Zynga IPO imminent?

By Molly McHugh May 25, 2011

According to AllThingsD, Facebook game developer Zynga will file its IPO papers within the next two weeks. “Sources close to the situation” say the move is imminent and that Goldman Sachs will be among the lead bankers.

Anytime a social media-esque company sparks IPO rumors, the bubble talk follows. While something so extreme as the race to avoid the bubble bursting may not be Zynga’s primary motivation, the success of the Pandora and LinkedIn public offerings could easily be part of Zynga’s motivation to follow suit. After filing its IPO, LinkedIn’s stock took a shocking jump and boosted the company’s value to approximately $9 billion. And if those numbers weren’t enough to have Zynga execs mulling the move, the fact that the company’s top three investors own $5.14 billion in shares might have something to do with it.

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Th news doesn’t come as much of a surprise. A round of fund raising in February that raised its value to roughly $10 billion was fairly indicative that Zynga had its eye on an IPO.

It’s a good time to be behind a reputable social networking platform that has established itself as some sort of innovator – which Zynga has done. The company is largely responsible for the mania of Facebook games as well as the success of spending money for in-game, virtual goods. Zynga continues to accumulate shocking profits with its line of “-Ville” games (recently adding GagaVille to the mix) and reportedly brought in $850 million in revenue last year.

So does this mean an IPO wave is coming? It’s no secret that there’s rampant speculation that the likes of Twitter, Facebook, and Groupon will be part of this public filing boom. Groupon has created the most buzz, given the fact that daily deals saturation is nearing insurmountable annoyance, plus its insanely high valuation. And despite how young Zynga and its fellow social media companies are, they have the social-startup-craze on their side.

If Zynga does file its IPO papers in the coming weeks, we’ll be granted a thorough look at the company’s numbers. But don’t get your hopes too high just yet: AllThingsD originally speculated Groupon would file its IPO sometime around May 17.

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Gaming

Facebook claims that just because EA is running, gaming isn’t dead on the social network

The winds of change at Electronic Arts have seen layoffs wrack the video game publisher, with studio members pink slipped from places like Visceral Games Montreal and its Los Angeles offices, all the way up to the departure of long time executive John Riccitiello. Perhaps the biggest change to EA’s business this spring though, is the shuttering of Playfish, the Facebook game developer EA acquired in 2009. Playfish and the six games the studio still ran on Facebook, including the once popular Pet Society and SimCity Social, will be closed in full by June. Are Facebook games dead? It depends on your perspective.
According to Facebook, the social network’s gaming world is still big business, despite declines in revenue over the course of 2012. Speaking with Gamasutra’s Mike Rose, Facebook technology communications manager Tera Randall said that the data shows a healthy, growing market. There are 250 million Facebook members playing games monthly over the network, an uptick from 235 million in October 2012. In terms of raw cash, there seems to be plenty. Facebook paid $2 billion to game developers operating on its network, with more than 100 developers pulling in over $1 million.
That huge number of developers operating on the platform is the problem for some major players though. While there’s still money to be made making and operating games through the world’s premiere social network, it’s an increasingly hostile environment to the big developers that dominated it during the boom years between 2008 and 2011. That the entire Facebook market is worth just $2 billion to game makers is likely a terrible truth for Electronic Arts and its shareholders. EA spent $300 million acquiring Playfish alone in 2009, and that doesn't include the money spent on internal development at other studios like EA Mobile, and other massive acquisitions like PopCap Games.
Facebook is not a market for giants. The rise and fall of Zynga is even more potent evidence of this. That studio accounted for 12-percent of all Zynga’s revenue all on its lonesome in 2011 when it was valued around $11 billion. Today Zynga is valued at around $2.6 billion and its games are no longer the hottest thing on Facebook. They are, after all, competing against hundreds of small developers and a Facebook audience increasingly accessing the network via gaming rich mobile devices.
Is Facebook gaming dead? No. But the age of Facebook gaming business behemoths certainly is.

