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Tencent Kicks Off Deal to Create $10 Billion Streaming Giant

Zheping Huang
·3 min read

(Bloomberg) -- Tencent Holdings Ltd. has proposed a deal to merge DouYu International Holdings Ltd. with Huya Inc., creating a Chinese game streaming leader akin to Amazon’s Twitch with a market value of more than $10 billion.

Tencent has offered to buy 30 million shares of Huya from part-owner Joyy Inc. -- itself a live-streaming service operator -- for $810 million, Joyy said. It separately proposed a merger via a share swap of Huya and Douyu, they said, confirming a deal Bloomberg News first reported last week.

Tencent is said to seek control of the final entity, which would allow the WeChat operator to dominate the $3.4 billion Chinese live-streamed gaming arena. The social media titan -- which owns a 37% stake in Huya and 38% of DouYu -- has been discussing a merger with the duo over the past few months, people familiar with the deal told Bloomberg News last week.

Shares in Huya gained as much as 12% in pre-market trading, while Douyu jumped about 11%. A deal would create an online giant with more than 300 million users, cementing Tencent’s lead in Chinese games and social media. Faced with rising competition for advertisers from ByteDance Ltd. and its rapidly growing stable of apps, the WeChat operator would then run a highly profitable service akin to Amazon.com Inc.’s Twitch.

Read more: Tencent Said in Talks to Create $10 Billion Streaming Giant

Tencent’s shoring up its home-market position against the backdrop of a U.S. administration increasingly hostile toward Chinese tech companies. Last week, President Donald Trump signed an executive order banning WeChat in 45 days, highlighting the growing hurdles Chinese companies face abroad.

China’s game-streaming market is estimated to generate 23.6 billion yuan ($3.4 billion) 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-recognized names. Companies like Google-backed Chushou TV shuttered their services after failing to secure new money, while NetEase Inc.’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 Inc -- 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%. The latest acquisition of shares from Joyy will make Tencent the majority shareholder in the streaming platform (51%) and give it 70.4% of total voting rights, according to documents filed by the two companies. The Chinese tech giant owns about 38% of DouYu.

(Updates with share action from the fourth paragraph)

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