The Risky Legal Waters of RMT in Social Media Games: A Zynga Case Study

Pixels and Policy previously reported on the potential risks of building an online gaming platform around the concept of real money transactions, or RMT's. Customers have proven willing to shell out large sums of money for virtual goods in the form of microtransactions, the $1 – $5 purchases common to games on Facebook and MySpace. So what's the problem?

There's an emerging legal question regarding RMT, and it centers on the growing partnership between online game developers and marketing agencies. What happens when a developer offers "free credits" for filling out "trial" offers? As social gaming titan Zynga found out, offering another venue for RMT is proving far more complicated than planned.

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Zynga’s Virtual Currency System Comes Under Heavy Fire

Farmville Thanks to some extensive reporting by a few gaming-industry websites, prominent social media game companies like Zynga have a battle on their hands.

The big issue is whether Zynga – which recently announced a huge profit – is basing most of its impressive financial growth on scams.

Investigative blog Techdirt and Mike Arrington of TechCrunch took Zynga to task for drawing a huge revenue stream from what they argued are questionable contracts, intensive marketing to children, and developer-created scarcity.

Pixels and Policy takes a look at the allegations and finds out there's quite a bit to be said for the quality of games-industry journalism.

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All In The Family: Zynga Sues Playdom for ‘Mafia Wars’ Rip-Off

Just a day after our coverage of how social networking games like Zynga's Mafia Wars are raking in tens of millions of dollars in revenue every year, news broke that Zynga was headed to court. The unlucky defendant? Playdom, author of the eerily familiar-looking Mobsters. Looks like there's some *ahem* bad blood between the families.

From VentureBeat

Zynga filed another suit claiming
that Playdom had hired away four Zynga employees who had helped the
company steal Zynga’s secrets, including a crucial document called the
Zynga Playbook

The Zynga Playbook is literally the recipe book that contains Zynga’s
“secret sauce,” and its contents would be invaluable to a competitor
like Playdom.

The Zynga Playbook constitutes a collection in one
document of many of the most material non-public commercially valuable
concepts, techniques, know-how and best practices for developing
successful and distinctive social games.

So Zynga argues Playdom allegedly pilfered their "secret sauce" by hiring away employees and pumping them for info. As we mentioned yesterday, Zynga has a lot to fight for – its playbook brought in $50 million in revenue at last count, and a recent expansion of their Texas Hold'em app to the iPhone costs anywhere from nothing (for the lite version) to $34.99.

That said, 'Mobsters' does play like 'Mafia Wars,' but I struggle to find a social networking game that doesn't play similarly to every other social networking game. The real trouble here is the litigation. If big developers like Zynga can sue for a game that resembles its own in theme or mechanics, despite the fact that small producers have only limited mechanics to work with, this could create a chilling effect on small game production.

We've repeatedly seen through iPhone Apps and do-it-yourself Facebook coding that small developers can create products that resonate. The appetite for both graphics and non-graphical virtual worlds is growing, especially for worlds like Mafia Wars that can be played without demanding graphics capabilities. These are the virtual worlds for casual gamers, and casual gaming is a lucrative market, willing to drop hundreds through microtransactions and customization features.

It would be a disservice to the emerging social networking game genre if litigious power players scared small developers away from the platform. There's definitely growth potential there.