How Undead Labs saved itself and State of Decay from oblivion

We had several offers and we were happy to pick the one that we did. It's going to be a great partner for us long term, you know, but we also have to transition from kind of one investment thesis to another. With most of our team sitting in Seattle, Washington, we're in one of the most expensive places in the world to make video games. [music] We created a company that was the sort of vehicle that acquired [music] Undead Labs. And so that company has several shareholders that are all employees of Undead Labs. And we're in the process of issuing stock options to all employees. I don't know that we'd be in the place that we are today if not for the Game Pass audience. Hello and welcome to the Game Business Show. This is our Tuesday edition where every week we speak to a big video game leader. It's completely free this. We don't charge for this podcast at all, but we do need your support to be able to keep doing it. So, if you like the game business, if you enjoy our shows, do consider becoming a paying subscriber. You get a bonus podcast and

newsletter from us every week called Here's the Drink. And you can find out more about it at the game business.com. Now, today we are talking to one of the studios that Microsoft has just said goodbye to, Undead Labs. Now, Undead Labs is the team behind the openw world survival horror series, State of Decay, and it's about a year away from shipping its next game, State of Decay 3, but Xbox has decided that the franchise and the team isn't part of its new future. And after seeking a buyer for the studio, and it had interest, including from UK developer Splash Damage, ultimately the Undead Labs management bought themselves out and the company is now under employee ownership. It's partially been able to do this thanks to a publishing deal for State of the K3. Now, we don't know who that publisher is, and I'm not going to find out who it is today, either. But the deal has enabled Undead Labs to become an independent team. However, that independence has come at a price. The team has had to significantly downsize as it finishes up development on its upcoming game. Now, today we are

speaking to Undead Labs boss, Philip Halt, and I have a lot to ask it. There was an article in Kitaki some four years ago reporting on an unhappy workplace culture. So, I want to hear about how things are today. State of the Kay has been a big Game Pass hit, so I want to ask about that. Indeed, State of the Kay 3 is still coming to Xbox Game Pass. I wanted to talk about the team's hopes for the future, what independence might allow it to do that it couldn't do before, why the team couldn't find a buyer for the studio and find out what exactly employee ownership means. And to answer those questions, I am pleased to welcome Philillip Halt. Hello, Phillip. Welcome to the show.
Hi, Chris. Thank you. Thank you for having me. It's been quite a challenging roller coaster for Undead Blabs over the last few months. How's that whole like crazy summer been?
Well, I think you know singular in a career doesn't happen that often. Um,
you know, so you don't have a lot of um prior experience to draw from and so you just sort of have to dig deep I suppose.

You know, I was this may seem slightly unrelated, but I I've been thinking a lot about names of things. And you know, I think stated decay, I didn't name it, but I think it's a pretty good name.
And it's it's clever because it's an common enough expression that we all know it, but when you sort of stop to think about each of the words, it's a proxy for the things that we all go through in our lives. You know, it's obviously related to the world of the zombie apocalypse, but I think, you know, we all have difficulties. We all have losses. You know, we all have marriages that come to an end or a job that's lost or a diagnosis we don't like or you know, the sort of vision of our future that we have for ourselves suddenly stops and you know, we have to do something about it. And I think it's not just enough to endure. These times force us to sort of dig deep within ourselves and find, you know, the resolve, the resilience, the the depth of our own characters that can carry us

through. And, you know, so I think that's true for the game. And it's it's always struck me that our game mirrors the sort of culture of the studio, the sort of situation we find ourselves in frequently, you know. So, I think we can turn to the game for some ideas about how we get through things. Well, talk to talk me about this. I mean, obviously there was some Initially the plan was to be acquired by someone, right? That was at least that was the vision of of Microsoft. What went wrong there if if you can call it that?
Well, I don't know that anything went wrong. You know, it was an accelerated period of time for Microsoft's divevestature of all the studios that were included and we had a lot of interest. Um, and we talked to a number of people. Um, and you know, I also thought that because of, you know, we were so close to being in revenue that the amount of capital that we needed to finish was, you know, not an insurmountable amount that we couldn't go raise it ourselves. So, I submitted I

