Twitch vs. Tencent | The Battle for Game Streaming Supremacy
Live streaming. What hasn't been said yet about its globally meteoric rise in recent years? Sure, there are market reports being pitched to Fortune 500's on the business prospects of esports that has built its foundation on the back of live streaming. Of course, there are litigious scrambles over streamers using licensed music during their broadcast and yes, there are still kinks to be ironed out with how streamers are compensated by platforms like Twitch. But I would argue that the biggest discussion to be had in the world of live streaming is far more international, and by international I really mean Chinese.
Despite China's unequivocal economic relevance today, many westerners aren't familiar with the household names of the Chinese technology world. Their unfamiliarity isn't deliberate however as westerners simply aren't exposed to the likes of Taobao or JD on a daily basis. This should not mean that large Chinese companies, especially those in the live streaming space, should be dismissed. On the contrary, as China's aggressive globalization efforts mean these companies are entering the peripheral vision of the American consumer. Look no further than WeChat or TikTok for instance which have seen more western relevance in recent years.
For game streaming, Chinese firms remain unknown to the western eye. But perhaps not for long. Let's first establish the global players before turning to how their worlds may collide.
America
Twitch
1.6 Billion Hours in 31 days.
That is the total hours viewed on Twitch.TV in October 2020, boasting 99% YoY growth and 14% MoM growth (source). COVID or not, Twitch's role in the digital content economy is strong and only getting stronger. Even more interesting, the "Just Chatting" category, a kind of content not dedicated to broadcasting any kind of game but showcasing streamers, well, "Just Chatting", has been the #1 category for the past 6 months. It's a therapeutic broadening of the target demo Twitch.TV can attract and what kind of content people can feasibly broadcast -moving beyond what can be a tribal industry of sorts with console wars and arguments over which Battle Royale is the best Battle Royale, to people sitting around and just gabbing which can be refreshing in these times, even if it is just to talk more about games.
Everyone Else
Twitch is certainly the incumbent firm in the west, but it's not the only player in the ring. Facebook Gaming, Youtube, and the dark horse darling of Caffeine.TV are all duking it out for those precious viewership hours and ad dollars. Given each firm is represented by a much larger parent company, it creates an interesting dynamic. The Verge's Bijan Stephen framed this brawl brilliantly:
...these are really just skirmishes in a proxy war — Twitch representing Amazon, Mixer battling on behalf of Microsoft, YouTube fighting for Google, and Caffeine competing for Fox and Disney. Whoever wins the most market share will get to decide the culture of how live, televised events will work in the future.
Bijan Stephen - The Verge
It's worth noting that Mixer no longer exists as of July 22 2020 - RIP.
Stephen is willing to call this is a proxy war - and I would agree. Where I would go a step further is in saying that in 2020 where media has never been more globalized, this may look like a civil war in the eyes of a certain global super power.
China
Streaming + E-Commerce
The advent of Twitch's "Just Chatting" category may be novel to the western eye, but the idea of live streaming non-video game content in China is incredibly common place. As seen below, Chinese live streaming has spanned far beyond the western game centric training wheels it has started with.
Chinese content companies by category - source
If the Chinese streaming market is anything it is two things; 1) Diversified and 2) "E-Commerce enabled".
In March 2020, 62% of the China's internet users watched live streamers. That is 560M people, or to put more clearly, 4.5 Japan's, 2 Indonesia’s or 17 Canada's worth of people - it's a lot.
Learn More Here - The Live Streaming Market in China 2020 - SEO China Agency
Chinese live streaming also a surprisingly profitable sector compared to its western counterparts. The returns that these platforms have been able to produce from this viewership is another story, with China's e-commerce industry forecasted to close out 2020 with a $1.7T USD valuation (or 4 Bangladeshi GDP's). COVID has only accelerated e-commerce adoption and invited more quarantine bound people to dip a toe into the digital marketplace pond, only to be yanked in by the ankles by the likes of Taobao, JD or Douyin/Tik Tok whose e-commerce UX flows and AI curated marketplaces are world class.
