Zynga: Facebook fall out threatens $1 billion float

July 4, 2011

Zynga: Facebook fall out threatens $1 billion float

The world’s largest online games company, Zynga, has warned that a potential falling out with Facebook could derail its trumpeted $1 billion float.

Its warning came on the same day that Facebook clamped down on people who lay games through its site, insisting that they must now pay for all games through its controversial “credits” system.

In documents filed with the Security and Exchange Commission on Friday, Zynga warned that it generated “substantially all our revenue” from Facebook and that a breakdown in the relationship could “harm business and adversely affect the value of our Class A common stock”.

The announcement is one of the most significant statements on the float documents filed by Zynga, which offers Cityville, Farmville, Mafia Wars and other popular social games through Facebook.

A bitter dispute over profit sharing almost caused Zynga to pull away from Facebook in early 2010.

In May this year, Bing Gordon, a Zynga board member, revealed that the company and Facebook had been locked in a “Cuban missile crisis” until the two companies reached a five-year deal last year.

Consumer advocate groups claim Zynga may have been offered special terms not offered to smaller game makers.

Under the new collection system introduced on Friday, consumers must pay for all Facebook applications and games through the “Facebook credit” system, under which Facebook collects 30% of all revenue. However, consumer groups are not happy with the payment system and has called upon the Federal Trade Commission to investigate the Zynga/Facebook agreement.

Source: Sean O’Driscoll

Via the Sunday Times

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