China halts Tencent-backed merger of live-streaming platforms Huya and Douyu

Asian Tech Press -- The strategic merger between Huya and Douyu, China's top two video live-streaming platforms, promoted by Tencent, was finally called off after a six-month review.

On July 10, China's State Administration for Market Regulation (SAMR) issued a statement prohibiting the merger of HUYA Inc. (NYSE: HUYA) and DouYu International Holdings Ltd. (Nasdaq: DOYU) under the law. It's the first case of banning the concentration of business operators in China's platform economy.

The announcement said that in terms of market share alone, the dominance of the Huya-Douyu merger speaks for itself. In terms of active users, the market shares of both firms exceed 45% and 35% respectively, totaling over 80%.

On the other hand, after the merger of the two platforms, Tencent may implement a two-way blockade to the upstream and downstream. For example, in the upstream, Tencent can restrict the promotion channels of online game providers; in the downstream, it can suppress other live-streaming platforms with the advantage of online game copyrights.

In response, Tencent announced that it would comply with the review decision, actively cooperate with the regulatory requirements, operate in compliance with the law, and effectively fulfill its social responsibility.

In fact, the ban on the Huya-Douyu merger is the third case of banning concentration of business operators since the ban on Coca-Cola's acquisition of Huiyuan Juice in 2009 and the ban on the formation of the network composed of Maersk, MSC, and CMA CGM in 2014. But in the Internet field, it is the first one.

Unlike Chinese regulators' previously post-facto sanctions against Alibaba's "two-choose-one" antitrust practices, the Huya-Douyu merger was rejected in the form of an administrative ban. It's with an obvious "pre-regulatory" overtone, and can avoid the expansion of subsequent risks.

Tencent's merger of Huya and Douyu began three years ago. On March 8, 2018, the tech giant made an exclusive strategic investment in Huya. On the same day, it injected an additional $630 million into Douyu.

On April 3, 2020, Tencent increased its stake with $262.6 million in cash, becoming the largest shareholder of Huya. By then, the company achieved its absolute control of Douyu and Huya. Six months later, Huya and Douyu jointly announced that they would undergo a strategic merger.

The merger was originally planned to be completed in the first half of this year, with Tencent owning 67.5% of the voting rights in the new entity and becoming the actual controller. However, that all came to an abrupt end when the merger application was rejected.

Sources say Tencent's application to merge Douyu and Huya was denied after it failed to come up with a solution to meet the regulatory requirement that the new platform gives up its exclusive rights to some game content.

"The regulatory tools are richer and more refined," said a researcher in the field of competition law. He pointed out that the ex-ante regulation is more beneficial for maintaining healthy competition in the market and for the development of enterprises than imposing huge fines after the monopoly occurs.

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