Game over for Tencent’s plan to merge China’s largest gaming platforms – sources

By Elles Houweling

China’s antitrust regulator is expected to formally block Tencent Holdings’ plan to merge the country’s top two videogame streaming sites, Huya and DouYu.

According to three people close to the matter who spoke to Reuters on Monday, Tencent failed to gather sufficient remedies to meet the State Administration of Market Regulation’s (SAMR) requirements on giving up exclusive rights.

Tencent also recently withdrew its merger application for an antitrust review and told the market watchdog that it was unable to complete the resubmission of the merger review within 180 days after submitting the application for the first time.

Compared to other tech giants in China (notably Jack Ma’s Alibaba), Tencent has been careful to maintain a low profile in front of the government. “Once SAMR made it clear it didn’t like the smell of Tencent’s plan to merge Huya and DouYu, Tencent was not going to make a fight of it in the present very hot antitrust climate,” said Michael Orme, GlobalData analyst and China specialist.

Tencent first announced plans to merge the two companies last year in a tie-up designed to streamline its stakes in the firms, which were estimated to have an 80% slice of a rapidly growing market worth more than $3bn.

Huya and DouYu, ranked first and second respectively, are the most popular live video gaming websites in China, with users flocking to watch e-sports games and subscribing to check out professional gamers.

The overall market size of China’s Game Livestreaming Industry is expected to expand to nearly $6.19bn in 2021. Meanwhile, Tencent is a global market leader when it comes to the gaming sector in general. The company is strong across nine of the ten themes that matter most in this market.

According to GlobalData’s Scorecard, it has achieved perfect thematic scores of 5 out of 5 for mobile gaming, esports, game development and China impact, and scores of 4 out of 5 for the virtual and augmented reality, social media, Covid-19 and cloud gaming themes.

Tencent is Huya’s biggest shareholder with a 36.9% stake and also owns over a third of DouYu, with both firms listed in the United States, worth a combined $6bn in market value.

Separately, Tencent’s plan to take over private search engine Sogou will be approved this month by SAMR, one of the sources told Reuters.

This deal was given the green light by Chinese regulators as there was “no antitrust angle there,” Orme said.