Facebook Tweaks Terms for Using Its Virtual Money After Antitrust Complaint; FTC Action Still Essential, Consumer Watchdog Says

SANTA MONICA, Calif., July 6, 2011 /PRNewswire-USNewswire/ -- 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.

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