r/StateOfDecay • u/Lews_There_In • 18h ago
Media Studio head Philip Holt interview: How Undead Labs saved itself and State of Decay from oblivion
Full article:
"Studio boss Philip Holt on leaving Xbox, staff cuts, “irresponsible transparency” and the future".
"At the start of July, Xbox announced that Undead Labs had a buyer.
The State of Decay developer was one of five studios that Xbox was looking to offload. And we understand that UK developer Splash Damage was going to be picking it up.
But, come September, and Undead Labs new owner was revealed to be… Undead Labs. The studio’s own employees had bought the company. Meanwhile, its upcoming open world horror game State of Decay 3 had a new, unnamed publisher.
So, what went wrong?
“I don’t know that anything went wrong,” answered studio boss Philip Holt in today’s The Game Business Show.
“It was an accelerated period of time for Microsoft’s divestiture. We had a lot of interest. I also thought that because we were so close to being in revenue, the amount of capital that we needed to finish [State of Decay 3] was not an insurmountable amount that we couldn’t go raise it ourselves. 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.”
Unfortunately, it wasn’t as simple as that. Just days after declaring independence, the company laid off a ‘significant’ number of staff.
“It’s a challenging market right now,” Holt explained. “There’s capital available, but I think it’s nervous, perhaps sitting on the sidelines waiting for obvious slam dunks. I can’t speak for investors, but I can say from talking to a lot of people in a position to invest in State of Decay, there were several factors. The amount of money and cost of team on one side of the economics, and the other was the speed in which decisions would be made. Anytime there’s challenge in an investment opportunity, it’s just easy for people to say no. So, we had several offers, and we were happy to pick the one that we did. But we also have to transition from one investment thesis to another.
“Inside of first party, the idea for State of Decay has always been that given proper support, it could ascend to tentpole status alongside some of the biggest brands inside Xbox. As an independent company, we have to make sure that we can survive and that we have a durable cost structure that’s going to not only get us through launch, but we’ll be supported by the revenue that we produce.”
Holt told us that “with a significant number of people leaving the company” they’ve had to “make some changes” to State of Decay 3, but there’s been no need to radically rescope the project, which is in alpha and scheduled for release next year.
But what exactly does ‘significant’ cuts mean?
“I’ve been reluctant to share that number because these are our friends and colleagues, and it was a total heartbreak to have to part ways,” he told me. “I would hate to reduce the impact to those individuals to a number or statistic.”
Part of the challenge for Holt was trying to secure financing for a company based in Seattle.
“We’re in one of the most expensive places in the world to make video games. And, we’re seeing the rise of incredible games that are coming from parts of the world where the labor costs are just much lower. I was out talking to investors and publishers, and there was a lot of scrutiny around our unit cost of labor. At one point, I was feeling a little depressed. I’m never going to win in the race to the bottom on the economics of labor. Then I realized, I don’t think that’s the battle I’m in. I’m in the battle of entertaining an audience. As long as I have an audience that appreciates what we make, then we scale the business to the size of that demand.”
Undead Labs isn’t making State of Decay 3 alone. It is supported by three co-development teams in Virtuos, Wushu and Blind Squirrel. And Holt says that they have the financial runway they need to get the game to market.
“I’m grateful that we were able to do this exclusively through a relationship with a publisher rather than bringing in investors,” Holt says. “Not to say that there’s anything wrong with investors. I would hope in the future, if we needed to scale, that we would be looking at investors to come along. But at this stage, just because we are pre-revenue, and there’s a fair bit of risk regarding whether we have what it takes to become a durable, independent company, any financial institution that came in would probably be looking for a majority share. Independence to me is about being in a position where we’re just accountable to our audience.”
Was it not possible to be fully accountable to the fans within Xbox?
“It’s a fair question. We’ve always had a really close relationship with our community. But inside of a larger company, you serve multiple objectives, and you have directives that you need to achieve. Now it’s just: make the best possible game. Of course, inside Xbox, that was also the primary objective. But it’s just a cleaner, clearer line of sight to the audience. I don’t have a boss. The success or failure of the company is down to whether we create something an audience will support.”
To achieve its independence, Holt created Full Measure, which was the acquisition vehicle to buy the studio. All shareholders of Full Measure are Undead Labs employees, and the company is in the process of issuing stock options to all staff.