knew that the other couple other studios were doing management buyouts and so I I submitted an offer for a management acquisition and and I think Microsoft thought that that would be a good good idea. I'll be honest, I I do understand Microsoft's current business strategy. It does. I understand their thinking. On this show, we've been talking about the importance of trying to be innovative, but also focus. I have to say I was somewhat surprised that state is okay was in that particularly with so close to, you know, not that far from finished really and it's a very big favorite particularly on Game Pass. Were you surprised? Um I mean yeah sure I was surprised and uh you know we were um you know but honestly I didn't spend a lot of time like litigating those decisions. I mean once the decision was made you know my focus shifted to what's the path forward for us that keeps us you know the studio intact the team intact and us shipping this game. So all of my attention really was thinking about how do we save the

studio and the game. Let's talk about yourself. Obviously, I know that you've run a company before this, but the last decade you've been part of big organizations, Microsoft and Marinaet and those sort of places. So, how have you found this transition? I mean, speaking, you know, of some of your peers, I know there's quite a difference between running a team and in running a business.
Yes, indeed there is. Uh, I I would say that Undead Labs was, you know, run as a business. M.
So there's not a lot that's actually changed. You know, we ran kind of most aspects that any sort of uh independent company would consider essential to keeping a company afloat.
You know, the way that we were financed was different. And you know, we were part of an annual budget process, but I always viewed that as us appealing to an investor. And
you know, inside of a large company, there's more things to fund than there's funds available. And so you have to present a an attractive investment opportunity in order to be considered.

And so we always sort of viewed it that way and and try to approach it that way.
I know that obviously you've had to make significant cuts I think is the word you use. This might be a naive question. I'm assuming it's just to make sure that the money coming in matches the money going out. But why was that necessity?
Yeah, I think that very much that it's interesting. I think it's a challenging market right now. you know, there's um 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 my experience in talking to a lot of people that would be in a position to invest um in state of decay to bring it to market. I think there was several factors there. So, sort of amount of money, cost of team, sort of one sort of side of the economics. I think the other was the speed that in which decisions would be made was another. And I think anytime there's challenge in a investment opportunity, it's just easy for people to say no. And you know, so we had several offers and we were happy

to pick the one that we did. I think it's going to be a great partner for us long term, you know, but we also have to transition from kind of one investment thesis to another. And so inside of first party, I think the idea for state has always been that given proper support, it could ascend to kind of tentpole status alongside some of the biggest brands inside of Xbox. And on the outside, as an independent company, you know, we have to make sure that we can survive and that we have a durable cost structure that's going to not only get through launch, but is going to be supported by the revenue that we produce.
It's we had um I don't know if you heard it, we had an interview with Bulkhead recently. They they obviously just released Warogs which has done tremendously well and they they were owned by Tencent this time last year and they got dropped which I think may in hindsight not been the best decision. They found a new publisher but they had to rescope basically and although they still have AAA ambitions for Warogs that they thought they're not starting there. We're going to put out this thing and

then overly expand it and grow over time which you know obviously worked for them. Is this a similar thing you're talking about here or is actually you're not having to do that? Um, well, I don't know what their, you know, the details of how they rescoped, so it's hard for me to compare, but I would say that, you know, we,
you know, we're pretty close to finishing this game. And there's a lot in it. And so, I think folks that saw us at Gamescom can attest to that. I think our alpha players can attest to that. And obviously with a significant number of people leaving the company, we've got to make some changes. But I don't think we're dramatically addressing scope in that way.
Okay. I mean, I did hear some of the reports coming out of Gamescom from, you know, I spoke to I didn't I didn't get to see it, but I spoke to people who did. Um, and in fact, before this interview, I did as well. And yeah, there's a lot of positive buzz ahead of the game actually. How how many people are at on Dead Labs?
Well, that's we haven't really made that number public. Um, and the reason why is is that I think it would uh sort of make the arithmetic sort of easy to figure out exactly what the size of our layoff

