Zynga shares fall as Facebook is given free rein to develop games

Game developer Zynga has amended its contract with Facebook, and will no longer be restricted to releasing its games only on Facebook. Zynga has filed a document with the SEC, which details the amendments in the agreement between the two companies. However, this news led to Zynga’s shares on Wall Street dropping by more than 12 percent, as one crucial line at the bottom of the SEC document states that Facebook will soon be free to develop its own games, games that could compete with Zynga, which is something that was prohibited by the original agreement.

“In addition, effective on March 31, 2013, certain provisions related to web and mobile growth targets and schedules will no longer be applicable and Facebook will no longer be prohibited from developing its own games. Further, Zynga’s right to cross-promote between games on the Facebook web site will be governed by Facebook’s standard terms of service,” reads the document.

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Zynga may be affected by this new agreement as well.

According to the SEC, Zynga can now launch games on any platform it wishes and use non-Facebook ad payments and ads, but Facebook might stop giving it valuable preferred treatment. Zynga will still continue to have a huge presence on Facebook, and has stated that its games “will generally be available through the Facebook web site concurrent with, or shortly following, the time such game is made available on another social platform or a Zynga property.”

But this move may also hurt Zynga in the long term as the company will no longer be able to cross-promote its games. Essentially, if a player on Zynga.com shares his achievements from the game on to their Facebook Timeline, it will no longer direct it back to Zynga.com, which could mean a fall in the traffic to the site.

On its end, Facebook has said that it has no intention of getting into making games. “We’re not in the business of building games and we have no plans to do so,” the social network giant said in a statement. “We’re focused on being the platform where games and apps are built.” This should probably come as a relief for game developers eyeing Facebook as a platform for launching their games.

Zynga had built a convenient system with Facebook since the early days of the platform. Zynga games drew a lot of hits and users kept coming back to Facebook for Zynga’s games. In turn, Zynga saved a lot of advertising spend, since the high viral coefficient meant that with one user, several of their friends got tagged along for free.

Zynga contributed to 19 percent of Facebook’s revenue in 2011. This came in 2010 after the two companies struck a deal where it was decided that Zynga would use Facebook credits as payments for five years. More deals were inked by the two, including Zynga agreeing to use Facebook’s virtual currency and ad units on Zynga.com and launching its games exclusively on Facebook.

However, with rocky share prices and troubles within the company, Zynga has contributed only 7 percent to Facebook’s total revenue this year, a sharp slide of 12 percent from last year. 

As of now, whether the easing off of restrictions over each other salvage the Zynga-Facebook love affair or spell doom for the ‘Ville’ games on the social networking website is something we will have to wait and watch.