This is a clear competitive advantage that China has over the West. A pervasive, technologically enabled consumer base over 500M+ people comfortable with enjoying live streaming content and, more importantly, willing to spend money on it. Western live streaming in a lot of way's is still a novelty, a powerfully vocal and lucrative one sure, but one that is not seeing nearly the same country wide adoption that China is boasting.
Chinese e-commerce Platforms - many of which have their own live stream platforms - source
Chinese Game Streaming
Unlike the handful of western players we identified above, the Chinese roster is a bit larger with reportedly has more than 900 live streaming platforms and over 10M "hosts" (think TV anchors) across multiple verticals.
But what about Gaming in particular? The Chinese game streaming market structure is more duopolostic. In this post I want to highlight the two players in particular: Douyu and Huya.
Douyu
As of Q3 FY2020, Douyu boasts an average 194M MAU's (+31M YoY), while still keeping a positive gross margin of 14% (source), which to the western eye used to high growth tech firm trying to find profitability is a welcome breath of fresh air.
If you are looking to get more China exposure in their investment portfolio, Douyu has generously accommodated you and other foreign investors by IPO'ing on the New York Stock Exchange in July 2019 DOYU, raising $775M USD (Ticker DOYU). It was the largest IPO of any Chinese company on Wall Street in 2019.
DouYu International Sees User Growth, Doubled Revenue-capitalwatch.com
Since then, Douyu has extended their reach beyond the Chinese market, entering Japan and Vietnam in efforts of sustaining their global approach. If you are curious about about the user experience of Douyu, the Nanjing marketing group put together a clear user walkthrough below:
Despite the strong tailwinds supporting Douyu, it was at the center of data privacy scandal last year by gathering users data without permission. It hasn't materially compromised their market leadership but I suppose Chinese data privacy scandals just come with the territory - Learn More
Huya
Despite being a couple of years younger than its cousin Douyu, Huya is still a formidable player with ~150M MAU's, pulling viewers notably by the high profile esports events it hosts on the platform. In fact, League of Legends publisher, Riot Games, gave Huya Live exclusive rights to broadcast the LCK, South Korea's professional esports league for League of Legends, in China. The same was done for the LCS and LEC on 20 January 2020, the equivalent leagues in North America and Europe respectively.
The only League competition that Huya doesn’t have rights to is the World Championship, which belongs to Chinese video-sharing website Bilibili. The Shanghai-based company signed a three-year deal with Riot in the beginning of 2018.
Huya becomes newest exclusive LCS and LEC broadcaster in China | Dot Esports
Not dissimilar to Douyu, Huya has also expanded to international markets including SEA countries and even crafting partnerships with LATAM organizations (Huya is referred to as Nimo TV in certain markets).
In March 2020 Huya announced that Amazon Web Services (AWS) to be their preferred cloud service provider when launching in overseas markets. It's an interesting step to allow such big American tech to play such a key role in the tech stack, but that's another topic for another day.
Huya also is traded on the NYSE under the ticker HUYA.
The reason I bring these Douyu and Huya firms up amidst the pool of Chinese live streaming companies is that they share a common owner - Tencent who, in 2020, held 38% in Douyu and 50.1% in Huya. Tencent also owns sizable amounts of other leading platforms like DouYu, Kuiasho, and Bilibili.
To that end, Tencent owns ~90% market share in Chinese streaming through 3rd degree ownership of these companies. But what if they were all brought together into one, unified platform?
🤝 Douyu x Huya "Mega Merger"
In Q3 2020, Tencent announced a merger between Douyu and Huya, intending to take advantage of its ownership in both companies to through what the internet has called a "mega merger". It would create a $10bn streaming monolith with over 350M MAU's
What I think is more interesting however is how this affects the global streaming market place. specifically, how this merger could pose a significant threat to Twitch's market dominance in the west. How could a merger of two Chinese streaming companies affect the way westerners enjoy their live stream content? There are 3 points to consider.