was. And I've been reluctant to sort of share that number because um you know these are these are our friends and colleagues that all lost jobs and it's it was a total heartbreak to h have to part ways under the circumstances. Uh and I would hate to sort of reduce the impact to those individuals to sort of a number or a statistic. So you know I would say that we're you know a a small and lean um development team that one would expect to see given the ambition that we're pursuing as an independent company. Are you confident you've got the resource though you need to sort of finish the game?
Absolutely. And we still have several partners that we're working with and uh you know that helps build out the sort of size of the team as well and those have been partners that we've been working alongside for many years now and they're standing by us as well.
Is that codev partners and things like that?
Yes, exactly. Yeah.
And I think you called it an employee owned um studio. Is so is that is it was it just a management buyout or is there like is shares being passed around the studio? What does that mean? [laughter]

Yeah, it's uh we haven't been, you know, we haven't talked about it publicly.
Yeah.
I think somebody reported that um that I was the buyer and which is is not really true. So we created a company that was the sort of vehicle that acquired Undead Labs. And so that that company has several shareholders that are all employees of Undead Labs.
Uh and we're in the process of issuing stock options to all employees. it,
you know, and as you know, there's like steps that you have to go through in order to do this. You got to get evaluation and a plan and then hand out options. But we're in the middle of all that right now.
It was really important to me, speaking of just this sort of notion, this is not a typical founding of a company. Like I didn't, you know, I wasn't employee one. I didn't raise the initial startup capital. I didn't take on all the commercial risk myself. You know, the value that's present is been created by the team that's here. And you know, the team the team that just left as well, like, you know, that doesn't change. And

so it was really important to me that that everybody have sort of a stake and have, you know, opportunity for upside participation because, you know, so much of what the company's worth acquiring is is the work that they've contributed to.
Well, I'll talk about being independent because I do think there might be some advantages to it. You've got the financial runway you need. Are you are you having to branch out at all and do some pitch work or are you all set for what you need in order to get the game to release? Yes, we are uh we have everything we need to ship Stadia to K3 and that is our singular focus and I'm also grateful that uh you know we were able to do this um exclusively through a relationship with a publisher rather than bringing in investors and not to say that there's anything wrong with investors and I would hope at the in the future at some point if we needed to scale that we would be looking at investors to come along in but at this stage just because we are pre-revenue and there's a fair bit of risk of sort of this divestment from Microsoft and and do we have what it takes to become a durable independent company? Any, you

know, sort of financial institution that came in would probably be looking for a majority share and then control. Uh, and so independence to me is about we, the creators of State of Decay, are in a position where we're really just accountable to our audience and and that sort of directness, that clear line of sight, I think, is extraordinarily healthy. And and of all of the things that we've been through over the last several months, I think that's probably the thing that I've been most excited about is just that directness and closeness of a relationship that we exist to serve an audience. And the the better we do, the more the audience rewards us and the more we get to keep making the game that they like.
Yeah. Well, that's the thing. Whenever I speak to studios that have gone independent like you know I use IO interactive as an example you part of Square Enix and they went independent and they did the thing with Hitman they always talk about the fact that they can

get closer to the community and it allows them to and I'm always I'm always a bit surprised about that could you not before [laughter] but I I'm interested is it that motivation is it the fact that you know there is no now really any barrier or any other party it's really just that fan base
yeah it's a fair question I I think we've always had a really close relationship with our community and you know we're grateful to have earned their goodwill but I do think inside of a a larger company you know you serve multiple objectives and you know there's you know we just we just don't have those kinds of directives that we need to go achieve. It's just make the best possible game and of course you know inside of Xbox that was the primary objective is make great games
you know but there but we It's just I don't know just it's a cleaner clear line of sight to the audience and you know I don't I don't have a boss for example like I mean ultimately you say the success or failure of the company is

um down to whether or not we create something an audience is going to support.
How is obviously I appreciate they're probably hurting at the moment the layoffs and things but how is generally speaking the mood in the team
instead of Undead Labs. Um, you know, I think over they've been through a lot and um, you know, I chose early on to be transparent with the team. I mean maybe irresponsibly transparent honestly like I shared a lot and uh and partly because the news was just already out there from the beginning and you know sort of Microsoft's divestment decisions were made public I don't know back in July I suppose and you know so we so the team sort of knew and rather than I don't know keep them in the dark or manufacture some alternate reality I just kind of brought them alongside you know I kept the individual parties, you know, confidential as we were going through all various negotiations, but but they sort of knew what was

