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Tencent’s game streaming mega merger hit a regulatory wall, so who lost out?

Written by AJ Cortese Published on     2 mins read

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Huya and Douyu are the two most popular video game streaming platforms in China. Tencent would have gained more than 67% voting power in the merged enterprise.

Douyu and Huya, two of China’s largest game streaming platforms, were set to consolidate in a Tencent-orchestrated deal by the end of Q2 2021. By law, the merger had to be approved by the State Administration for Market Regulation, or SAMR, but the regulator blocked the deal.

If Huya and Douyu managed to get the green light, Tencent would have solidified its leading position in video game streaming, but the SAMR cited Tencent’s dominance in video game production as a reason behind its refusal to give the go-ahead. Put simply, if the USD 5.3 billion merger had gone through, Tencent would have had a monopolistic position well beyond its stakes in video game studios—it held 43% market share in the games sector in 2020, according to data compiled by Niko Partners. For Tencent, the antitrust issue seems to be limited to the gaming industry, as this week, the SAMR authorized the company’s USD 3.5 billion purchase of search engine Sogou, a listed subsidiary of Sohu that will be taken private.

Douyu and Huya will remain as standalone companies with similar offerings and revenue streams from ads and the sale of virtual gifts. They will continue to compete in the game livestreaming market against new entrants like ByteDance’s Huoshan, a vertical under TikTok sibling Douyin. TikTok’s parent firm boasts more than 600 million monthly active users on Douyin and has strong livestreaming DNA. In fact, ByteDance was sued by Tencent for streaming Tencent’s Honor of Kings on Huoshan, and was ordered to pay RMB 8 million in damages by a Guangzhou court.

Huya’s platform is home to well-known anchors, casters, and gaming stars. Its content relies on premium intellectual property streaming, and caters to e-sports fans and gaming enthusiasts. In this regard, it may have more to lose from the failed merger compared to Douyu, which features a more diverse range of content, including talk shows, variety shows, and outdoor livestreams. The opportunity for closer cooperation with its majority shareholder Tencent, a global leader in video game IP creation, would have significantly strengthened Huya’s position.

While Douyu’s more diversified content strategy puts it in direct competition with short video platforms like Douyin and Kuaishou, the merger would have mainly augmented its gaming content, which, although a key category, is only a part of Douyu’s more balanced content mix.

Tencent faces mounting regulatory pressure on multiple fronts. In addition to the blocked merger of Huya and Douyu, government policies have restricted screen time for young gamers. Tencent Music Entertainment, which develops audio streaming services, may be in the crosshairs of the SAMR as well, Reuters reported.

Meanwhile, old grudges between tech companies have resurfaced. In May, ByteDance published a lengthy WeChat post that alleged Tencent blocked 49 million users each day from posting Douyin content on WeChat and QQ. Both ByteDance and Tencent have issued public statements to say they will comply with antitrust regulations.

Read this: Tencent is investing in a video game company every three days

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