Alterations that Facebook Inc. made after the Cambridge Analytica data-privacy scandal damaged large videogame publishers that rely on its Login service, leading Facebook to loosen some of the new requirements.
Activision Blizzard Inc.’s popular “Candy Crush” series, and Zynga Inc., responsible for games such as “Words With Friends,” saw reduced revenue due to changes and bugs in Facebook’s Login software that smooths the sign-up process, company executives and financial analysts said this week. Neither videogame maker disclosed the precise extent to which the issues impacted the second quarter’s sales, but executives from both said during earnings calls last week that their audiences and sales suffered from changes that forced users to sign in to their apps again.
“[Facebook] added certain prompts, it introduced some new bugs that cause players to have to re–log in, and it frankly added friction to the player experience for some of our franchises,” Zynga Chief Executive Frank Gibeau said in his company’s ZNGA, -1.72% earnings call this week. “The good news is that was a short-term problem that we were able to work with Facebook on, that we responded to.”
In Activision’s ATVI, -3.70% case, executives discussed technical issues with a “third-party partner” on games produced under the King Digital Entertainment Ltd. label — known for the “Candy Crush” series — that led to a user decline and an impact on net bookings, a financial metric that gaming companies and analysts use as a substitute for revenue.
“These changes inadvertently impacted some users’ ability to play and invest,” Activision Chief Operating Officer Collister Johnson said on the company’s earnings call. “Our team worked with partners to address the issues and stabilize net bookings.”
Activision did not respond to a MarketWatch request for comment.
Both companies said the issue had been fixed and should not be a drag on third-quarter earnings, which suggests that minor changes Facebook announced last month were related.
The Facebook developer tool Login in part facilitated the disgraced and now defunct Cambridge Analytica’s collection and storage of millions of users’ personal data.
When asked whether Facebook FB, +0.80% had fixed the Login bugs, a spokesman said the company had addressed the concerns in a July blog post and that it was working closely with King and Zynga. The social-media giant declined to further comment on the extent of the issue, whether it affected revenue, and to identify other firms affected by it.
Facebook’s Login technology allows developers to simplify the account set-up process via their websites or apps by borrowing some of the data associated with Facebook. It is the developer tool that partly facilitated the harvesting of user data researchers and Cambridge Analytica improperly gathered and stored on millions of members, though Facebook had previously changed the rules that allowed the original personal-data harvesting.
Following the Cambridge revelations in March, Facebook made further changes to developer access to data through the Login technology, restricting what third parties can obtain by default, among other things. As part of those changes, Facebook required users who had not used an app in 90 days to log in upon their return — which appears to have caused the issues Zynga and Activision described in their earnings calls.
Facebook initially announced the first change to Login in April. The company publicly issued an update on July 27 that seemed to loosen some of the criteria for app use within the three-month time frame, and that it had initially taken a very “conservative approach” to what it considered app use. The July update expanded the definition of app use within three months.
Even though Activision would not name Facebook specifically on its earnings call, analysts said Facebook was the obvious culprit. Besides Zynga’s specific statement, there are few other tech platforms with the heft to affect millions of users that use Login to connect to various third-party apps, including games.
Piper Jaffray analyst Michael Olson said by email Friday that he “just couldn’t think of what else” Activision’s issues could be, since Zynga essentially said the same thing on its call. MKM Partners analyst Eric Handler wrote in a Friday note to clients that executives noted specifically that Facebook network issues caused a dip in King game revenue. And Stifel analyst Drew Crum wrote in a Friday note to clients that the damage to King revenue was “possibly” a result of Facebook.
Zynga declined to comment on the impact or details further, though the company has posted an Android and iOS help page related to connection issues with Facebook’s log-in features. Both Zynga and Activision said in earnings calls that the involved companies have fixed the bugs.
No Facebook-specific issues were mentioned in the earnings of other prominent videogame makers that have reported quarterly results of late, among them Electronic Arts Inc. EA, +1.73% , Take-Two Interactive Software Inc. TTWO, +8.98% and Glu Mobile Inc. GLUU, -0.83% Activision fared poorly after its earnings report, declining 2%, while Zynga gained 3.9%.
Facebook’s stock took a much bigger hit after its earnings report but ended this week up 3.9%%, as the S&P 500 index SPX, +0.46% gained 1.4%.