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November 30, 2012

Game Over for Zynga and Facebook

By Ed Silverstein, TMCnet Contributor

Zynga (News - Alert) is losing its preferential relationship with Facebook, which has given the struggling gaming company greater access to Facebook’s many subscribers.

The troubling news for Zynga was found in a recent filing with the U.S. Securities and Exchange Commission.

“Zynga’s right to cross-promote between games on the Facebook (News - Alert) web site will be governed by Facebook’s standard terms of service,” according to the SEC filing.

Image via Shutterstock

Previously, the two firms had a unique deal with many preferences for Zynga.

In addition, Facebook “will no longer be prohibited from developing its own games,” the statement added. There is no word whether Facebook will take advantage of that new freedom.

As part of the new agreement, Zynga will no longer be required to display Facebook ads and credits on Zynga game pages. Nor will Zynga have to use Facebook as the “exclusive social site for its games, or to grant Facebook exclusive games,” according to a report from TMCnet.

"We have streamlined our terms with Zynga so that's use of Facebook Platform is governed by the same policies as the rest of the ecosystem," Facebook said in a statement. "We will continue to work with Zynga, just as we do with developers of all sizes."

But for Zynga – which has seen layoffs and studio closings – the move could make a troubling situation worse. Some 80 percent of Zynga's revenue comes from Facebook users.

Facebook, on the other hand, has earned significant revenue from Zynga, with the gaming company previously paying fees representing more than 15 percent of Facebook's total revenue, according to Reuters.

Zynga has is closed its Boston studio and may close studios in Japan and the United Kingdom. Both companies are looking for opportunities elsewhere.

“The deal comes as the two companies are at increasing pains to distance themselves from each other,” reports the Silicon Valley/ San Jose Business Journal. “Facebook has been trying to diversify its app platform to offer more than just games, which once accounted for the lion's share of the 15 percent of its revenue that came from credits. Zynga's slumping sales and stagnant growth on the Facebook platform have driven its stock to all-time lows, and have it struggling to expand into new verticals like mobile devices.”

The new arrangement goes into effect on March 31, 2013. The news did not help Zynga’s stock price. Its shares dropped some 13 percent in after-hours trading on Thursday.

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Edited by Brooke Neuman
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