Although rumors of a merger between Douyu and Huya have circulated for some time, Douyu finally announced on August 10 that its Board of Directors had received a preliminary non-binding proposal letter from Tencent to propose a stock-for-stock merger between Douyu and Huya. Simultaneously, Tencent spent $810 million in exchange for 30 million Huya shares to hold 51% of the company, and 70.4% of its voting rights. In other words, as of August 10, Tencent is the largest shareholder of both Douyu and Huya. The merger is likely to complete by the end of this year.

Although rumors of a merger between Douyu and Huya have circulated for some time, Douyu finally announced on August 10 that its Board of Directors had received a preliminary non-binding proposal letter from Tencent to propose a stock-for-stock merger between Douyu and Huya. Simultaneously, Tencent spent $810 million in exchange for 30 million Huya shares to hold 51% of the company and 70.4% of its voting rights. In other words, as of August 10, Tencent is the largest shareholder of both Douyu and Huya. The merger is likely to complete by the end of this year.

It is not surprising that Tencent is proposing to merge Douyu and Huya, as this will enable the company to dominate the game content streaming industry with its own E-game streaming platform. Tencent began investing in both Douyu and Huya in 2018, but was not directly involved in operations or management. However, numerous scandals involving Huya poaching popular Douyu streamers and subsequent court battles triggered Tencent’s involvement. Such events damaged the reputation of the video-streaming industry, and were detrimental to user engagement. In addition, the mounting threat from competing platforms such as Kuaishou and Bilibili forces Tencent to consolidate its dominant position in the games content streaming market.

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Short-form video platforms boast huge audiences

During China Joy, Kuaishou announced its monthly active users (MAUs) for games live-streaming had reached 500 million by the end of May, while the MAUs for games-related short videos breached 300 million. Also, Kuaishou has accelerated its number of partnerships with major esports championship event organizers for live streaming rights. The platform secured streaming rights for the King Pro League (KPL) in early 2020, and now Kuaishou is expected to focus on live-streaming of games, centering on Honor of Kings (Arena of Valor). As such, it is likely that only the combination of Douyu and Huya together could possibly compete against the popularity of Kuaishou. Although Tencent has invested in Kuaishou as well, the results of the negotiations regarding share allocation prevents the company from relying on Kuaishou to enhance its position in the games streaming market.

Combination triggered by slowing growth

Besides Kuaishou, Douyin (TikTok) and Bilibili are also targeting the games live-streaming market, and pose a threat to traditional streaming platforms - namely Douyu and Huya. The Douyu-Huya combination could optimize internal streaming resources, and reduce branding and management costs. In particular, the reduction of costs relating to partnering with popular streamers and relevant marketing activities is likely to be obvious after the merger. The growth rate of both Douyu and Huya is decreasing gradually, which reflects the increasing competition of this market and highlights that this is the right time for such a combination. The two platforms could then channel their joint resources into user engagement and producing high-quality content together.

The proposal from Tencent also reflects its strategic focus on games streaming in the following quarters and years. Game streaming platforms perform not only as revenue sources for Tencent, they also help to improve gamer engagement and render marketing activities more efficient and effective. Differentiation of Huya and Douyu might be a key issue after the combination. Douyu will likely leverage its existing gamer community function to improve interactivity between streamers and viewers (gamers). Additionally, considering the popularity of short-form video, one of the two platforms may launch the function in the future.