“The merger will greatly diminish competition in the video game live-streaming market in terms of creating a horizontal monopoly,” said You Yunting, a senior partner at Shanghai DeBund Law Offices, who is not involved in the transaction. “From the view of a vertical monopoly, the merger will unfairly give Tencent the advantage from operating online games to live-streaming them.”

To be sure, no one is suggesting that the Huya-DouYu merger could be called off. Still, that has put the transaction – the largest of its kind in China’s video gaming industry – on low gear.

“The timing for this deal to be closed depends on the approval process by the relevant Chinese regulators,” said DouYu founder and chief executive Chen Shaojie during the Nasdaq-listed company’s earnings call on May 18. He maintained that the merger “is on track”.

While antitrust authorities are concerned about the merger giving Tencent an overwhelming lead in China’s video gaming market, they are willing to settle for approval subject to conditions, according to a Reuters report in March, citing people with knowledge of the matter.

With the video gaming market generally driven by a succession of hit new titles, the industry encourages increased competition between a growing number of developers to quickly bring the next blockbuster to market. But some analysts see the game live-streaming market as a field where anticompetitive practices could emerge.

Tencent continues to grow organically as well as through mergers and acquisitions. The company has already closed more than 50 video game-related deals as of May this year, according to a Niko Partners report. It said Tencent, on average, “closed one deal every 2.5 days in 2021”.

02:26

What makes Tencent such a tech goliath?

What makes Tencent such a tech goliath?

In its quest for global gaming domination, Tencent continues to invest in a “silent” manner, according to the report. That means its portfolio companies are not rebranded, allowing these firms to continue operating in the ways “that made them attractive to Tencent in the first place”.

That has helped fuel opposition to the Huya-DouYu merger.

“When Tencent extends its market-dominant status to the video game live-streaming area, it runs the risk of violating antitrust laws,” said You of Shanghai DeBund Law Offices.

The merger would give Tencent a firm grip on the development, publication and online distribution of a vast number of video games from various operating units, as well as live-streaming games in the industry’s biggest market.

Tencent did not immediately respond to a request for comment.

Chinese regulators now find themselves playing catch-up to old deals that enabled Tencent to gain dominance in a specific sector, according to Angela Zhang, associate professor of law at the University of Hong Kong.

“I can understand why [China’s] antitrust authority has an interest in vetting [the Huya-DouYu] deal and wants to impose some remedies, as the authority should have intervened [earlier] when Tencent acquired stakes in these companies,” Zhang said.

“Over the past 23 years, Tencent has managed to come this far because society and our country have provided support that allowed Tencent to continuously grow,” Ma told the Guangzhou-based newspaper.

Based on antitrust guidelines updated in 2018, companies must seek approval for mergers and acquisitions involving firms with annual revenue of more than 10 billion yuan globally, or 2 billion yuan in China.

The Guangzhou Intellectual Property Court last month ordered the ByteDance app called Douyin Huoshan Version, a short video and live-streaming platform, to cease incentivising users to live-stream Tencent’s Honour of Kings, the world’s most popular role-playing mobile game. The court also ordered ByteDance to pay 8 million yuan as compensation to Tencent for violating its copyright.

Enforcement of intellectual property rights to restrict competition in the video games industry may be a delicate area for authorities to resolve antitrust cases, according to Charles Yu, an associate at international law firm Pillar Legal.

“Gaming is more IP-focused,” Yu said. “Note that intellectual property right is a proprietary right, namely the owner of IP can decide whatever they want to use its own IP. So the boundary between monopoly and exercising the IP owner‘s right is vague.”

“As a result, regulators might be very cautious in pursuing a monopoly investigation in the video games industry,” Yu said.

Who owns in-game items acquired by players? Tencent makes its case

The court also ruled that NetEase does not qualify as having a dominant market status, so it is not subject to anti-monopoly laws.

Some analysts indicated that regulators could be overreaching if they start an antitrust crusade in the video gaming industry.

“The online game industry has different characteristics from e-commerce and food delivery, where dominance in users, merchants and logistics can easily translate into unfair scale advantages,” said Vey-Sern Ling, a senior analyst at Bloomberg Intelligence. “Games, similar to movies and other forms of entertainment, tend to be content driven, which is why we often see great successes from small, independent studios.”

Tencent profit jumps 65 per cent on back of fintech, gaming and investments

“It is hard to predict what SAMR would do, but I think if they would like to rein in Tencent‘s dominance, it is more likely that they will tackle the company’s huge social mobile ecosystem than its gaming business,” said Ling of Bloomberg Intelligence.

Despite all the market speculation, an antitrust action against Tencent may not be on the cards.

“In 2021, it seems unlikely SAMR will conduct an antitrust investigation into the gaming industry, following its action against Alibaba and Meituan,” Yu said, “Platforms like Taobao and Meituan affect many aspects of people’s daily life, relating to eating, travelling and daily shopping.”

“And from that perspective, the game industry seems much less important,” he said.