happening. And I think that that, you know, probably reduced some anxiety and I I just tried to put myself in their shoes like it would be a difficult thing to to experience if you know, you're not in control. You don't really know what's happening. You you know, your job might be at risk. You know, is this game actually going to finish or not? So, I tried to just share as much as I could and it was pretty direct conversations. You know, we we talked early on that that under probably any scenario there would be some job losses and so it was pretty direct about that. People sort of asked me to quantify the scale of impact. I was pretty honest about that, you know. So the day of the layoff um you know I think people were prepared and they they'd had the summer to sort of think through what they would do next and and and I think that ended up being a real courtesy to people. you know, as as painful as it was, nobody of course wants to lose a job, but I think people understood the the reason for it. And and as a result, I think the surviving team, you know, they don't look at the

company or they don't look at me as this person that's done great damage to the to the people that they love, I think, and they sort of saw it as a necessary consequence of the reality that we're in.
And and I think, you know, the game is the game is always the best medicine. you know, if you're sitting on a game that is great and it sort of solves all of the internal problems in a way. So, people are highly motivated to finish the game because they believe in it so much. I I'm interested before this how thing how thing because obviously it's been a long development this game. It's been, you know, and you've had all sorts of challenges and COVIDs and all sorts of things going on. Where was things before all that? I mean, it feels like it's been a bit of [laughter] I imagine there's a lot of people that will be quite relieved to see the game come out. Yeah. Uh, in some ways it feels, yes, it feels like most of my adult life I've been working on State of K3, but actually that's not that's sort of a amnesia aspect I suppose of looking backwards. When I joined the company in 2019,

State of K2 had just launched and it was doing remarkably well inside of Game Pass and there really was no content strategy behind the game at all. and and so we built out a a content strategy and I think we shipped something like 38 updates and you know so we supported statek too for I don't know the last 6 years post launch I think we just our last update was in November 24
um so we had a team actively working against KK too and and we did that for several reasons one of course is just to serve the audience that was there but it also became kind of a laboratory for us in terms of what we should be thinking about for state of K3 So most of the updates that we pushed out ended up being experiments and we learned an extraordinary amount about the the game, the ideas that we had about extending State of K2, what the audience was really reacting to that all informed design for State of K3. And so uh you know we're in a spot today where

we're alpha players are coming in and they're they're like, "Man, this game's amazing. It's leveled up in in really every possible way." You know, I'm proud of what we've achieved in the game and you know, I think yes, co was disruptive for us. Um, and and maybe us particularly, you know, I know it was difficult for every team. Uh, you know, but the it's coinciding close to the purchase of the company to the founder leaving to a new guy coming in and taking charge, you know, that by itself is disruptive in the best of times. I know we're going back quite a way now, but I read that Kataku article and I ran best places to work awards back then, you know, for for for the most for the UK, but we did a bit for the US and Canada and I actually found a lot of studios at that point in time. There were pockets of people that weren't happy and weren't wasn't necessarily the whole company and in fact a lot of the times it wasn't. was there was small pockets of things and co put you know some projects in difficult spots but also make people feel isolated and also it can be really hard as a company to work out how to shape the culture when things like that particular if you're scaling up and you're getting bigger as

lots I imagine I don't know how undead labs were at the time but I know that a lot of companies were at that period in time but I I don't really have what question do I have to that and I guess it might be a bit of a general question but how have you sort of reshaped the culture of undead lab since then you know since all those changes and all those moments Um, I think the it's a big question. Sorry.
No, no, no. I think it's a good question and it it it's it's been a minute since I've thought about it. Uh, because we did a lot of work. I did a lot of work with the team early on. Mhm.
And you know because State of Decay 2 was, you know, State of Kay 1 and 2 were both conceived as as small games built by an independent company that was published by Microsoft
and then inside of inside after acquisition being a first party studio with a different set of objectives about really trying to achieve, you know, you know, ascending to a temple kind of release. You know, that's a that's a big journey to take anybody through. And it felt to me just based on past experience that the number one most

