Zynga 2011 Annual Report Download - page 69

Download and view the complete annual report

Please find page 69 of the 2011 Zynga annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 104

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104

Table of Contents
In May 2010, we entered into an agreement with Facebook that required us to accept Facebook Credits as the primary in-game payment
method for our games played through the Facebook platform. The agreement required us to begin migrating our games to Facebook Credits in
our games beginning in July 2010, and by April 2011 this migration was complete. Facebook Credits is Facebook’s proprietary virtual currency
that Facebook sells for use on the Facebook platform. Under the terms of our agreement, Facebook sets the price our players pay for Facebook
Credits and collects the cash from the sale of Facebook Credits. Facebook’s current stated face value of a Facebook Credit is $0.10. For each
Facebook Credit purchased by our players and redeemed in our games, Facebook remits to us $0.07, which is the amount we recognize as
revenue. We recognize revenue net of the amounts retained by Facebook because we do not set the pricing of Facebook Credits sold to our
players. Prior to the implementation of Facebook Credits in our games, players could purchase our virtual goods through various widely
accepted payment methods offered in the games and we recognized revenue based on the transaction price paid by the player.
Advertising
We have contractual relationships with agencies, advertising brokers and certain advertisers for advertisements within our games. We
recognize advertising revenue for branded virtual goods and sponsorships, engagement advertisements and offers, mobile advertisements and
other advertisements as advertisements are delivered to customers as long as evidence of the arrangement exists (executed contract), the price is
fixed or determinable, and we have assessed collectability as reasonably assured. Certain branded in-game sponsorships that involve virtual
goods are deferred and recognized over the estimated life of the branded virtual good or as consumed, similar to online game revenue. Price is
determined to be fixed or determinable when there is a fixed price in the applicable evidence of the arrangement, which may include a master
contract, insertion order, or a third party statement of activity. For branded virtual goods and sponsorships, we determine the delivery criteria has
been met based on delivery information from our internal systems. For engagement advertisements and offers, mobile advertisements, and other
advertisements, delivery occurs when the advertisement has been displayed or the offer has been completed by the customer, as evidenced by
third party verification reports supporting the number of advertisements displayed or offers completed.
We report our advertising revenue net of amounts due to advertising agencies and brokers because we are not the primary obligor in our
arrangements, we do not set the pricing, and we do not establish or maintain the relationship with the advertiser.
Multiple
-element Arrangements
Beginning on January 1, 2011, we adopted new authoritative guidance on multiple-
element arrangements, using the prospective method for
all arrangements entered into or materially modified from the date of adoption. Under this new guidance, we allocate arrangement consideration
in multiple-deliverable revenue arrangements at the inception of an arrangement to all deliverables based on the relative selling price method,
generally based on our best estimate of selling price. We offer certain promotions to customers from time to time that include the sale of in-
game
virtual currency via the sale of a game card and also other deliverables such as a limited edition in-game virtual good. There was no material
impact on our financial statements as a result of implementing this newly adopted authoritative guidance in 2011.
Revenue by type
The following table presents the components of revenue (in thousands):
65
Year Ended December 31,
2011
2010
2009
Online game
$
1,065,648
$
574,632
$
85,748
Advertising
74,452
22,827
35,719
Total revenue
$
1,140,100
$
597,459
$
121,467