ContraVille? Konami Signs Up to Make Games for Zynga.com

There are no allegiances in gaming anymore.  There was a time when developing games for the Nintendo Entertainment System meant that you were strongly pressured not to make games for other consoles.  For me, I was on the Nintendo ship until they lost Square and Final Fantasy VII was produced for the Sony Playstation.  Well, these days platform creators like Nintendo and Sony have new competition in the form of Zynga and OnLive, and Zynga just recently announced that Konami, one of the largest console game makers in the world, will be producing games for their new Zynga.com platform.
The news was reported by Rob Dyer, the head of publishing at Zynga who’s heading up the Zynga.com platform, at GDC in San Francisco on Thursday.  In addition to Konami, Zynga has recruited Playdemic and Rebellion as well, and explained a few details of the payment process.  When using Facebook credits as most of the games use right now, these publishers will be getting 70% of the 70% of revenue that Zynga gets, putting publishers at receiving 49% of revenue from a sale on Zynga.com.
That said, games that appear on Zynga.com will take advantage of massive cross-advertising opportunities and will join one the fastest growing social gaming company on the web.  It may be a great long term strategy to join the network and make your games known to gamers as Zynga.com continues to expand and provide new offerings.  Inside Social Games points out that “Konami and Rebellion also make for strange bedfellows as both developers have little to no experience in social games.”  This is true of Zynga’s strategy at this point, and speaks to the fact that Zynga must be aggressively courting small game publishers right now to get them to join the network — it would be quite difficult to persuade even mid-size game publishers to join and give 30% of their revenue to Zynga.
We’ll see how things progress for Zynga.com, and whether they begin to mould themselves into their own social network in the future.  Are they attempting to go the route of something like OMGPOP?

Zynga Moves Beyond Facebook to Zynga.com

Zynga, the casual gaming company that accounted for 12 percent of Facebook’s revenue in 2011, is starting its own gaming site at Zynga.com.

The first games to make the transition will be “CastleVille,” “Words With Friends,” “CityVille,” “Hidden Chronicles,” and “Zynga Poker” in early March.
On the new platform, gamers will be able to connect with other players outside their networks on Facebook, called “zFriends.” Other social features include real-time chat, and the ability to post achievements, or to send gifts and messages without leaving the game. The interface shows a running tally of the number of players currently online, as well as a stream of who’s playing what on the right side of the screen. No one on Facebook is particularly impressed by their friends’ casual gaming scores, so a separate environment where everyone who is there is there to play is Zynga’s best idea yet.
But this doesn’t mean that the company is severing its ties with Facebook. According to VentureBeat, Zynga gets 90 percent of its revenue from the social network by recruiting new players through Facebook Connect and collecting payments through Facebook Credits. The company will continue to use Facebook Credits as its virtual goods payment system on the new platform, even though Credits takes a 30 percent cut of the profits.
Third-party developers will also be able to use Zynga’s platforms to publish games.  It’s possible that Zynga could take an additional cut, but Zynga COO John Schappert told TechCrunch that terms with these developers were negotiated and private.
“We’ve been a web/game company delivering content to our players and developing our own internal infrastructure and technology. And now we’re transforming into a gaming and platform company,” Schappert told VentureBeat. “We’ve listened to our players, to what they want from social gaming. They want a place where they can play together, they want a place that curates and delivers the best new social games for them, where they’ll always have a friend to play with.”

Led By Social, Gaming Investment, M&A More Than Doubled In 2011; Consolidation Looms