valuable thing that I could help the organization achieve is to just really become a learning place and where we don't know what problems we're going to face in the future. But if we have a a learning orientation uh that we meet any of those problems with then you know we could solve almost anything. And you know the first component I think of learning is to recognize that you have to learn you know this sort of humility and curiosity. Uh and so you know we did a lot of work around our values. Um sort of the the the the rules for internal behavior and uh you know humility and curiosity were the first among them. um in a team orientation and you know this this sort of rising to the moment is I think we've really had to call on in this last summer of you know recognizing that making games is not easy ever and you know we're asked to do extraordinary things and we all have to dig deep in

order to find the sort of internal metal that's going to allow us to deliver and um so yeah so values work I think was the the way that I approach approach that and then just making sure that I'm accountable to those values just like anyone else and that we reinforce them through our behavior as a company.
The move to independence can bring well I mean it does bring extra pressure right you're in a situation where missing some deadlines or something not entirely working out that can be the difference between life and death really. So are you thinking about that from a cultural point of view when it comes to your team an expectation that perhaps is even I maybe I'm wrong but expectation that's far more critical than perhaps there was before that makes sense.
Yes. Yes. Um, well, earlier I mentioned that I had to, you know, I created this company as the acquisition vehicle for Undead Labs. And so, you know, you have to think about, okay, well, I got to name this thing. You know, it needs a name. And, you know, could have picked anything, but naming things is fun for me. So, spent a little bit of time thinking about it. And um it's called

Full Measure, which is kind of a reference to the Gettysburg Address, which if I could be so ambitious for a minute um to sort of speak to what Lincoln wrote. Um but he talked about the last full measure of devotion and you know so to your question about being an independent company and just the sort of life and death nature of hitting your milestones and things like that you know there's this commitment that you know we uh have to engender in our studio I would I can't say require because commitment I think is a thing that we freely choose to do you know I I can't command somebody to commit themselves to something I can
can only compliance in that if I make a command. So I think the the reason I selected that name is that I think that the company any company's obligation is to be worthy of a team's commitment is to be to sort of conduct itself in a way that engenders that level of like dedication from a team like I will do

what I can to the best of my ability to make this thing happen and and so what is that so that's sort of the philosophical idea and then how does that translate into the things that we do Um employee ownership is a part of that the being transparent and sort of sharing the the good news and especially the bad news so that people know what the score is. Uh I think those are part of the way that a company can be worthy of the commitment of a team.
Are you in an office? Is there like a c you're in a central location? What's the what's the setup like?
Yeah, I'm actually this is I'm a bit on vacation. So uh
no it's totally fine. [laughter] This is the first time in I don't know many months that I've had a bit of a break. Um but yes, our main office is in Pioneer Square in Seattle.
In the middle of the city. Uh and then we have satellite teams that we built actually during the sort of remote era of COVID uh in Illinois and in Florida. Um and we still have you know presence in both of those locations as well as

well as a handful of remote employees in other parts of the country. So and uh you know we made during COVID as we were building out the team everyone was remote and so you know and there of course was incredible demand for talent and it was a very competitive market uh so we sort of went to where we could hire talent and and we were also expanding our footprint amongst co-developers and of course they're far far-flung around the world and uh so we just you know sort of built a culture that uh could be both in office be present together and you know knew how to work with remote people.
I was going to ask the question. This sounds like a little bit of a hostile question. I don't mean it to be. Um, but what's taken state of the K3 so long? Is it is it what you were talking about earlier with all the experimentation you did with State of the K2?
Yeah. I you know I I don't think it's taken that long actually.
Well, particularly you mentioned you mentioned the ambition for this is to be like was to be a temple title. So I guess in that context, no it hasn't.
Yeah. Well, yeah, that's true. But I'd have to give a think to when we when you really start the clock on state of K3

