WASHINGTON, June 29, 2011 /PRNewswire-USNewswire/ -- Consumer Watchdog has filed a complaint with the Federal Trade Commission charging that a virtual currency system called "Facebook Credits" used to play games on Facebook's social network violates antitrust law.

The virtual goods market is expected to produce revenue of $2.1 billion in 2011, up from $1.6 billion the previous year, Consumer Watchdog said. Facebook has 500 million users worldwide, with 30 percent of them in the United States, meaning roughly half of the U.S. population uses Facebook.  The social network controls well over 50% of the market for virtual goods offered in social gaming, Consumer Watchdog said.

New Facebook Credits terms are scheduled to take effect on Friday, July 1, 2011. Under the new contract, imposed as Facebook prepares to go public in 2012, game developers using the Facebook platform must exclusively use Facebook Credits in the operation of their games; must agree not to charge lower prices to consumers outside of Facebook; and must pay a 30% service fee for all Facebook Credits purchases.

The complaint, released today, asks the FTC to issue an injunction that would stop the anticompetitive behavior.  It also asks the FTC to investigate a deal between Facebook and Zynga Inc., the largest game developer in the United States, as a possible "unreasonable restraint on trade."

Read the complaint from the nonprofit, nonpartisan public interest group here: http://www.consumerwatchdog.org/resources/cwd_ftc_facebook_credits_complaint-3.pdf

Consumer Watchdog warned that Facebook was creating its own online monetary system and would use the same exclusionary tactics from social gaming to control prices and exclude competitors from other markets. Facebook is expected to offer streaming media, music, and potentially real-world, non-digital goods for purchase with Facebook Credits as the applications become more diverse on the social network.

"FTC investigation and enforcement is necessary to prevent Facebook from destroying competition in the market for virtual goods purchased in social games, and eventually in other markets for purchasing goods or services on the Internet, to protect existing businesses from being unfairly boxed out of the market, and to allow new businesses to enter the relevant markets, and ultimately, to protect consumers from higher prices," the complaint said.

"This isn't just about fun and games," said John M. Simpson, Consumer Advocate. "These activities in the virtual world are a big business, worth billions of dollars.  If Facebook is allowed to dictate terms in the online gaming market though anticompetitive tactics, consumers will pay more and innovation will be stifled."

Under the new terms scheduled to go into effect on Friday, game developers must exclusively use Facebook Credits in their games; must agree not to offer lower prices to consumers outside of Facebook; and must pay a 30% service fee for all Facebook Credits purchases.

Consumer Watchdog's complaint said the new Facebook Credits terms enable Facebook to maintain and extend its power in the market for virtual goods purchased in social games. Because the social gaming audience exists primarily on Facebook, developers must agree to adhere to Facebook Credits terms if they want to compete in the market.

The new Facebook Credits terms are a barrier to competition between social game developers, and between potential competitors to Facebook -- social networks or websites operating as a platform for games -- in two ways, Consumer Watchdog said.

First, by prohibiting game developers from offering lower prices to users outside Facebook, Facebook has fixed prices and therefore stifled competition outside Facebook because developers cannot provide the incentive of a discounted price on another social network or website that would draw players away from Facebook.

Second, Consumer Watchdog charged, the 30% service fee exacted by Facebook from game developers make cost prohibitive for smaller game developers to compete inside the Facebook platform against larger developers.

"Facebook has big plans for Facebook Credits, and its anticompetitive terms have implications beyond the market for virtual goods purchased in social games," said Laura Antonini, Consumer Watchdog research attorney. "It is imperative that the FTC promptly investigate Facebook's Credits terms with developers before the Facebook Credits program is expanded."

Consumer Watchdog asked the FTC to take the following specific actions:

    Investigate the marketplace for virtual gaming and the use of virtual currency within social gaming platforms;
    Investigate the development of Facebook Credits and its imposition upon developers;
    Investigate alternative arrangements that Facebook has offered to developers, specifically whether the May 2010, agreement between Facebook and Zynga and/or other developers contains anti-competitive terms;
    Enjoin Facebook from requiring social game developers to exclusively utilize Facebook Credits for the purchase of virtual goods within their games;
    Enjoin Facebook from prohibiting any developer or application provider from offering lower prices on their products outside the Facebook platform; and
    Enjoin Facebook from requiring any developer or application provider to exclusively utilize Facebook Credits for goods or services sold within the Facebook platform.


Consumer Watchdog is a non-partisan public interest organization with offices in Santa Monica, CA and Washington, D.C.  For more information, visit us on the web at http://www.ConsumerWatchdog.org.

SOURCE Consumer Watchdog

SANTA MONICA, CA – Facebook has revised terms for game developers using its “virtual money,” Facebook Credits, changing one blatant anticompetitive provision in the wake of an antitrust complaint from Consumer Watchdog, but Federal Trade Commission Intervention is still necessary, the nonpartisan, nonprofit group said today.

Facebook’s revised terms still require developers to use Facebook Credits exclusively to sell virtual goods in their games and to pay an exorbitant 30% fee for redeeming credits so they can be paid.  Facebook also claims the right to change the Facebook Credits terms at any time.

“Faced with an antitrust complaint, Facebook tweaked one blatantly anticompetitive provision, but they’ve used their monopoly position to maintain an onerous burden on developers that ultimately will mean higher prices for consumers,” said John M. Simpson, director of Consumer Watchdog’s Privacy Project. “Facebook tweaked its terms when its worst policies were highlighted; now there is nothing to stop them from changing them when the heat’s off.  We call on the FTC to formally block Facebook’s predatory policies.”

The old policy prevented game developers from offering lower prices for virtual goods when they used a different platform for a game than Facebook -- for example My Space or Yahoo or their own website -- a clear limit on fair price competition.

