Facebook and Zynga Reach New Deal
Nov. 30, 2012 • In regulatory statements filed with the Securities and Exchange Commission, Facebook and Zynga amended the terms binding content distribution and revenue giving both companies more freedom. Facebook now gains the opportunity to publish its own titles. In return, Zynga no longer must use Facebook as the primary distribution platform for its titles, or use Facebook as the exclusive means of login on all platforms.
In addition, Zynga may elect not to use Facebook Payments in the future, and not run Facebook display advertising at its discretion. Zynga, however, must launch new social games on the Facebook site concurrent with, or shortly following, any launch on Zynga sites or third-party social platforms. This provision does not include Zynga’s mobile content, or downloadable social games, or any of the publisher’s games launched in China or Japan. Further, in markets where online gambling is allowed, and where Zynga has real money gambling games, Zynga will subsequently launch such games on the Facebook web site.
Impact: Zynga has been chafing under recent changes by Facebook opening up how it promotes games from all sources on the platform, as well as being locked into the network’s payment system and revenue sharing. The publisher often blames these issues for its recent reversals in attracting and holding paying customers. While we agree freeing Zynga of exclusively using Facebook as the social network point of access and payment conduit will be a net positive for the publisher, objectively, the cause behind consumers not playing and paying for Zynga titles as they once did lies elsewhere. As we have noted before, social gamers have reached a saturation point with the tried-and-true game format that Zynga has relied upon with it “Ville” franchises. This is not a problem for Zynga alone, as we see many SNS publishers who are too reliant on overlaying a new veneer over a core game mechanic.
In the absence of a reformation in the kinds of games produced by Zynga, we have to ask ourselves, why did Facebook give up so many concessions in the amended agreement with Zynga for the single advantage of obtaining the option to publish its own games? Some may argue that Facebook is not effectively channeling users to Zynga content as before, and therefore, the social network has lost the clout to hold Zynga captive. We disagree with that notion, and suggest there simply is greater competition for Zynga on Facebook, and the publisher is having difficulties attracting users as it once did when there was little competition. The conclusion we must draw is that Facebook no longer sees an advantage in holding Zynga to an exclusive relationship on its platform. A month ago Facebook reported that Zynga revenue was down 20% at the same time that non-Zynga game revenue was up 40%. To us this reads like Facebook sees its future in gaming, and revenue growth, is not dependent on Zynga.
For more info on this subject see the DFC Intelligence report The Market for Browser and Social Network Games