Huya (NYSE: HUYA) and Douyu (NASDAQ:DOYU), the two top players in the Chinese gaming livestreaming sector, have agreed to a blockbuster merger after a half-decade of rivalry, cementing the dominance of Tencent—a shareholder for both companies—in the lucrative gaming industry, as ByteDance grows in the field on the back of its popular short video apps.
The merger, which is expected to close during the first half of 2021, will see Douyu delist from Nasdaq after Huya buys all of its outstanding shares via a stock-for-stock deal, according to Monday’s announcement from two firms.
Huya and Douyu shareholders will each wind up with 50% of the combined company. Dong Rongjie, the current Huya CEO, and Chen Shaojie, Douyu’s CEO, will be co-CEOs of the new combined company.
Tencent will integrate its own e-sports livestreaming brand, Penguin, with the new business after the merger, valuing it at USD 500 million. Tencent will have a voting power of 67.5% in the new entity. Linen Investment Limited, a wholly-owned subsidiary of Tencent, will purchase 1,970,804 Class B ordinary shares of Huya from Dong and his affiliates, and purchase 3,703,704 Douyu shares from Chen and his affiliates. The merged entity will have more than 80% of the market share in China’s livestreaming industry.
More details about the Huya and Douyu’s business adjustments have yet to be disclosed. According to local media outlet Tech Planet, there will probably be a new brand named “Husha”, which is a combination of Huya and Douyu literally meaning “Tiger Shark” (Huya translates as “Tiger Teeth” and Douyu is “Fighting Fish”).
Tencent navigates the deal
Chinese gaming and social powerhouse Tencent has been a long-time investor in both Huya and Douyu, which are considered important platforms the giant relies on to distribute its new releases and keep gamers engaged. But the infighting between Huya and Douyu gave it headaches—they battled for top broadcasters as well as exclusive broadcasting rights of e-sports game for staggeringly high prices and had been locked in talent contract lawsuits and defamation suits.
“The direct result is that broadcasters’ salaries will be cut and the two won’t compete for broadcasting rights,” said an anonymous Huya employee. “In the long term, Tencent will connect every dot in the industry from game release, e-sports, to livestreaming,” she said.
“This helps creates a healthier industry environment,” said a gaming livstreaming manager at a Chinese top multi-channel network (MCN). “When Panda TV was high-flying, the valuation of streamers were over-hyped,” she said. Panda TV is a similar livestreaming platform, founded by Wang Sicong, son of Chinese billionaire businessman Wang Jianlin in 2015. However, it failed to succeed amid heavy competition in 2019.
But she thinks that the tension between Douyu and Huya won’t just disappear overnight as the merger goes ahead.
Wuhan-based Douyu was founded in 2014 and went public in July 2019. Tencent invested in Douyu in 2015 and continued to inject capital in the company ever since. By the end of March, 2020, Tencent had been the biggest shareholder of Douyu with a stake of 38%.
Over at Huya, a spin-off of entertainment giant YY Inc, Tencent poured USD 461.6 million before its listing on NYSE in May, 2018. In April 2020, Tencent became the controller of Huya with a voting power of 50.1%.
This year, both companies saw a boost from the pandemic, as people were homebound.
Douyu’s revenues in the second quarter increased by 33.9% year-on-year (YoY) to RMB 2.5 billion (USD 354.4 million) and average monthly active users (MAUs) in the reported quarter were 165.3 million, of which 7.6 million were paying. During the same period, Huya generated RMB 2.7 billion (USD 381.8 million) in revenue, up 34.2% YoY. It reported 168.5 million MAUs and 6.2 million paying users.
Tencent reportedly minted a unit, which fell under Tencent’s gaming arm Interactive Entertainment Group (IEG), to manage Douyu, Huya, and Penguin, in a bid to achieve more synergy, last March.
In August, it pushed forward the combination of the two with a preliminary non-binding proposal letter.
Fending off ByteDance in gaming
The marriage of Douyu and Huya comes at a time when short video apps Douyin and Kuaishou, also video platform Bilibili are beefing up their offerings in e-sports.
Per data from local research firm iResearch, China’s game-streaming market is estimated to generate USD 3.5 billion in revenue this year.
Douyin, the China version of TikTok, claimed to have 600 million daily active users (DAUs) in September, and its owner ByteDance is reportedly developing its own games, ranging from super casual ones to heavy games. Kuaishou reported 51 million DAUs in gaming-centric livestreaming in December 2019, and the number rose rapidly to 220 million this August. Bilibili, a video platform immensely popular among Gen Z and also a publisher itself, also expressed ambitions in gaming livestreaming. It reportedly spent RMB 800 million (USD 113 million) on a three-year exclusive agreement to broadcast the Riot Games’ League of Legends (LoL) World Championship in China. Notably, Kuaishou and Bilibili are also Tencent’s investees.
“Douyu and Huya still own a batch of top streamers who garner a majority of viewers,” said the aforementioned Huya employee. “But platforms like Kuaishou and Bilibili have more videos, either short or longer ones, aside from livestreaming, which can keep viewers staying longer,” she said.
“When it comes to the style, content on other platforms are more entertaining, sometimes focusing on the storytelling of a game. Streamers on Douyu and Huya are more professional players, highlighting the skills and techniques,” the MCN manager said. Her team also distributes content on Douyin, where she finds quite difficult to operate accounts.
“Gaming content easily gets banned on Douyin due to the copyright issues,” she told KrASIA. Compared to platforms backed by Tencent, which is the biggest game publisher and copyright owner in China, Douyin lacks the resources, although ByteDance has entered the arena aggressively.