The State Administration for Market Regulation Has Banned the Merger between HUYA Inc. and DouYu International Holdings Limited2021-08-31343
On July 10, 2021, The State Administration for Market Regulation (SAMR) announced its decision to prohibit the merger between HUYA Inc. and DouYu International Holdings Limited. This is the third case prohibited, after the first Coca-Cola acquisition of Huiyuan Juice case in 2009 and the second of Maersk, Mediterranean Line and CCMA Network Hubs case in 2014.
On November 16, 2020, SAMR received the anti-monopoly application filed by Tencent Holdings Limited (hereinafter referred to as "Tencent") regarding the concentration of business operators in the case. According to SAMR, this concentration has or may have the effect of eliminating or restricting competition in the domestic live game market and online game operation service market in China. SAMR decided not to allow Huya Inc. (hereinafter referred to as "Huya") which is separately controlled by Tencent to merge with Douyu International Holdings Limited (hereinafter referred to as "Douyu"), which is jointly controlled by Tencent and the team of Douyu founder Chen Shaojie.
Since the implementation of the Anti-Monopoly Law in 2008, a total of 3,770 cases involving concentration of business operators have been concluded, of which, 50 were subject to restrictive conditions and 3 have been prohibited. Huya and Douyu merger is the first prohibition case involving platform economy concentration in China. This is another major typical anti-monopoly case in the platform market sector following Alibaba Group’s “one out of two administrative punishments" on April 12, 2021. The case sent a clear regulatory signal that the government shall “strengthen anti-monopoly and prevent capital sprawl” in the platform market sector. The government shall encourage and promote the development of platform innovation, meanwhile shall actively prevent and stop eliminating and/or restricting competition to guarantee healthy development of a standard platform for economic innovation. The case has far-reaching influence and demonstrates the effect of anti-monopoly principles on the platform market.
1. Relevant Product Market
According to the review, SAMR believes that Huya and Douyu have horizontal overlaps in the market of game live streaming, entertainment live streaming, e-commerce live streaming and short video, and at the same time Tencent is engaged in online game operation services in the upstream of game live streaming.
2. Relevant Geographical Market
All the businesses involved in this case require access permission from Chinese regulators, mainly for domestic users, and produced in Chinese. Therefore, the relevant geographical market of the above-mentioned commodities is defined as the territory of China.
According to Article 27 of the Anti-monopoly Law, SAMR conducted in-depth analysis of the concentration impact on competition in the related market from market share, control of the market, market concentration, concentration of relevant market impact on downstream user enterprises and other relevant operators, etc. SAMR believed that this concentration has or may have the effect of eliminating and/or restricting competition to the domestic game live broadcast market and online game operation service market in China:
1. Concentration will strengthen Tencent's dominant position in China's domestic game live broadcast market with the effect of eliminating and/or restricting competition.
(1) Concentration will further strengthen the dominant position of the physical market. In China's domestic live game market, from the perspective of turnover, the market shares of Huya and Douyu exceed 40% and 30% respectively, with a total of more than 70%. In terms of the number of active users, the market shares of both sides are more than 45% and 35% respectively, totaling more than 80%. From the perspective of anchor resources, the market share of both sides is over 30%, and the total is over 60%. Huya and Douyu are the top two game live streaming platforms in the market, with far more market power than other competitors. Prior to the transaction, Tencent had the sole control rights over Huya and the joint control rights over Douyu. However, at present there is still some competition between Huya and Douyu. However, this concentration will completely eliminate such competition and further strengthen its dominant market position.
(2) The game live broadcast market has high entry barriers, and it is unlikely that new entrants will join in the short term. The entry threshold of game live broadcast market is high, which is mainly reflected in the aspects of copyright license, capital and anchor resources.
(3) Concentration may have adverse effects on consumers. The deal will eliminate competition between the two largest game streaming platforms in the market, further reduce consumer choice. Concentrated entities may use their market power to reduce product quality, raise service prices or reduce user experience, and harm consumers' rights and interests.
(4) Concentration may damage the interests of game live broadcast practitioners. The deal will completely eliminate the competition between Huya and Douyu, further reduce the choice of anchor platforms, reduce the bargaining power of anchor and game anchor unions, and damage the rights of practitioners.
2. Concentration will enable Tencent to have a two-way blocking ability in the upstream online game operation service market in China and the downstream live game broadcast market in China, which may have the effect of eliminating and restricting competition.
(1) after the concentration, the entity in the upstream and downstream markets will have strong market power.
In the upstream Chinese online game operation service market, Tencent's market share is more than 40%, ranking first. The market share of other competitors is far lower than Tencent, and those competitors are difficult to effectivly competite with Tencent. In the downstream game live broadcast market in China, as mentioned above, the market share of the entity after concentration all exceeded 60% in turnover, number of active users and anchor resources. The network game operation service market entry barrier is high, the possibility of new entrants join in the short term is not high. The cost of capital and time to enter the market is high, and it is necessary to obtain relevant qualifications and obtain the game plate number. Publishers and distribution channels play an important role in game promotion. Game live broadcast is an important promotion channel for online games. The proposed merger will further increase the entry threshold of the online game operation service market.
(2) after concentration, the entity has an incentive to implement two-way longitudinal blockade.
On the one hand, the use licenses of game copyright owned by online game operating service providers is the key to carry out game live broadcast. Tencent has the motivation to eliminate and restrict competition in the live game market by blocking online game copyright license, so as to further strengthen its competitive advantage in the live game market. On the other hand, game live broadcast is an important channel to promote game content, and the users of the two have a high degree of overlap and can be transformed into each other. The main profit of online game operating service providers comes from the payment of players or advertisers. After the completion of the transaction, Tencent has the motivation to use the game live broadcast platform it controls to block the promotional channels of competitors in the online game market, and eliminate and limit the competition in the upstream online game operation service market.
After the concentration, Tencent will have strong market power in both upstream and downstream, have the ability and motivation to block the downstream games live market competitors to implement network game copyright licensing, have the ability to block the upstream online game operations market competition implementing live promotion channels, and to form a closed loop in the upstream and downstream markets, squeeze out existing competitors and kill potential competitors.
Since this concentration of business operators has or may have the effect of eliminating or restricting competition in the domestic game live broadcast market and online game operation service market in China, the Applicant Tencent failed to prove that the beneficial effect of concentration on competition is significantly greater than the negative effect, or that it is in line with the public interest. The commitment submitted by the Applicant cannot effectively reduce the adverse impact of concentration on competition, SAMR decided to prohibit the concentration of business operators according to Article 28 of the Anti-monopoly Law and Article 35 of the Interim Provisions on Business Concentration Review.