Tencent in talks to create giant game streaming service

Tencent Holdings Ltd. is driving discussions to merge China’s biggest game-streaming platforms Huya Inc. and DouYu International Holdings Ltd., people familiar with the matter said, in a deal that would allow it to dominate the $3.4 billion arena.

The Chinese social media titan — which owns a 37% stake in Huya and 38% of DouYu — has been discussing such a merger with the duo over the past few months, although details have yet to be finalized, said the people, who asked not to be identified because discussions are private.

Tencent is seeking to become the largest shareholder in the combined entity, one person said.

A deal would create an online giant with more than 300 million users and a combined market value of $10 billion, 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 be able to sell ads across an expanded content network.

Huya and DouYu would keep their respective platforms and branding while working more closely with Tencent’s own esports site eGame, said the people.

Tencent and DouYu representatives declined to comment, while Huya spokespeople didn’t respond to requests for comment.

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 Inc., boosting its voting power in the platform to more than 50%.

When asked about the possibility of a merger with Huya, DouYu founder and Chief Executive Officer Chen Shaojie told analysts on a March earnings call, “we believe it’s Tencent’s vision.”

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Tencent in talks to create giant game streaming service