Chinese game live-streaming merger to push Tencent’s change

Oct 19, 2020 Entertainment douyu Huya

On the evening of October 12, Huya and DouYu announced that they have entered into an Agreement and Plan of Merger.

Pursuant to the Merger Agreement, Huya will acquire all outstanding shares of DouYu in a stock-for-stock merger, resulting in the shareholders of each company holding about 50% of the combined company. At that time, Douyu will become a wholly-owned private subsidiary of Huya, which agrees to delist from the Nasdaq and its chief executive Chen Shaojie will become a joint CEO with Huya's Dong Rongjie.

Meanwhile, Tencent's livestreaming business Penguin eSports will also participate in the integration, and the entire process is expected to be completed in the first half of 2021. After the Huya-DouYu merger is complete, Tencent will hold 67.5% of the voting shares of an enlarged, becoming the de facto controller.

 

Tencent's helplessness

In the Internet world, the only constant is change, and competition is the norm. Even established giants must continue to rapidly improve the quality of their products and services in order to fend off challenges from newer players.
 
After two-three year relatively mild competition, China's Internet newcomers this year have launched massive offensives against the existing giants. Alibaba has been fighting with Meituan in the local life field, while Tencent is being pushed harder by ByteDance in terms of games and traffic.
 
Local life is a new sector for Alibaba, while traffic and games are Tencent's lifeblood. Tencent is ready to attack.
 
The merger of Douyu and Huya is an important deployment in Tencent's battle to defend its traffic and position in the gaming market.
 
The two old game broadcast platform in the mobile and PC terminal game each have their own advantages, overlap volume of only 6.52 million, and the new user age coincidence is not high. It is expected that the cumulative market share of the two is more than 80% after the merger, the monthly active users will be more than 300 million.
 
300 million volume in most of the track has been considered the absolute head, but with the switch in the style of mainstream live broadcast and the rise of more short video platforms, the competition of live game broadcast has expanded to include pan-entertainment platforms such as Douyin, Kuaishou, Bilibili.

Douyin's daily active users have been more than 600 million, and is still growing at a high rate. Although there is no clear data, there must be quite a few users for which live games or videos are available. In August this year, the person in charge of Kuaishou game revealed that the number of its MAU in the game business is more than 220 million, the number of its MAU in the game short video exceeded 300 million.
 
At present, Tencent's resources include several major game IP, a large number of players, the eSports tournament and some live broadcast platforms, occupying an absolute advantage in the game industry. But out of the game industry, what is Tencent's advantage in the live streaming?

Powerful as Tencent, the face of a number of rivals with huge development potential can not be taken lightly. The merger of giants is conducive to the rapid formation of scale effects, to obtain an advantage, which has been confirmed in the case of the merger of Didi and Kuaidi, Meituan and Dianping, etc. The merger of Douyu and Huya is at least more competitive than working separately, which can reduce internal conflicts.
 
The two companies are bound to face issues like integrating business lines, job changes and redundancies. By contrast, Tencent is the biggest winner of the merger. However, this is not a victory for Tencent, but rather the optimal solution to its predicament.

 

Live broadcast vs short video

Live game broadcasting is one of the early products of live broadcasting. In the era of 2G and 3G, people still rely heavily on PC terminal, and live broadcast is more like a supplement to TV programs, which focuses on the broadcast of game events and regular live broadcast of game professionals. The popularization of mobile Internet makes live streaming more entertaining.
 
The time people spend on entertainment is limited. Even though the main audiences of various types of live broadcasts are different, there is competition among them. For example, statistics show that the market share of e-commerce live streaming has been increasing this year, threatening the market share of live game streaming.
 
Although Huya and Douyu are the double-headed platforms in the live game broadcasting segment, across the entire live broadcast industry, live game broadcasting only takes up a slice of the cake. More crucially, the live streaming industry also only accounts for a small corner of the pan-entertainment industry.
  
The reason of the fast growth is that video is gradually becoming the main form of information dissemination and entertainment. The advent of the 5G era has made people call out that short video will usher in a new round of outbreak.
 
Compared to the live broadcast that needs to be watched on time, the short video can integrate the climax of the whole game into a video of less than 1 minute, which can quickly mobilize the audience hormones. Taking up less time, can be watched at any time, richer variety of content, more suitable for mobile, and other characteristics, also makes the momentum of short video to replace live broadcast more and more obvious. This is the advantages of the outbreak of Douyin and Kuaishou, as well as the weakness of Huya and Douyu.
 
Tencent's layout in the field of short video and long video early to invest in Kuaishou and Bilibili. But Tencent's connection with these two is weaker. Kuaishou to go public to raise funds, showing its ambition to accelerate development, which may bring more pressure on Tencent. So, WeSee was launched.
 
The only thing that is certain is that in the short term, WeSee will not be deeply integrated with Huya and Douyu, and Tencent probably won't make great efforts to build short videos in the two platforms. After the merger, it still stays in the live game platform, which cannot achieve the effect of "1+1>2".
 
The advantage of Bilibili lies in the combination of user-made content, game copyrights and event copyrights. The same live, in the Huya and Douyu platform is a single revenue, up to a few rounds after the end of the live replay. In Bilibili platform, after the live broadcast, there are secondary creation video, peripheral products, etc., live profit cycle can be significantly extended, the user stickiness is higher. And the contribution rate of games to Bilibili's revenue has been more than half, Bilibili has a large number of game IP, and live game broadcasting is one of the focus of its efforts to open up the game industry chain.
 
Although the number of Bilibili's active users is still small, the threat to Huya and Douyu is great.
 
It is true that live streaming platform can develop short video plate. But as most of the APP content push is based on big data algorithm, users will have to "domesticate" a new APP from scratch every time it is enabled, which makes users sticky to the product launched first, and the longer they use it, the more sticky it is. Therefore, the later launched products are at great risk of failure, regardless of whether they expand the content or form types.
 
Unless there is great innovation and subversion in the new platforms, it will be difficult to leverage the users from Douyin, Kuaishou, Bilibili and so on. 

 

Traffic is the focus

Since the competitive situation is so unfavorable, why must Tencent hold on to the live game platform? 

Tencent, which has been standing on top of the traffic for decades, feels threatened by the rapid development of ByteDance. Toutiao began to enter the search market, which is a field that Tencent has long coveted; The launch of Xigua Video made Tencent video and Bilibili have a new rival, … 

Those who have traffic will win the market. Tencent's rivalry with ByteDance has touched on a number of areas, now ByteDance has reaped the initial success including self-research light games, live DOTA games, and non-stop development of heavy games, buy copyright.
 
In addition, the overlap between Douyin users and game users is increasing, generating a linkage and becoming a high-quality advertising channel. As mentioned in an interview with BT Finance (ID:btcjv1), a ByteDance source said that Douyin has now become the largest advertising platform for games.
 
So, whether from the perspective of getting through the entire industry chain of games and further consolidating its position in the gaming field, or from the perspective of defending the traffic and stopping ByteDance's expansion speed, Tencent can't give up the live game streaming business.
 
Now, Tencent has completed the privatization of Bitauto and Sogou, WeSee is using WeChat traffic to grow rapidly in its vigorous promotion, and the merger of Huya and Douyu is also proceeding in an orderly manner.

The next step, Tencent is to hit hard or slowly surround the blockade? Regardless of the move, there will be fierce and exciting competition among Chinese Internet companies.

This is an article from WeChat official accounts BT Caijing (ID: btcjv1), translated by Chris.