“Facebook isn’t being run out of a dorm room anymore,” said Simpson. “It’s a global, multi-billion dollar corporate giant that dominates its market and must play by the rules. Its executives shouldn’t have to be embarrassed into doing the right thing by the filing of a complaint with the Federal Trade Commission.”

The revision in terms came on the eve of July 4th holiday weekend as the social network giant began requiring all virtual goods sold through game applications to be bought with Facebook Credits.  Until July 1, game developers could take payment for their games’ virtual goods directly using such methods as PayPal or credit cards.

The revised rule says, “You may not charge a logged-in Facebook user of your game app on Facebook a higher price in Credits for an item, virtual currency, or service than you would charge a logged-in Facebook user on another platform or service via another payment method."

Thus, a developer now can offer price competition on other platforms as long as the player isn’t logged into Facebook.

“While this specific modification quells concerns about the effects of the Credits terms on other possible markets which may arise through the Facebook platform, we still need to remember that Facebook holds monopoly power in the market for virtual goods purchased in social games so it's important to keep a close eye on its pricing terms in this market," said Laura Antonini, Consumer Watchdog Research Attorney.

Read an analysis of the changes in the Facebook Credits terms here: http://www.consumerwatchdog.org/resources/fb_revised_terms_la_highlights.pdf

Read the Facebook Credits terms revised on July 1 here: http://www.consumerwatchdog.org/resources/facebook_credits_terms_updated_7-1-11.pdf

Read the old terms here: http://www.consumerwatchdog.org/resources/facebook_credits_terms_last_updated_3.30.11.pdf  

The virtual goods market is expected to produce revenue of $2.1 billion in 2011, up from $1.6 billion the previous year, Consumer Watchdog said. Facebook has 500 million users worldwide, with 30 percent of them in the United States, meaning roughly half of the U.S. population uses Facebook.  The social network controls well over 50% of the market for virtual goods offered in social gaming, Consumer Watchdog said.

Even with the rule change, Facebook’s dominance of the market gives it unreasonable power over game developers.  The social network will charge game developers a 30% fee when they redeem their Facebook Credits.  While the rule blocking competition outside the Facebook platform has been eased, the service fee exacted by Facebook from game developers may make it cost prohibitive for smaller game developers to compete inside the Facebook platform against larger developers.

Read the June 28 complaint from the nonprofit, nonpartisan public interest group here: http://www.consumerwatchdog.org/resources/cwd_ftc_facebook_credits_complaint-3.pdf

Consumer Watchdog warned that Facebook was creating its own online monetary system and could use exclusionary tactics similar to those from social gaming to control prices and exclude competitors from other markets. Facebook is expected to offer streaming media, music, and potentially real-world, non-digital goods for purchase with Facebook Credits as the applications become more diverse on the social network.

Consumer Watchdog’s June 28 complaint asked the FTC to take the following specific actions:

    Investigate the marketplace for virtual gaming and the use of virtual currency within social gaming platforms;
    Investigate the development of Facebook Credits and its imposition upon developers;
    Investigate alternative arrangements that Facebook has offered to developers, specifically whether the May 2010, agreement between Facebook and Zynga and/or other developers contains anticompetitive terms;
    Enjoin Facebook from requiring social game developers to exclusively utilize Facebook Credits for the purchase of virtual goods within their games;
    Enjoin Facebook from prohibiting any developer or application provider from offering lower prices on their products outside the Facebook platform; and
    Enjoin Facebook from requiring any developer or application provider to exclusively utilize Facebook Credits for goods or services sold within the Facebook platform.

- 30 -



Consumer Watchdog is a non-partisan public interest organization with offices in Santa Monica, CA and Washington, D.C.  For more information, visit us on the web at http://www.ConsumerWatchdog.org

( MAY 2011 )
Even though no comprehensive online privacy law has yet been passed by Congress, the Federal Trade Commission has gotten busy in the last year enforcing privacy rules in a few areas in which it’s already empowered to act, like protecting children. Playdom will pay $3 million to settle FTC charges that it illegally collected information from children younger than 13, and then exposed that information online.

Playdom operated 20 “virtual worlds” websites where users could play online games, including 2 Moons, 9 Dragons, and My Diva Doll. According to the FTC, one of those sites, Pony Stars, was specifically aimed at children, and 821,000 users registered between 2006 and 2010. The other sites had more general audiences but also attracted 403,000 children who registered in the same time period.

See more of our latest Games coverage
or add an alert for future coverage of Games.

The games that the FTC is concerned about were acquired by Playdom when it purchased Acclaim Games last year. Playdom was purchased by Disney a few months after the Acclaim acquisition.

The game sites did the same things that a lot of community-based websites do. The games featured “personal profile pages” and online community forums, and enabled—not required—users to “publicly post their full names, email addresses, instant messenger IDs, and location.” But the rules are different for kids, and under one of the few existing federal laws that deals with online privacy, the Children’s Online Privacy Protection Act or COPPA, Playdom should have provided proper notice and obtained parental consent before collecting or disclosing kids’ personal info.

The company has agreed to pay $3 million to settle the charges, and sign a consent decree that it won’t violate COPPA in the future. The complaint also personally named Playdom executive Howard Marks, who was CEO at Acclaim and continued to run the Acclaim games while at Playdom.

Playdom New Hire Roster!

http://www.linkedin.com/company/playdom

http://socialtimes.com/playdom-facebook-credits_b18787

proof of 5 year contract during "pre anti trust violations with FB TOS in regard to FTC/FB changes in summer of 2011

http://socialtimes.com/the-economics-of-facebook-games_b4280

Proof of the low overhead vs. high profit margins