2011’s Biggest Rumors and Controversies in Social Games

As we approach the end of 2011, Inside Social Games looks back at the biggest stories in the social games industry based on controversies and rumored controversies around everything from layoffs to sunsetted games.

While not necessarily the most popular articles among investors and developers, these stories and subjects tend to be repeated almost as often as the success stories of mergers and acquisitions, IPOs, and other exits or expansions. In the case of rumors, these stories often couldn’t be independently verified or lacked enough substance to warrant a news report. Even so, some of them were persistent enough to merit mention here.

Zynga’s Stock Clawback Scandal – November, Unconfirmed
This year Zynga took some very poorly timed heat from a Wall Street Journal expose that claimed company CEO Mark Pincus pressured employees to return stock rights due to poor individual performance. Surfacing a month before the company’s hotly anticipated IPO, the article called Zynga’s corporate practices and long term ability to retain employees into doubt. While Zynga never denied the story, CNN did obtain a company memo that said the Wall Street Journal’s article was based on hearsay, but also specifically mentioning “meritocracy” as a core company value. We’ve since heard rumors that the alleged stock clawbacks were only directed at a very small number of employees that truly were under-performing. In the end, Zynga’s shares went on to be priced at $10, netting the company a billion dollars in its IPO and a market valuation of $7 billion. The company’s shares slipped after they began trading, and are now worth $9.75.

RockYou’s Dramatic Pivot – November
The year started off well for RockYou with the Playdemic acquisition and a new ad platform and partner publishing program. By mid-summer, however, it was clear that the Zoo World developer was in trouble even as it continued to expand via acquisition. The first of its partner-published games, Cloudforest Expedition, was delayed and eventually beaten to market by Zynga’s Adventure World. Overall traffic declined across most of RockYou’s owned-and-operated games despite a strong launch of Zoo World 2. By the time SVP of Games Jonathan Knight left the developer-publisher in late summer, rumors of planned layoffs began to circulate. RockYou CEO Lisa Marino confirmed just over a month later, adding that Playdemic would be sold back to its original owners and that Cloudforest developer Loot Drop was released from its contract. RockYou is currently claiming a profit for the final quarter; Zoo World 2 is showing a resurgence in traffic; Cloudforest Expedition remains unreleased, though Loot Drop has signed new agreements with other social game publishers.

Diner Dash Finished on Facebook – July
San Francisco-based PlayFirst began the year wtih big plans for bringing its IP to Facebook and a $9.2 million round of funding it secured at the end of 2010. Despite a solid launch and strong initial growth of its premier franchise, Diner Dash, the developer sunsetted the game after just eight months due to poor performance — the third failure in a row following Wedding Dash Bash and Chocolatier: Sweet Society. SVP of Games and General Manager Eric Hartness left the company around the time of the game’s demise and an unspecified number of employees were laid off not long afterward. At it stands now, the developer appears to have made a full scale retreat from social games, with a company representative telling Joystiq that PlayFirst will now focus on on the “mobile casual gaming space.”

Kabam’s Restructuring – December, Partially Confirmed
At the end of spring 2011, Kingdoms of Camelot developer Kabam closed an $85 million fourth round of funding to put toward ramping up its existing Facebook games and launching new ones. At the time that the funding was announced, Kabam said it had 400 employees across multiple studios — including a newly-opened San Francisco studio. Around August 2011, however, multiple anonymous tipsters told us that Kabam was preparing or had already begun rounds of layoffs. The stories seemed inconsistent as Kabam maintained a steady flow of hiring during this time period, and continued to launch new games. We observe, however, that Kabam sometimes launches games on Facebook that are neither branded nor announced — for example, Samurai Dynasty, which we first saw on our AppData charts in June — and then sunsets them if they fail to gain organic traction. These scrapped games could be cause for layoffs as could general restructuring. Kabam came out this month and announced the latter, claiming that fewer than 80 employees were affected. This contradicts the information provided by the tipsters, which place the number between 80 and 200. A spokeswoman tells us that Kabam currently has around 475 employees; the developer recently launched a licensed Godfather game on Google+ and on its own site.

Sticky Situation at Digital Chocolate – October, Unconfirmed
Once a major competitor to Zynga, Digital Chocolate was already losing ground at the beginning of 2011 despite launching new games Army Attack and Millionaire Boss and expanding onto mobile and Google+ with some of its older titles. As Millionaire Boss began to decline rapidly and planned updates to Army Attack were delayed, it came as no surprise to hear from a tipster who worked at the company that the developer was considering layoffs. A Digital Chocolate spokesperson denied any major layoffs when we contacted the developer in October, but a second source with knowledge of the company told us that Digital Chocolate’s social studio branch in San Mateo had been completely shut down due to rising user acquisition costs on Facebook. Additionally, this source says a failed publishing agreement with a first-time social game developer hurt Digital Chocolate’s ability to offset user acquisition costs. Digital Chocolate recently launched a new social game, Galaxy Life, on both its own site and on Facebook.

Vostu’s Most Litigated Form of Flattery – June to December
Brazilian social game developer Vostu made some ink in June this year when Zynga sued the company for copyright infringement, claiming Vostu had copied their games wholesale, right down to unintended glitches and mistakes. Vostu hit Zynga with a countersuit alleging Zynga had unsuccessfully tried to negotiate a partnership or acquisition with it before Zynga’s initial lawsuit. The companies settled out of court this month, with Vostu agreeing to pay Zynga an unspecified amount in compensation and make changes to MegaCity, Café Mania, Pet Mania and MiniFazenda. Vostu is currently branching out and is on track to release more casual social games, thanks to its earlier acquisition of MP Game Studio. Vostu is also working on adding new features to its core social games, like the custom in-game radio stations it just added to MegaCity and MiniFazenda.

Sony Online Entertainment Exits Facebook – May
Sony Online Entertainment started off the year by publishing a tie-in Facebook game for its EverQuest II franchise and continuing to operate several games developed by independent studios. None of these games found much traction in the first months of 2011, and somewhere around May, SOE quietly walked away from Facebook. Its games were either abandoned completely or handed back to their developers, as was the case with Night Owl Games’ Dungeon Overlord. A spokeswoman for the publisher wouldn’t confirm that SOE is completely out of the social game industry, but did say that the company was trying to get back to its MMO roots.

Deep Realms Deep Sixed – June/July, Unconfirmed
Disney Playdom was just beginning to exit its moratorium on new game launches at the beginning of the year, first with Deep Realms and then with Gardens of Time. The latter completely eclipsed the former — and just about every other game Disney Playdom released this year, even the Disney-branded GnomeTown and ESPN Sports Bar & Grill — and so we weren’t surprised to hear rumors that the Deep Realms team had been trimmed down early on in the year as the developer shifted its attention to other ventures. Given Deep Realms’ current traffic, it’s unclear at this point if the game will survive Q1 2012.

Rocket Ninja’s Wrestler: Unstoppable Makeover – May
2D wrestling sim Wrestler: Unstoppable had a very outspoken and loyal fan following by the time the game was acquired by Rocket Ninja in 2010. It appears to be these same fans stirring up controversy around the developer’s updates to the title — mainly, the visual makeover from 2D to 3D with Rocket Ninja’s proprietary engine. Players cited numerous bugs and performance issues caused by the new engine as their main complaint and a petition was circulated, calling for a return to the game’s original visuals. Wrestler: Unstoppable went into a sharp decline around the end of September; Rocket Ninja announced a $7.5 million second round of funding in November to put toward scaling its 3D engine in social and mobile games.