December 2, 2012

Zynga Announces Changes To Partnership With Facebook

redOrbit Staff & Wire Reports — Your Universe Online

A partnership that was arguably the most fruitful in social media history is coming to an end, as Facebook and Zynga have amended the agreement that led to the success of Farmville and other similar social games.

According to BBC News reports, the deal that gave Zynga special access to subscribers of the Mark Zuckerberg-founded social network will officially come to a close on March 31, 2013. After that time, the games developer will no longer be allowed to promote its Zynga.com platform on Facebook and will in turn no longer have to promote Facebook on its own website.

"Zynga disclosed Thursday in a regulatory filing new business freedoms from Facebook along with an end to its favored treatment status on the social network," explained Scot Martin of USA Today. "The new agreement allows Facebook to pursue its own games. Under the pact, Zynga no longer has to use Facebook's payments system nor its login to games and it gets new ad freedoms."

Shares of Zynga fell as much as 10 percent on Friday, one day after the amendments to the original 2010 agreement were announced, according to Reuters.

Despite that initial downturn in the stock, however, Wedbush Securities analyst Michael Pachter told clients - as well as Reuters and the Associated Press - that the move would likely be "positive" for both Facebook and Zynga over the long haul, especially since the latter would now be able to offer additional payment options and attract new players who are not currently Facebook members.

The Wall Street Journal's Steven Russolillo agrees with Pachter's assessment.

"Becoming less reliant on Facebook may ultimately not be such a bad thing for Zynga," he wrote in a Friday blog post. While initially the deal "doesn´t sound like such a good development," largely because "the new arrangement leaves the potential for Facebook to produce its own games and become a direct competitor to Zynga," in reality, analysts "are taking the glass-half-full approach about the future prospects for both companies."

"We see this as a 'post-nup,'" added Needham & Company analyst Sean McGowan, who Russolillo said continues to give the game developer a buy rating and a price target of $4. "The companies are changing the terms of their relationship, but not ending it. We believe these changes will better allow Zynga to pursue its multi-platform goals."