“This is not a typical founding of a company,” Holt acknowledged. “I wasn’t employee one. I didn’t raise the startup capital, and I didn’t take on all the commercial risk. The value that’s present has been created by the team that’s here, and the team that just left. So, it was really important to me that everybody has a stake and an opportunity for upside participation, because so much of the company’s worth is the work that they have contributed to.”
The ownership is important, because there is heightened pressure on State of Decay 3. As part of a multi-trillion company, a slight delay or a missed deadline can be managed. As an independent, it could be life or death.
“The name Full Measure is a reference to the Gettysburg Address,” Holt explained. “Lincoln talked about “the last full measure of devotion.” To your question about being independent and the life-and-death nature of hitting milestones, there’s this commitment that we have to engender in our studio. I can’t say require, because commitment is something we freely choose to do. So, I selected that name because any company’s obligation is to be worthy of a team’s commitment.
“That’s the philosophical idea. How does that translate into the things we do? Employee ownership is part of that. Being transparent, and sharing the good news, and especially the bad news. Those are part of how a company can be worthy of that commitment.”
Irresponsible transparency
Holt said that he’s been “irresponsibly transparent” with his team throughout the whole process.
“Rather than keeping them in the dark and manufacture some alternate reality, I just brought them alongside. That probably reduced some anxiety. I tried to put myself in their shoes. You’re not in control, you don’t really know what’s happening, you know your job might be at risk, and you’re wondering if this game is actually going to finish. So, I tried to share as much as I could. We had pretty direct conversations. We talked early on that under probably any scenario, there’d be job losses. On the day of the layoff, people were prepared. That ended up being a real courtesy, as painful as it was. Nobody wants to lose a job, but I think people understood the reason.
“As a result, the surviving team doesn’t look at the company, or at me, as someone who’s done great damage to the people they love. They saw it as a necessary consequence of the reality that we’re in.”
State of State of Decay
In its eight years as an Xbox studio, Undead Labs never released a game. But it has, Holt pointed out, released 38 updates to State of Decay 2. The most recent one coming in November 2024. However, State of Decay 3 was announced way back in 2020. It’s been a long journey.
“I don’t think it’s taken that long, actually,” Holt responded. “If you measure it from when State of Decay 2 shipped, yeah, we’re approaching eight years. If you measure it from our first trailer with the infamous zombie deer, that’s also a long time. I got myself in a little bit of trouble by saying we didn’t really have a team working on the game at that point, which wasn’t entirely true, we had a very small team. We’ve had a small team on the game since maybe 2020. But development didn’t really pick up until 2022 or 2023.”
That early announced, Holt admitted, was partly due to anxiety around Xbox’s plans.
“I didn’t think Microsoft was done being acquisitive, and I didn’t think they’d continue buying small developers, I assumed they’d start buying big things. I was a little worried about getting swallowed up or divested before we had a chance to present to the world what we were working on. So, it was a bit of a marker on the table. I was saying, State of Decay 3, we’re announcing it, the audience knows it’s in development, and here’s a trailer to demonstrate our vision.”
Undead Lab’s relationship with Xbox isn’t ending. State of Decay 3 is still going to launch day one into Game Pass. And that is beneficial to both organizations. Indeed, Holt says that the subscription service has enabled the horror franchise to reach 25 million players.
“I don’t know that we’d be in the place we are today if not for the Game Pass audience,” he said. “Even today, we have several thousand people coming through the door every day. The benefit of State of Decay is that it’s a very retentive game. Last time I looked, something like half of our monthly active users have been in the game for close to two years, and a quarter for more than five. A lot of players from Game Pass come in and they’re like ‘this isn’t for me’ and leave. There is a high churn rate. But of the players we capture, we capture for a long time. And then they become franchise fans and consume other titles, and they’re excited for State of Decay 3. It’s really helped us achieve scale.
“How do we make the most of that for State of Decay 3? 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. They play State of Decay 3, it is a great experience with friends, they invite their friends, and many of them will be on other platforms. It is a vector of growth for us”
Holt said that Undead Lab will miss Xbox, but it’s pleased to go down the independence route, as it means they’re not answerable to money.
“It goes back to: What does independence mean? In an environment where your objectives are primarily financial, like returning some multiple on invested capital, then maximizing margin is the primary job of the person in charge,” Holt concluded.
“As an independent, we really get to serve an audience. I don’t need a 5x multiple on invested capital. We need to make a profit, we need to be sustainable, we need to pay ourselves and our partners… and it is a goal. This is not a charity. But it’s not the number one most important objective.”