development. So, I mean, if you measure it from when State of K2 shipped, yeah, it's, you know, we're approaching, you know, 8 years, I suppose, even longer. And if you measure it from our first trailer, the 2020 trailer that features the the infamous zombie deer, uh, that's also a long time. Um, you know, but I got myself in a little bit of trouble by saying that we didn't really have a team working on the game at that point. Um, not entirely true. I mean, we had a really small team. So, we've had a small team on the game since the maybe 2020, but uh you know uh I wouldn't say that development really picked up until 23
22 somewhere in there. So, by that measure I wouldn't say that we've been in development for a long time. I know that a lot of the game I know particularly during that time that speaking to some other studios that announced games quite early part of it was about trying to find staff right because it was so people forget is the market so different now but the the situation back then is everybody was poaching everybody benefits were rising and everything was getting a bit and everyone was trying to say it was really

hard if you were I don't know a studio going out there saying hey come work for us but you couldn't tell people what game you were building and what game you were working on I mean I know maybe people could have worked that out with Undead Labs but there's There's a um part there was an element of that that I think perhaps you know I don't know if that was true with you but I know it's true with some of the other games that were announced at that time. Well, I'll tell you, um, part of my thinking, you know, Undead was just a small company in a it was a relatively small game inside of a giant organization.
And I didn't think that uh Microsoft was done being inquisitive and and I assumed that they would I mean, I suppose if I tell this story, it makes it sound like I was preient or something, but I I just didn't think that they were going to continue buying small developers. I figured they'd start buying big things. And so I was a little worried about just getting swallowed up or even 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 for me of saying Decay 3 is we're announcing it. It's public. It's you know the audience now knows it's in development and you know here's a trailer to demonstrate what our vision is.
I can understand that. I remember when they bought Obsidian and my my thinking was, "Oh, that's really exciting. Obsidian's always on the cusp of something, you know, they're very good studio, very good double, but I thought they've got a step up they can take. Maybe Microsoft could take And then when I they bought Bethesda, I kind of felt to myself, I'm not quite sure what role Obsidian play now. If that I don't think that's necess specifically what you're going through your head, but I know that um for me looking on the outside when the Bethesda acquisitions are being made and the Activision acquisitions are being made, I started to worry about those smaller teams as early acquisitions that were being made and where how they fit into, you know, you're making a game in a Call of Duty world, you know, what role would you play? And ultimately that's come to pass in some ways. Obviously though, you have benefited a lot from Game Pass.
Absolutely. It's been, I think, hugely valuable to State of Decay.

And I I don't know that we'd be in the place that we are today if not for the Game Pass audience. Just we wouldn't have achieved any kind of scale. And one of the things that's interesting is, you know, it's free user acquisition. And I mean, I think even today we've got several thousand people coming through the front door every day. [clears throat] Um, and uh, you know, our the benefit of State of Decay is that it's it's a very retentive game. And you know, so we I think the last time I looked at some of these numbers, um, you know, something like uh, half of our monthly active users have been in the game for close to two years and a quarter have been in the game for more than five. And
you know, so so yeah, players come in and and you know, I think there's a lot of players that come in from Game Pass and they're like, "Oh, this isn't really for me." And then they leave. So there there is a high abandon or you know, a churn rate. But um but of the players that we capture, we capture them for a long time and then they they become

franchise fans and they consume other titles in the franchise and they're excited about what's coming for Stadia K3. Um so yeah I think it's really helped us achieve scale now like how do we um you know make the most of that uh for state of K3 has been obviously a key area of um you know thought and uh design. So our biggest investment in state of K3 by far is four player co-op shared world. So a large audience becomes a real benefit because you know they play stated K3 and and it is a a great experience to play with your friends and uh so they want to invite their friends and many of those friends are going to be on other platforms. So it is a vector for growth for us.
I spoke to a few people about Game Pass recently. They all got slightly different experiences. Um one studio that I um I spoke to was saying that um people in game pass don't necessarily spend money. they are within that ecosystem and they're they spend money on the subscription but not the same

