Zynga 2012 Annual Report Download - page 68

over the estimated average period that paying players typically play our games (as further discussed below).
Future paying player usage patterns and behavior may differ from the historical usage patterns and therefore the
estimated average playing periods may change in the future.
Prior to October 1, 2009, we did not have the data to determine the consumption dates for our consumable
virtual goods or to differentiate revenue attributable to durable virtual goods from consumable virtual goods.
Beginning in October 2009, we had sufficient data to separately account for consumable and durable virtual goods
in one of our games, thus allowing us to recognize revenue related to consumable goods upon consumption. Since
January 2010, we have had this data for substantially all of our web games, thus allowing us to recognize revenue
related to consumable goods upon consumption for our web-based games. We expect that in future periods there
will be changes in the mix of durable and consumable virtual goods sold, reduced virtual good sales in some
existing games, changes in estimates in average paying payer life and/or changes in our ability to make such
estimates. When such changes occur, and in particular if more of our revenue in any period is derived from goods
for which revenue is recognized over the estimated average playing period, or that period increases on average, the
amount of revenue that we recognize in a future period may be reduced, perhaps significantly.
On a quarterly basis, we determine the estimated average playing period for paying players by game beginning
at the time of a payer’s first purchase in that game and ending on a date when that paying player is no longer playing
the game. To determine when paying players are no longer playing a given game, we analyze monthly cohorts of
paying players for that game who made their first in-game payment between six and 18 months prior to the
beginning of each quarter and determine whether each player within the cohort is an active or inactive player as of
the date of our analysis. To determine which players are inactive, we analyze the dates that each paying player last
logged into that game. We determine a paying player to be inactive once they have reached a period of inactivity for
which it is probable (defined as at least 80%) that a player will not return to a specific game. For the payers deemed
inactive as of our analysis date we analyze the dates they last logged into 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.
In May 2010, we entered into an agreement with Facebook 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 the players of our
games. 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.
We estimate chargebacks from Facebook and our third-party payment processors to account for potential
future chargebacks based on historical data and record such amounts as a reduction of revenue.
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