The death of trust at Xbox may be imminent, if this latest report is to be believed.

One of the most hotly anticipated upcoming Xbox games is State of Decay 3 from Undead Labs. State of Decay is a zombie apocalypse management simulation game, where players in small teams can develop settlements, fight against zombie hordes, and scavenge for supplies. The previous games had a variety of limitations, but many of these have been eliminated in State of Decay 3, which looks incredibly promising.

Despite having trailers at the previous two showcases and a well-received alpha test which boasted thousands of sign ups, Microsoft is exploring selling off Undead Labs and potentially cancelling State of Decay 3 if it can't find a buyer for the team. Given that State of Decay 3 is nearly finished, looks spectacular, and has had multiple trailers — this is one of the most self-immolating ideas I've seen of Xbox since I started reporting on it over a decade ago.

The report comes from GamesBeat, which lists studios having discussions with Xbox leadership. It coincides with information I received over the weekend. Indeed, Undead Labs could be among the studios Microsoft is looking to offload as part of its fiscal year end.

I'm told the cuts are being driven by Microsoft corporate CFO Amy Hood, who has demanded a variety of savings at Xbox to offset losses ... which were also a result of her previous 30% margin demands.

Microsoft has frozen discussions with third-parties for Xbox Game Pass deals (for now), and is exploring a range of measures, which could see Double Fine, Ninja Theory, Compulsion, and others shuttered if Microsoft can't find a buyer or pathway for them to go independent.

Xbox's administrative teams are working 7 day weeks to meet Microsoft's cutbacks, potentially saving studios with sales to third-party suitors or self-funded independence ventures. But for me, we shouldn't even be here.

At the end of the day, to run a business you need to be able to sell things. Some studios haven't sold products in years, eventually the math catches up. At the same time, Microsoft's gaming division had its most profitable year after in the previous fiscal, and Satya Nadella's compensation package was valued at almost $100 million last year.

Gaming is a risky business, and increasingly a luxury business for consumers (in part driven by the RAMpocalypse fostered by ... erm, Microsoft and its AI fad.) With gaming moving further and further into discretionary spending territory, I would argue trust and culture matter more than ever. Microsoft corporate either doesn't understand this, or perhaps more realistically, just doesn't care.

State of Decay 3 is clearly nearly finished. If that isn't safe, how is ANYTHING safe anymore? How can you trust ANY announcement Xbox will make in the near future? How is this not indicative of a Microsoft actively trying to set up Asha Sharma and her team for failure?

State of Decay 3 received multiple trailers. Undead Labs built up a passionate fanbase across decades, and was an early pioneer building games directly with fan-led feedback over the internet.

Microsoft's share price is imploding on fears that it missed the boat on the AI race (which let's be real, it has). And ... its response is to take an axe to one of its only businesses people actually like? Never change Microsoft. (Actually, change, change NOW.)

Are you looking forward to State of Decay 3? Let us know your thoughts on all of this in the comments.

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Another day, another Xbox rumor! Today's revolves around Xbox Game Pass, Microsoft's controversy-prone subscription service giving access to hundreds of games on a monthly subscription.

Xbox Game Pass took a battering last year when Microsoft made the spectacularly ill-advised move of making it $30 a month — a 50% increase. In one fell swoop, Microsoft destroyed one of its most stable revenue drivers for its gaming operation, leading to the biggest decline its seen in its history.

New Xbox CEO Asha Sharma remarked a few weeks ago that, now that Game Pass Ultimate has returned to a far more respectable $22 per month, they've started seeing growth return to the service. But I am curious if it's anywhere near back to previous levels.

Indeed, Asha previously spoke about Game Pass retention, and the business model revolves entirely around offsetting churn, i.e., the number of users subscribing month in, month out. If you make it too expensive, you risk users unsubscribing and never coming back. Subscription services work best when people subscribe and then ... just leave it rolling in perpetuity. If you make it so expensive that it becomes discretionary spending, it's going to end up being a net loss per head, rather than habit-forming perpetual income.

That's why I'm casting "big doubt" over this latest Xbox Game Pass rumor, which suggests Microsoft is no longer planning to new third-party funding for new Game Pass titles (via Insider Gaming).

During an episode of The Business of Gaming PodcastFernando Rizo of Caboodle Games shared rumors that Microsoft "rug pulled" Game Pass deals from industry colleagues Rizo had spoken with recently.

"I was at a trade show in Italy, had some nice lunches, some nice dinners with industry colleagues. Word on the street was that loads of people who were in the frame for Game Pass deals. You know, nothing was inked yet, but the deals were in advanced discussions. Everybody got the rug pulled out from under them."

I'm not doubting the idea that Microsoft cancelled discussions. But it has been used to frame an idea that Xbox is done completely with third-party deals for Xbox Game Pass.

Right now, Xbox is undergoing something of a "reset," with new CEO Asha Sharma and CSO Matthew Ball reviewing practically every corner of the business, including deals like the above. Microsoft's fiscal year is ending too, where budgets will be allocated (or re-allocated). Microsoft is exploring closing down entire studios at Xbox as part of this "review," so it stands to reason that some ID@Xbox deals might've been skewered in the cross-fire. I know of at least one example of a third-party Game Pass deal that didn't go through as a direct result of July re-budgeting.

But that doesn't mean they're done with Xbox Game Pass deals forever. Indeed, at least one industry publishing figure Stephen DuCrest poured cold water on the rumors earlier, saying it wasn't "remotely true."

Even if some deals had fallen through, I would expect as soon as next week or the week after when Microsoft's next fiscal starts, discussions for funding will immediately resume. The bottom line is simple: Xbox Game Pass needs content in order to operate. With Xbox rumored to be gutting first-party content, I expect it to lean even more into third-party deals, rather than less. But hey, Microsoft works in mysterious ways, as we all know.

Either way, I've reached out to Microsoft and other sources to get some firm clarification, but wanted to share some thoughts ahead of that. I'll update this article soon with more info.

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