other things. But another perspective I had from another studio that's going into Game Pass. They were saying that there's almost like a self-contained audience like you wouldn't necessarily reach those players if you weren't in Game Pass. So for them, they didn't see much of a harm for being in it because there's almost two different audiences to it. So it was uh it was interesting and you're right, you know, if you're you're multiplatform, you've got that base of players and then that that can spread out and we've seen it going all the way back to when subscription sort of started. I always think of the Rocket League example of that game exploded on on multiple platforms. You know, last year happened with CL obscure, right? It can be an element for discoverability
100%. I mean, I think we're something like 25 million franchise players now,
which is a pretty big number, and I think maybe is a bit of a surprise for folks that are aware of State of Decay, but haven't really played it themselves. Um, yeah, so I think it has been really valuable for us.
How are you feeling about being I don't you obviously didn't tell me how big your studio was, so I'm guessing you're sort of a midsized team now, but that's an interesting spot to be in. How do you

feel about the sort of spot you're in?
In terms of being nimble, I feel good. So, you know, again, with Stadia K2, we had the benefit of, you know, running a live and evolving game with an active audience. And so, that allowed us to learn a lot about the sort of content that the audience was interested in in engaging with, but it also created organizational capability for us. So, um, and just sort of like practices like runbook almost. Um so for example uh you know once we're well this is even true today in our alpha like once you once you have an audience that's in your game and playing you know some portion of your team is dedicated to responding to the the feedback of the audience and you know so we we have to be responsive in that way but we also have other things that we want to deliver into the game and so another portion of the team is focused on kind of work on the road map uh and so once once we go live will be sort of

I think situated in a similar way that we're highly responsive to what we're seeing in the audience as they're playing the game. Uh and and then we're also working against our own road map. Um or a road map uh that's you know voted on by the the you know the players of the game as well. So you have to have kind of like two tracks running simultaneously at minimum. You know, I talked to a lot of studios lately and there seems to be a lot more focus on kind of keep the team as small as maybe small as possible isn't quite the right words, but certainly keep it small and to the core and then using outside support whenever you need to scale or anything like that. Is that is that how you see the future for the studio?
You know, with most of our team sitting in Seattle, Washington, we're in in one of the most expensive places in the world to make video games. And you know, we're seeing, I think, the rise of incredible games that are coming from parts of the world
where the sort of labor costs are just much much lower. And I was out talking to lots of people, both investors and publishers, you know, lot of scrutiny

around our kind of unit cost of labor. And, you know, I was feeling at one point a little a little depressed that like we're just I'm never going to win in the race to the bottom on kind of economics of labor. But then I realized that like I don't think that's the battle that I'm in. I think I'm in the battle of entertaining an audience. And I think as long as I have an audience that appreciates what we make, you know, then we scale the business to the size of the audience and that demand. And so one of the ways that we do that is by supplementing an internal team of experts with great teams from around the world. And so we have four, three, four co-devs that we work with. Let me get the numbers right. We have three primary code development partners that we're working with working with today. So, a lot of our art content comes from Virtuos in Changdu.
Oh, great. Yeah, they're good. I spoke to them in Tokyo actually just a couple weeks ago.
They're fantastic team.
Yeah,
we have a group out of Woou in Liverpool

working on environment uh and vehicles and weapons.
Oh, I know Wishi. And then we have uh a crew from Blind Squirrel that is working on sort of engineering and technical art. And each of those groups are very different in their kind of complexity and makeup and the way that they're integrated into our team.
I think I've I've expressed this before on the show, but I I I've always I understand that we want to bring cost down as much as we can. Everyone wants to be nimble, wants to be faster, and there's tech and there's tools that might be able to do that. And there's certainly different markets where the game development might be cheaper. But what is more important than that is we live in a really competitive attention economy where there's tons of things competing for people's attention. Tons of things that are great that don't break through and you can't afford to do something cheaply, right? Star Wars Galactic Racer is out tomorrow, right? And it's and it's made by people that worked on Need for Speed and Burnout from Criterion. They left formed Fuse

