Zynga 2014 Annual Report Download - page 71

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Table of Contents
that game to determine the rate at which inactive players stopped playing. Based on these dates we then project a date at which all paying players
for each monthly cohort are expected to cease playing our games. We then average the time periods from first purchase date and the date the last
player is expected to cease playing the game for each of the monthly cohorts to determine the total playing period for that game. To determine
the estimated average playing period we then divide this total playing period by two. The use of this “average” approach is supported by our
observations that paying players typically become inactive at a relatively consistent rate for our games. If future data indicates paying players do
not become inactive at a relatively consistent rate, we will modify our calculations accordingly. When a new game is launched and only a limited
period of paying player data is available for our analysis, then we also consider other factors, such as the estimated average playing period for
other recently launched games with similar characteristics, to determine the estimated average playing period.
Future usage patterns may differ from historical usage patterns and therefore the estimated average playing periods may change in the
future. We assess the estimated average playing period for paying players and the estimated average life of our virtual goods quarterly. Changes
in our estimated average life of durable virtual goods during the twelve months ended December 31, 2014 for various games resulted in a
decrease in revenue, income from continuing operations and net income of $1.2 million, which is the result of adjusting the remaining
recognition period of deferred revenue generated in prior periods at the time of a change in estimate. These changes in estimates did not impact
our reported earnings per share for the twelve months ended December 31, 2014.
From July 2010 through the third quarter of 2013, Facebook’s proprietary virtual currency, Facebook Credits, was the primary in-game
payment method for our games played on the Facebook platform. Under the terms of our agreement with Facebook, Facebook set the price our
players pay for Facebook Credits and collected the funds from the sale of Facebook Credits. Facebook’s stated face value of a Facebook Credit
was $0.10. For each Facebook Credit purchased by our players and redeemed in our games, Facebook remitted to us $0.07, which is the amount
we recognized as revenue. Accordingly, we recognized revenue net of the amounts retained by Facebook related to Facebook Credits
transactions because we did not set the pricing of Facebook Credits sold to the players of our games on Facebook. In July 2013, Facebook began
to transition payments made on the Facebook platform from Facebook Credits to Facebook’s local currency-based payments program. This
transition was completed in the fourth quarter of 2013. Under the terms of our agreement, Facebook remits to us 70% of the price we request to
be charged to the game player for each transaction. We recognize revenue net of the amounts retained by Facebook related to Facebook local
currency-based payments because Facebook may choose to alter our recommended price, for example by offering a discount or other incentives
to players playing on their platform. Additionally, we do not receive information from Facebook indicating the amount of such discounts offered
to our paying players or regarding the actual cash paid by our players to Facebook. Accordingly, we are unable to determine the gross amount
paid by our players to Facebook.
For revenue earned through certain mobile platforms, including Apple iOS and Google Android, we recognize online game revenue based
on the gross amount paid by the player because we are the primary obligor and we have the contractual right to determine the price to be paid by
the player. We record the related platform and payment processing fees as cost of revenue in the period incurred.
We estimate chargebacks from our third-party web and mobile payment processors to account for potential future chargebacks based on
historical data and record such amounts as a reduction of revenue.
Advertising
We have contractual relationships with agencies, advertising brokers and certain advertisers for advertisements within our games. We
generally report our advertising revenue net of amounts retained by advertising networks, 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. Certain
advertising arrangements that are directly between us and end advertisers are recognized gross equal to the price paid to us by the end advertiser
since we are the primary obligor and we determine the price.
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