Chinese regulator halts Huya-Douyu game-streaming merger
The State Administration for Market Regulation announced it had prohibited the merger of the Tencent-backed game streaming platforms Douyu and Huya on Saturday because the merger would eliminate competition. This is the first time the market regulator has prohibited a merger in the internet industry since the Anti-Trust Law came into effect more than 10 years ago.
Chinese regulator bans Tencent-driven merger of Huya, Douyu streaming sites
China’s market regulator on Saturday blocked the merger of Tencent-backed game streaming platforms Douyu and Huya following an anti-monopoly investigation, as authorities ramp up scrutiny of some of the country’s biggest technology companies.
Huya and Douyu — which provide videogame live-streaming services akin to Twitch in the U.S. — are two of the largest companies of their kind in China. Both count gaming firm Tencent among their investors.
China’s State Administration for Market Regulation said in a statement that a merger between Huya and Douyu would give Tencent control over the merged entity.
“From the perspective of different key indicators like revenue, number of active users, resources for streamers, the total share is very substantial and the elimination and restriction of competition can be foreseen,” the statement said.
Authorities have stepped up oversight of some of China’s largest technology firms over concerns of monopolistic behavior and unchecked growth, as well as how companies are collecting and using data from their millions of users.
Also Saturday, China’s cyber-regulator issued draft measures that said companies holding personal information of over a million users must apply for cybersecurity approval if they plan to list abroad.
The Cyberspace Administration of China said in a statement that the review and approval is necessary because of risks that the data could be “affected, controlled, and maliciously exploited by foreign governments.” It also said there’s a risk of important data being illegally used or transferred out of the country.
Anti-monopoly moves stimulate innovation
In April, the market regulator ticketed Alibaba for abusing market dominance, fining it 18.23 billion yuan ($2.81 billion), 4 percent of its sales revenue in 2019. That was a type of post-punishment as it came after the deal had been done. The Tencent merger ban is more like a case of early intervention.
The two benchmark cases involving the country’s largest two IT companies indicate that the post-punishment and early intervention will become two main forms of the anti-monopoly measures in the future, even if the early intervention is comparatively rare in antitrust law enforcement.
Early intervention is conducive to preventing negative market effects and damage to the reputations of the enterprises. That requires the watchdog to make its supervision more efficient and preemptive. The enrichment of their anti-trust toolkit means they can suit the remedy to the case while exercising their power.
One of the fundamental purposes of the anti-trust probes are to ensure a healthy order in the internet market. The other internet companies should draw lessons from the two cases and know the boundaries of their business, investment and development. China does not allow monopolies and the unlimited sprawl of capital.
Another purpose of the anti-trust moves is to encourage market competition and boost innovation, particularly from the startups and newcomers in case the monopoly companies will take advantage of their dominance to kill all emerging competitors. An institutional environment for healthy market competition serves the interests of all parties, including the big companies.
About E. J.McKay
E.J.McKay is a Shanghai-headquartered investment bank with a special focus on mergers & acquisitions. We are one of the most long standing independent investment banks in China, with core business of mergers & acquisitions and financing advisory.