Does the bank own you, or do you own the bank? The continued codependency of Facebook & Zynga

There’s a saying “Owe the bank $1000 and they own you. Owe the bank $1 million and you own them.” Basically that at high levels of indebtedness the bank becomes dependent on you – your default would be their demise. Sort of a “too big to fail” idea.

Facebook and Zynga find themselves in a similar situation. Despite having signed a mutually agreeable deal, they are both working furiously to try and reduce codependency. Zynga with a move towards mobile and Z-Cloud. Facebook by diversifying revenues. It’s working somewhat – in early 2011 Zynga accounted for 19% of Facebook revenue, but by 2012 it was down to 15% (of course Facebook’s growing total revenue also contributes to this percentage drop).

Still though, for a soon to be public company, one likely to trade at a very high P/E multiple, that’s a big risk in a marketplace where missing earnings by a few cents can impact valuations. Both companies are well-managed, growth stories so my wondering here isn’t about whether the bottom will fall out of either property in the near-term, but rather how Zynga thinks about the fact that Facebook is still so dependent on them in the nearterm.

I assume the partnership agreement they signed doesn’t last in perpetuity – at some point it’s up for renegotiation. At that stage Zynga actually still wants some leverage over Facebook, so they want to maintain some degree of revenue concentration. My guess is the current deal provides some MFN status with regards to not being treated differently in the social feed than other gaming companies. And I believe it has been reported that Facebook agreed to drive a certain amount of traffic to Zynga properties.

For Facebook, they need to minimize Zynga as a percentage of revenue while still relying upon the advertising and credits revenue stream to make quarterly numbers. So they care less about suppressing Zynga and more growing the non-games business in general, since growing games likely means growing Zynga. Is that bad for other game developers? Will Facebook not invest as much in gaming relationships during this next phase?

Of course the¬†Machiavellian side of me imagines some large company like Tencent acquiring Zynga and doubling down on Facebook, not to maximize Zynga’s value but to control Facebook. Pretty sure that if a public Facebook is getting 25%+ of its revenue from one source then you own the bank.