Huya-DouYu merger would cement gaming giant Tencent’s position in China, experts say
- Tencent is reportedly driving discussions to merge China’s two biggest video game live-streaming platforms, Huya and DouYu
- The merger may help cement Tencent’s position domestically at a time when Chinese tech companies are undergoing heavy scrutiny overseas, experts say
The deal would create an online giant with more than 300 million users and a combined market value of US$10 billion, and Tencent is looking to become the largest shareholder in this entity, according to the report.
Tencent and DouYu declined to comment on the report. Huya did not immediately respond to queries.
Talk of the deal comes at a time when Chinese tech companies are under heavy scrutiny in the US and other markets, and experts say it could be a strategic move for Tencent to secure its position in its home market by expanding its control across the gaming supply chain.
Tencent in talks to create US$10 billion video game-streaming giant
“Think about them showing you a game and then allowing you to buy it and play it on the platform immediately,” he said. “This is very powerful.”
Cloud gaming – which enables gamers to play games streamed online without having to download them – will open up more revenue options for all three companies by transforming Huya and DouYu into Tencent's downstream customer acquisition arms, said Vincent Fernando of investment research firm Zero One.
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“Assuming [Huya and DouYu] have a total 250 million unique monthly active users, then at just 10 yuan (US$1.44) per month of cloud gaming subscription fees Tencent would already be earning an additional 30 billion yuan of annual revenue, representing a 26 per cent revenue uplift from its 2019 online gaming figure,” Fernando said.
Rosenthal said that given tense relations between the US and China, he suspects that if New York Stock Exchange-listed Huya and Nasdaq-listed Douyu are merged, both companies may exit US stock markets.
“Chinese gaming companies go public in the US so that they can have an international brand,” he said. “But almost all industry executives agree that the returns in terms of funding from their stock listings in China are definitely more interesting than overseas.”
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“After the TikTok case, Chinese entertainment companies are not safe in the US,” said Ming Lu, head of China technology, media, and telecom research at Singapore-based Aequitas Research. “Hong Kong could be the first choice [for such companies to list].”
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Faced with challenges in overseas markets, Tencent may be directing more of its attention back to its home country, which in any case is the world’s largest market for video games.
China’s video game live-streaming market is estimated to have an audience of 340 million users and will generate 23.6 billion yuan (US$3.4 billion) in revenue this year, according to Shanghai-based research firm iResearch.
Rosenthal said that while the current geopolitical situation is a huge factor, the maturity of the market is also a reason for Chinese companies looking to list back home instead of the US.
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“The knowledge investors in China have of the [domestic] games market and their ability to understand what value they can get from investing in these companies is much higher than that overseas, particularly if such companies are giant players in China,” Rosenthal said.
He added that other Chinese gaming companies such as Giant Interactive Group, CMGE Technology and iDreamSky Technology Holdings have pulled out of the US in favour of listing in mainland China or Hong Kong in past years.
DouYu and Huya both reported tremendous year-on-year growth in the first quarter of this year. DouYu reported a net profit of 297 million yuan, more than sevenfold the figure from the same period last year, while Huya recorded 171 million yuan in profits, representing 169.8 per cent growth year-on-year.
Tencent bolsters lead in China’s game live-streaming market after Huya deal
But other Chinese video platforms are also closing in on the increasingly lucrative gaming market, according to Chenyu Cui, a senior research analyst for games at London-based consultancy firm Omdia.
"Although Tencent is dominant in the e-sports ecosystem with games and streaming platforms, it faces threats from short video streaming platforms such as Kuaishou and TikTok as well as ACG (Anime, Comic and Games) platforms like Bilibili,” she said.
In December, Shanghai-based streaming video service Bilibili, in which Tencent also invested more than US$300 million in 2018, reportedly paid US$113 million to exclusively stream the League of Legends World Championships for three years.