Gaming

Investment in social gaming drops by $1 billion in 2012

An important rule to follow in the video game business: What seems suddenly like the most profitable new market in the world one day, can become a wasteland the next. At the beginning of the ‘00s, the industry was convinced that mobile gaming would be the next boom market, but it was another decade before mobile became the force it is today. Over the past five years, the expectation has been that social games played on mobile devices and browsers through networks like Facebook would be the next fabled boom. Even just a year ago, that seemed true: Zynga was valued at more than $10 billion just before the FarmVille maker went public. Today it’s valued below $2 billion and shares are trading below $2.50. It’s not just Zynga, either. The social game development bubble has burst.
According to a new Digi-Capital report (via GamesIndustry International), investment in social game companies fell a staggering 94-percent between peaks in 2011 and the end of 2012, a total decline of $1 billion. Just $853 million was poured into social game development in 2012, and most of that was not into would-be FarmVille contenders, but real money gambling game makers and “Middleware.” Middleware actually account for 35-percent of all social game industry investment.
Middleware doesn’t refer to actual games, but rather the software used for “gamification” of other services. For example, the software that powers something like GameStop’s PowerUp Rewards program, basic as that customer loyalty service is with its growing points, could be considered middleware.
There was still plenty of activity in the social game industry, though. While there was little money poured into new operations, 2012 was a period of significant consolidation, with tons of companies merging or getting bought up by large companies. Mergers and acquisition transactions, according to Digi-Capital, totaled $4 billion in 2012 with companies like China’s Tencent and others leading the charge.
What does this mean in terms of how games will actually be made over the next few years? For one, young designers looking to fund a new studio by developing social game prototypes should look elsewhere for the time being. The market has cooled. In terms of big publishers like Electronic Arts who have poured huge amounts of money into social game studio acquisitions over the past few years, don’t expect a huge number of new games from them. Development will likely shift towards integrating social elements into existing PC, console and mobile games. Hope you enjoyed that Mass Effect 3 multiplayer and social network integrated iOS game, because much more of that is on the way.

Gaming

Casual games bring in far less cash than you’d expect

Farmville

If you'd be so kind as to indulge us, we'd like to conduct a quick experiment. Ready? Alright, open a new tab in your browser of choice and navigate to your Facebook page. Once there, click around a bit. It doesn't really matter what you pull up; the important part here is that you spend a few minutes perusing at least a half-dozen different aspects of Zuckerberg's ubiquitous social network. Once you've seen all you need to see, your job is done.
Now, recalling the pages you've just seen, how many of them featured ads for video games? Not the sort of bombastic advertisements you'd expect to precede a big release from EA or Activision, but instead the smaller, mostly text ads for stuff like the above-pictured Farmville, Words With Friends and Mafia Wars. In our experience, these ads appeared on every single page we saw, and many of these pages featured ads for multiple casual titles.
Given this abundance of advertising and the frankly massive number of games on offer through Facebook alone, one might expect casual games to be the gaming industry's latest, most crucial cash cow. This idea is corroborated by the innumerable number of articles written over the past few years heralding casual gaming as the future of the games industry. Yet, a new report based on the events of the recent Digital Game Monetization Summit in San Francisco claims that these titles only account for a relatively minuscule 10 percent of the total revenue pulled down annually by the $50 billion gaming industry.
The problem? According to Paul Thelen, CEO of casual games creator Big Fish Games, many of the companies developing titles like those that Big Fish develops have little idea of how to properly monetize this niche space. "You need to match the game mechanic to the business model, and the monetization needs to match the business model of the game,” Thelen claims. “If you have a game that has 6 to 8 hours of linear gameplay and when you finish it, you're done, there are very limited ways you can monetize that game. What we've done is a simple transaction; you buy it, just like you would buy a book. It's very hard to monetize a book with free-to-play.”
Big Fish, whose games feature price points ranging from $7 to $20, plans to release 250 games in the course of 2013. For most traditional gaming companies that would be an unthinkable amount of development work, but the casual games model allows developers to put in far less work, for far less cash, and still wind up with a game that will appeal to a large enough swath of the market to earn a profit. The biggest budget titles coming from Big Fish are created for a mere $500,000 (with roughly an additional $20,000 tacked on to port the title to iOS and Android devices). Given the small development teams necessary to create a casual game, Big Fish has relatively tiny development costs, thus it takes far less revenue for the company to show notable profit.
Greg Richardson, CEO of Rumble Entertainment, is a bit more cynical about the future of casual gaming. "Of the $50 billion that was spent worldwide last year on games, less than 10 percent was spent on casual content," Richardson states. "These companies were really smart around analytics and monetization and very light in terms of product and content creation. I'm not sure any of those things are particularly sustainable. The future lies in going into the larger part of the market which is people that self-identify as gamers, and where the user acquisition and long-term value creation comes from making great games."
While this does serve to explain how casual games can be both "the next big thing" and only account for 10 percent of gaming industry revenues, it certainly doesn't justify the level of hype this segment has received in the recent past. It remains to be seen whether this figure will increase over the next few years, but if any lessons are to be taken from the Digital Game Monetization Summit it's that perhaps we've all become prematurely psyched for the endless bounty promised by casual games publishers. $5 billion is still a significant chunk of change, but it's going to take a massive amount of growth before casual games might be seen as realistic competition for big blockbuster titles like the Call of Duty franchise or Microsoft's Halo series.