Tencent drives merger of China's biggest game-streaming firms to create $10bn giant

Tencent owns stakes in both Huya and DouYu gaming platforms

Tencent is driving merger talks of two of China's biggest game streaming companies. Reuters 

Tencent is driving discussions to merge China’s biggest game-streaming platforms Huya and DouYu International in a deal that would allow it to dominate the $3.4 billion (Dh12.48bn) arena, according to sources.

The Chinese social media giant – which owns a 37 per cent stake in Huya and 38 per cent of DouYu – has been discussing a merger with the duo over the past few months, although details have yet to be finalised, sources said. Tencent is seeking to become the largest shareholder in the combined entity, one source said.

A deal would create an online giant with more than 300 million users and a combined market value of $10bn, cementing Tencent’s lead in Chinese games and social media.

Faced with rising competition for advertisers from ByteDance and its rapidly growing stable of apps, the WeChat operator would then run a highly profitable service akin to Amazon’s Twitch. Huya and DouYu would keep their respective platforms and branding while working more closely with Tencent’s own e-sports site e-Game, sources said.

Douyu’s shares surged 18 per cent in pre-market trade in New York, while Huya soared 15 per cent. Tencent climbed 2 per cent to a two-week high in Hong Kong.

“As the major shareholder of both platforms, Tencent would benefit because a merger would remove unnecessary competition between them,” Bloomberg Intelligence analyst Vey-Sern Ling said. “The enlarged scale can also help to drive cost synergies and fend off emerging competitors.”

Tencent and DouYu representatives declined to comment, while Huya spokespeople did not respond to requests for comment.

Tencent is shoring up its home-market position against the backdrop of a US government increasingly becoming hostile toward Chinese technology companies. WeChat has a limited US presence and Trovo Live, a mobile-focused game-streaming service for American consumers, is only in its initial stages.

China’s game-streaming market is estimated to generate 23.6bn yuan (Dh12.48bn) in revenue this year, according to iResearch. The country’s streaming networks live and die by the popularity of star players and the virtual tips and gifts that fans buy for them, leading to intense bidding wars for the most-recognised names. Companies like Google-backed Chushou TV shuttered their services after failing to secure new money, while NetEase’s CC Live has found a small niche in broadcasting its in-house titles.

Already featuring Tencent’s marquee games like PUBG Mobile and Honor of Kings, Huya and DouYu have established a clear lead as the top two platforms. Nevertheless, revenue growth slowed down for both in recent quarters as users shifted their attention to ByteDance’s Douyin, the Chinese twin to the globally popular TikTok short-video service.

A merger would help them lower broadcast and content costs at a time when rival video services like Kuaishou and Bilibili – both also backed by Tencent – intensify their efforts to compete for more gaming content.

In April, Tencent bought an additional stake in Huya for about $260 million from Joyy, boosting its voting power in the platform to more than 50 per cent.

When asked about the possibility of a merger with Huya, DouYu founder and chief executive Chen Shaojie told analysts on a March earnings call: “We believe it’s Tencent’s vision.”