and they made a studio. almost all the outsource and support people they've got are still based in the UK and the UK is cheaper than perhaps Seattle but it's not cheap but the truth is well if it comes to making racing games UK is very good at making racing games and so they want to work with the best racing talent and so they went to and also there's an element of cultural similarities and there's you know time zones and those sort of benefits as well so in the case of that title actually it didn't make sense to go to cheaper locations and things like that and I think it's just a lot more nuanced than just hey it's cheaper if we outsource to other markets.
Yeah, I I share that perspective. Although I think it depends on this is sort of back to the like what does independence mean? I I think it depends on what goal you're trying to serve and in a environment where your objectives are primarily financial like returning some multiple oninvested capital then you know maximizing margin is the the

primary job of the person in charge is you know reduce your unit cost and increase your you know average selling price or whatever and to put it simply But that's not the as an independent company, we really get to serve an audience. And you know, I don't have to have a a 5x multiple on invested capital. You know, we need to make a profit. We need to be sustainable. We need to be able to pay ourselves and our partners appropriately. And it is a goal. Like we, you know, this is not a charity we're doing, but but it's not the number one most important objective. And so I think in the case of Galactic Racer, it's a great example that, you know, the access to talent and delivering the best possible experience was perhaps what they were, you know, optimizing for.
Yeah. And I guess that's the advantage of being with a publisher, right? It becomes all about the game. Again, I just it I'd love to know what the publisher is, Philip. I can't wait to find out. [laughter] We're we're excited to share, you know,

and we we talked to a lot of people and it's been a while since I've been out sort of like looking at the publishing community, you know, and it used to be, I think, the case that there were, you know, the the giants um that we're all familiar with and that that was kind of the extent of it. And
different today. Yeah.
It's very different today. And, you know, we we found, I think, a fantastic partner for us of all of the publishers that we spoke to, just had really good connection. We learned a lot when we talked to them. I I think that they're well poised to support our game and you know we're really excited to build a partnership with them that that can exist for a long time around state of the game.
Was there more interest I mean this is just interest not really a the best question but was there more interested in people publishing the game than they were say in buying the studio? Did you find
I I think it had to do with the sort of window of time that we had available. So I think it was easier to contemplate a publishing deal than an acquisition in a shorter window.

Um so I think if we had a longer time frame to look for for an outside acquirer there there may have been more interest in that.
Hopefully long term it'll work out for the best. I know it's difficult to say that now and people have lost their jobs. I was going to ask where you would like to be in 5 years but I guess your immediate thought is like get started K3 out make sure it delivers. Make sure it's a hit and then that's your future right? Yeah, 100%. 5 years. Uh yeah, seems like an impossibly long period of time into the future. Yeah.
Uh but of course it'll be here before you know it. Yeah. Our focus is State of K3 and supporting State of K3 and at some point, you know, if we have earned the right, we get to make more games, you know, when we figure out what the next game is.
Yeah.
Yeah. Is there anything you're going to miss about being part of us? This is this sound like I know. I know. Was there anything about Xbox Game Studios that you're missing that you're going, "Oh, we're going to have to find a replacement for that." Oh, 100%. I mean, it was a I mean, I had eight years inside of um

Xbox Game Studios. It was fantastic. And actually, we've had like a 15-year partnership with Microsoft. They were there at the very beginning of State of Decay and as the first publisher. And so, that relationship is changing for sure. It has changed over the years and it's going to change again, but it's not ending. So, we'll continue to have, I think, a close relationship with Xbox and, you know, and proud to to count them as a partner. The people inside of that organization were great. I learned a ton. I always felt supported. I think the studio head group of individuals in particular, I've built mentors, friends. I'm going to go see some of them soon. Uh
oh.
You know, so we just I think those relationships will carry on obviously, you know, well beyond uh our time together. You know, I think there's services, you know, there was research and things like that, those usability labs and those kinds of things that were, you know, pretty state-of-the-art that we'll miss. But yeah, I mean, I think we're excited to sort of build those capabilities for ourselves or see

what our new publisher can bring to the table as well.
Great. Philip, I'm out of questions. It's been it's a difficult time, but I'm also I'm pleased that you have found a way to continue and start a K3 and I've heard as say from people that played it at Gamescom shaping up very nicely. So, um, fingers crossed that it does very well when it comes out. But yeah, thank you for your time.
Thanks for your time. It's good to talk to you.
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