Liz Gannes

Recent Posts by Liz Gannes

Zynga and Facebook Exclusivity Goes Far Beyond Credits

An extensive addendum to Zynga’s S-1 filing with the SEC today paints an intricate picture of Zynga’s dependence on the Facebook platform. Here’s a parsing of the key parts of that relationship.

The fuller disclosures could be a positive for potential Zynga investors, in that they show Facebook has committed to share advertising revenue with Zynga and help the gaming company meet its active user targets.

UPDATE: Facebook is clarifying today that it does not share revenue with Zynga
from ads that appear on the social network. More details here.

On the other hand, it might not be a good sign that Zynga neglected to leave details of such a significant relationship out of its original and supposedly exhaustive financial disclosure packet.

It was previously known that Zynga had committed to a five-year term of exclusivity with Facebook Credits last summer for its games built on the Facebook platform. Facebook already netted something like $83.7 million in the first quarter of this year as its 30 percent cut of virtual goods sold by Zynga, and brings in tens of millions of dollars per year in additional revenue from Zynga advertising its games on the Facebook platform. But the exclusivity goes much further than that.

Tricia Duryee already posted the full addendum, but it’s breathtakingly dense and long, not to mention confusing because many portions have been redacted.

Zynga has committed that any game it builds that includes Facebook integration or Facebook data will be exclusive to the Facebook platform for the duration of the agreement.

Here’s the list of some of the Zynga games covered by the exclusivity terms, as well as the date when exclusivity started.

PetVille Effective Date June 30, 2010
FishVille Effective Date June 30, 2010
Treasure Isle Effective Date July 15, 2010
Café World Effective Date July 15, 2010
Mafia Wars Effective Date July 31, 2010
YoVille Effective Date August 15, 2010
Live Poker by Zynga Effective Date August 31, 2010
FarmVille Effective Date August 31, 2010

Zynga has also agreed to tell Facebook about any new Facebook games at least a week before they launch, and the exclusivity terms apply as soon as any new Facebook game is available.

In exchange for Zynga’s “significant commitment,” Facebook will help Zynga meet “certain growth targets for monthly unique users of Covered Zynga Games,” the agreement says. It will also sell ads next to Zynga games and share a redacted portion of the resulting revenue.

It’s unclear what control Facebook has, if any, over Zynga games that are not on the Facebook platform, as these sections are so heavily redacted they are barely readable.

However, Zynga is permitted by the agreement to build its own “Zynga Platform” on top of the Facebook platform. (There’s a whole section on what this Zynga Platform is, but it’s completely redacted.)

It does appear that if Zynga games either exceed or fail to meet the growth targets promised by Facebook, the terms of the exclusivity agreement change.

But Zynga had to commit that its users cannot play any games covered by the agreement unless they are actively logged into Facebook for the duration of the session.

And Facebook seems to specifically exclude Zynga from launching its games on rival social platforms — there’s a list of these rivals, but it’s redacted. However, Zynga does have Facebook’s permission to launch an email- or SMS-based game.

Please see the disclosure about Facebook in my ethics statement.


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— Gitesh Pandya of BoxOfficeGuru.com comments on the dreadful opening weekend box office numbers for “The Fifth Estate.”