Regulator blocks China live-streaming platform merger

This landmark decision represents the first time regulators have intervened to prohibit market concentration in the internet industry. However, numerous internet-based technology companies, including Alibaba Group, Tencent, ByteDance, JD.com, Didi, and Meituan have been the subject of antitrust investigations this year.

Tencent proposed a merger of Douyu and Huya in August 2020. Three months later, the two NASDAQ-listed companies jointly announced an agreement that would see Douyu become a private wholly-owned subsidiary of Huya.

The plan was to remove internal competition issues and address the rise of newcomers in the live-streaming space such as Bilibili and Kuaishou. Bilibili is also listed in the US, while Kuaishou trades in Hong Kong. Tencent led a $350 million round for Kuaishou in 2017.

As of April 2020, Tencent owned 38% of Douyu. Other investors included Sequoia Capital China and Sequoia Capital Global Growth with a combined 9.3%.

Last year, Tencent built up a position in Huya, acquiring approximately $1 billion worth of shares from social networking platform Joyy - previously known as YY - and a smaller holding from Huya CEO Rongjie Dong. It ended up owning 51% of the company in terms of equity and a 70.4% voting stake.

Huya, which spun out from YY in 2014, also counts Ping An Insurance, Gaorong Capital, Engage Capital, and 5Y Capital as investors. It listed in 2018.

The State Administration for Market Regulation (SAMR) launched an antitrust review of the merger in January. Explaining the decision to block the deal, it noted that the combined entity would have a stranglehold on the online gaming ecosystem.

Tencent already controls 40% of the upstream online game operation space, more than any other company. Huya and Douyu have market shares of 40% and 30%, respectively, in the downstream game live streaming space, ranking first and second.

“Tencent already has sole control over Huya and joint control over Douyu. The merger of Huya and Douyu would allow Tencent to independently control the combined entity, further strengthen its dominant position in the game live streaming market, and at the same time give it the ability and motivation to implement closed-loop management and a two-way vertical blockade in the upstream and downstream markets,” SAMR said in a statement.

Chenying Zhang, an adviser to China’s antitrust committee and a law professor at Tsinghua University, said in an article published on the SAMR website that the case will have “far-reaching influence and set an example for anti-monopoly actions against platform economies.”

Zhang cited several examples of Facebook’s "stifling acquisitions," including Instagram in 2012 and WhatsApp in 2014. He claimed that these deals have blocked effective competition in the market, thereby inhibiting innovation and ultimately harming consumer welfare. 

Tencent said in a statement on Saturday that it would abide by the decision, comply with regulatory requirements, operate in accordance with applicable laws and regulations, "and fulfill our social responsibilities.”

The broader antitrust push against China's platform internet companies reached an initial conclusion in April when SAMR hit Alibaba with a record fine of RMB18.2 billion yuan ($2.8 billion) in April. The country's central bank has also imposed restrictions on the scope and operation of financial services businesses controlled by these companies.

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