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Zynga to Abandon Real-Money Gaming

Zynga to Abandon Real-Money Gaming

Leading social gaming developer Zynga has announced it will abandon its pursuit to enter the U.S. online gambling market and will concentrate on social media games. The strategy is a risky one for the company, which has been steadily losing players and was looking to online gaming as a major revenue stream.

“Zynga believes its biggest opportunity is to focus on free-to-play social games,” read a statement from the company following the announcement of second-quarter earnings. “While the company continues to evaluate its real-money gaming products in the United Kingdom test, Zynga is making the focused choice not to pursue a license for real-money gaming in the United States. Zynga will continue to evaluate all of its priorities against the growing market opportunity in free, social gaming, including social casino offerings.”

Zynga launched real-money casino titles— Zynga Poker and Zynga Bingo—in April in the U.K. through a partnership with online gaming firm digital entertainment. Though the company was making some headway, it was too early to tell if those games were meeting financial expectations. Zynga’s second-quarter earnings were down 40 percent compared with last year, though the loss was not as severe as Wall Street analysts had predicted. However, Zynga continues to lose customers at an alarming rate as competing social games come on the market—most notably from giants in the casino industry like Caesars Entertainment, IGT and others.

With profits down, executives leaving and widespread company layoffs, Zynga founder Mark Pincus made the bold decision to hire Don Mattrick, former head of Microsoft’s Interactive Entertainment Business—the division that produces Xbox—as its new CEO. Mattrick, who took over the reins in late July, is now leading the company in a new direction.

“The decision really centered around focus,” said Zynga COO David Ko. “Zynga is in a transition, and we must stay focused and prioritize against the biggest opportunities that leverage our DNA in social and free-to-play.”

Zynga, which has applied for a Nevada gaming license where online poker is now active, will try and boost its bottom line with games similar to its popular FarmVille, CityVille, Words with Friends, and its casino-type games. Zynga sells virtual chips on its Texas Hold ‘em game, for example, but players in the U.S. cannot cash out winnings.

With its Nevada application mired in the regulatory process, the San Francisco-based company will not pursue real-money online gaming in states such as New Jersey and Delaware—where the field is becoming costly and crowded.  

Investors have reacted negatively to the new strategy— Zynga’s stock plummeted after the news was announced. But some financial analysts believe the plan could pay off in the long run.