Yesterday, we took a look at the growing comfort consumers, specifically gamers, have with purchasing virtual goods and currency on the Web and mobile devices. Virtual goods are becoming a booming market thanks to the growing maturity of gaming platforms, free-to-play models and the profusion of mobile devices.
Today, international investment firm Digi-Capital published its in-depth review of the global gaming space, giving us a sense of the size, breadth, and activity of the very international gaming market last year that is contributing to the changing behavior around virtual commerce — as well as a glimpse into what we can expect from the industry over the course of 2012.
For starters, Digi-Capital found that gaming investment and M&A more than doubled in 2011, as private placements grew by 96 percent to $2 billion, the number of transactions increased by 67 percent to 152, and the average fundraising round increased by 17 percent to $13 million. When combined with the enormous IPOs of Zynga and Nexon, investment value nearly quadrupled. All in all, gaming M&A volume grew 88 percent to 113 transactions, value grew 160 percent to $3.4 billion, and the average M&A deal size grew 38 percent to $30.4 million.
In terms of which gaming sectors saw the most investment and M&A activity in 2011? Unsurprisingly, social and casual games took home the bacon, making up 57 percent of private investment and 45 percent of M&A activity. Digi-Capital believes that Zynga’s IPO was likely the “high water mark for Social Games 1.0,” as the crowded nature of the space will make it increasingly difficult for companies to sustain user acquisition and retention.
In analyzing global gaming in terms of total daily active users and individual game daily active users, the investment firm found that a small number of companies are delivering on the promise of maintaining (and growing) their user bases, specifically referencing Wooga and King.com. However, with the trend beginning in 2011, this year will likely see continued consolidating M&A activity in gaming.

Second to social and casual gaming in terms of transaction volume was social/mobile games, with 30 percent of private investment and 27 percent of M&A activity, although the value of private investment hasn’t really hit its full potential yet. Digi cited DeNA and Gree as two examples of how investment in social-mobile games can actually deliver ROI, with the former seeing more than $1.4 billion in revenues at a 50 percent operating margin, and the latter seeing equivalent revenues in the 12 months leading up to December 2011, with a 46 percent operating margin. Going forward, mobile-social and cross-platform games will continue to attract significant attention from both investors and potential acquirers.
And just as we wrote in April last year, large, profitable Chinese, Japanese, and South Korean gaming companies will continue to look for M&A opportunities in North America, as gaming continues to explode across Asia. The same will be true for some of the big American gaming companies, but both suffer from a lack of local knowledge, and cross-pollination.
Going forward, Digi-Capital expects online and mobile games to significantly contribute to the growth of the international gaming market, with the total market reaching an estimated $82 billion by 2015, and online and mobile games taking 50 percent of that revenue. (Interestingly, it expects the pure console sector to be “flat to down” over that time.) What’s more, the report forecasts that Asia and Europe will take 87 percent of the revenues for online and mobile games, with China leading at 36 percent, followed by Europe at 20 percent, South Korea at 12 percent, and Japan at 10 percent.

However, while online and mobile games are growing their scale and share of the overall market, consumer markets are expected to continue to fragment, and profitable business models will become harder to come by. Over the course of the next year, gaming companies will have to develop multiple development platforms, instead of relying on one hit game, and find multiple platform and geographical distributors. Relying solely on Facebook won’t cut it for long. Rapid, low-cost game development and redevelopment cycles, fast failure, strong analytics, and true scalability will continually become more significant as the industry matures.
That being said, Digi-Capital found that there is more demand for investment among high-growth gaming companies than there is supply, as “outside major investment deals, online and mobile games companies still find it challenging to find high quality investors, and traditional VCs are becoming increasingly selective.” The current trend among VCs, the report finds, is to go after later-stage deals, but there’s potential to change as the market changes and more people flock to mobile and social games.
All in all, it seems there are plenty of potential growth and consolidation opportunities across the gaming sectors, but there’s no doubt that mobile-social, online, and cross-platform games will continue to explode over the course of the coming year, and we can expect M&A and investment activity to increase as social gaming works toward consolidation and more mobile gaming companies rise into the spotlight.

Zynga’s Earnings: Social Gaming Revenue by the Numbers [INFOGRAPHIC]

Social gaming juggernaut Zynga released its 2011 Q4 earnings on Tuesday — its first public report since hitting NASDAQ in December.
The numbers were promising for investors, but revealed that scaling might pose challenges for longterm profitability. Our friends at Statista have taken a deeper look at the report and rendered the graphs below to show the relationship between Zynga’s massive user base, wavering growth patterns, and how much users are paying for content.

Have you purchased stock in Zynga? Do you expect it to be a longterm win for your portfolio? Let us know what you think of the report in the comments below.