By Jacky Wong

Tencent is already very dominant in mobile games, but a game-streaming giant under its control is a nice power-up--and could be a new way for the company to promote its own content.

Chinese game-streaming platforms Huya and Douyu, equivalents of Amazon's Twitch in China, have agreed to merge in an all-stock deal Monday to create a $10 billion industry giant. Tencent, a substantial shareholder of both companies, will have a 67.5% voting right in the combined company. Huya and Douyu, which have more than 330 million monthly active users who watch top gamers play videogames on their platforms, together have more than 80% of China's game-streaming market. There is likely some overlap between their user bases, but the combined company will without a doubt be the biggest game-streaming platform in China. Tencent will also fold its smaller platform, Penguin e-Sports, into the combined company.

A growing esports market clearly appeals to Tencent: Huya and Douyu's revenue have both grown more than 40% in the first six months of 2020 from a year earlier, with the pandemic helping drive bored homebound people to their platforms. Combining Huya and Douyu will give the new company better bargaining power: a big part of their costs is incentives and bonuses for the best streamers.

With a bigger user base and a backer like Tencent, the combined company may be able to explore new ways to make money from their audience too. Both Huya and Douyu make most of their money from fans buying virtual gifts for their favorite players. That's unique to the Chinese market: Platforms like Twitch and YouTube make money mostly from advertising or subscriptions.

The merger will also help fend off competition from new entrants like Bytedance, the owner of TikTok, and Bilibili, which counts Sony as its shareholder. These companies, which have attracted many young users, are competing for eyeballs for game-streaming specifically and also online entertainment more broadly.

A dominant platform will mean more than just more revenue from game streaming. Tencent could use the platform to promote its own games, keep gamers playing and distribute new games. That could be the bigger game Tencent is playing.

Write to Jacky Wong at JACKY.WONG@wsj.com

(END) Dow Jones Newswires

October 13, 2020 07:08 ET (11:08 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.
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