, Undead Labs boss and former Blizzard developer Jeff Strain urged his own employees to unionise, commenting that "the giants of this industry have shown us this week that we cannot trust them to moderate and manage the wealth and power that players and fans have given them." Sadly, it doesn't appear that Undead Labs are among the studios with an in-house union.

Microsoft management signed a "neutrality" agreement with umbrella union the Communication Workers of America in 2022, promising not to interfere with or block unionisation efforts - a warmer response than you'd get from a lot of tech giants. Mind you, this appears to have been partly about ensuring government regulator approval for their $69 billion acquisition of Activision Blizzard.

Games Beat joined a call organised by the CWA yesterday, in which union members at Blizzard, ZeniMax Online, and Activision Publishing reflected on what it's like working for a company that can't seem to go a year without chopping thousands of jobs.

“Every time these layoffs happen, we lose incredible talent in years of institutional knowledge," Blizzard senior editor for franchise development Allison Veneto observed. "The people who remain take on more work while they’re wondering if they’ll be next. My coworkers just want to focus on making amazing games for players. They do not want to spend every day worrying about whether another round of layoffs is coming. It drains away the energy we should be using to be creative.”

Blizzard senior environment artist Mahreen Fatima, meanwhile, called attention to Microsoft's brain-flensingly vast generative AI investments (to say nothing of executive salaries - Microsoft CEO Satya Nadella made $96.5 million in Microsoft's fiscal 2025). “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,” Fatima said. “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. Look at the billions that they’re using to invest in AI. They’re just choosing not to protect us.”

Today marks the end of Microsoft's fiscal year. It's likely that we'll get official announcements about the scale of the cuts in the course of routine financial reporting to investors.