Tencent's North American Market Entry Considerations
1️⃣ IP Ownership (Tencent)
Tencent has a lot of minority stakes in game companies around the world and by extension has some say as to where that IP can and should be deployed in the market (examples include Ubisoft, Blizzard, Supercell).
Every game company that Tencent has invested in
But more convincingly Tencent owns Riot Games, League of Legends' developer and publisher. They also own 40% of Epic Games, developer and publisher of Fortnite. Two tier 1 titles that have performed strongly in western markets Tencent has material control over.
We have seen Asian companies (cough cough Nintendo) take a needlessly stringent approach to how platforms and content creators represent their game, copyright striking and cease and desisting any unauthorized broadcasting of game content. It wouldn't be unreasonable to consider Tencent enforcing a similar policy given the precedent. Perhaps if a Twitch streamer streams League of Legends casually, could Tencent enforce a stream ban, preventing them from broadcasting their title? Probably not en masse, Twitch's base is large and filled with small viewership broadcasters that could elude the Tencent legal team indefinitely. But all it takes is the threat of the Tencent ban hammer coming down on the largest LoL streamers, forcing them to move to Douyu/Huya, to create that fear in the rest of the base. Is this draconian and risks seriously poor PR? Yes, absolutely. Would I put it past a company as aggressive as Tencent? No.
2️⃣ Esports Broadcast Rights (Douyu)
Maybe Tencent shuts down Twitch streamers for broadcasting games that Tencent owns, forcing a switch to Douyu/Huya but what about at an institutional esports level? Tencent may own League of Legends but Twitch still has been given broadcast rights League of Legends Esports events. Should this change in the coming years and Twitch users are forced to jump to Douyu/Huya to watch the world finals for League of Legends it could do considerable damage to Twitch's viewership and prestige. This wouldn't be unreasonable given the broadcasting rights Douyu has right now for American and European leagues in China.
A commonly held belief in the content economy is that having exclusive rights to creators is what keeps people on platforms, that bringing Ninja, the #1 Twitch streamer onto Microsoft's Mixer for example would give Mixer the critical mass in MAU's needed to compete. This assumption has been disproved so convincingly by Mixer's failure. In the world of game streaming, people aren't willing to abandon platforms for creators, but they are for games. People will follow their favorite game, wherever that is on the internet, the same can not be said for following their favorite content creator.
Similar to professional sports, broadcasts rights are the ultimate currency, not the talent. It's controlling not the who but the how, what and when content is broadcasted that enables winning in market and Tencent understands that all that too well.
3️⃣ Geography (Huya)
We have established that Huya has made significant strides into LATAM in recent years. This is relevant when discussing a potential Tencent market entry into the west because Chinese companies have seen LATAM as a sort of "trial market" before venturing to NA. The most telling example is the Chinese ride sharing app, Didi, who has been growing in south and central America, and has been fighting for market share with Uber.
In many ways, LATAM is a battleground market where western and Chinese tech meet on increasingly more fronts. A Huya that is strengthened by a Douyu merger in a market as strong as LATAM could facilitate a North American market entry in same it is doing for Didi and the same way it did for Tik Tok.
China's Didi kicks off expansion in Latin America with moves into Chile and Colombia
❓What's Next?
The stage is still being set for an East meets West confrontation for the game streaming crown. In the west Twitch is battling domestic competitors in its civil proxy war. Chinese streaming companies are going international in LATAM and SEA, regardless of this merger. Although the merger itself is being scrutinize, with how large this new entity would be, it flirts with the anti-trust risk that China is currently navigating with Alibaba and Jack Ma. As of writing, such an investigation is taking place.
China applies closer scrutiny to sprawling tech acquisitions
Nevertheless, Tencent is adamant about pushing this merger through - Learn More
Regardless, it is becoming increasingly difficult to dismiss China's role in the global streaming market. A combination of their strong IP ownership, locked in broadcast rights and broad geographic representation certainly catalyze whatever moves they plan on making. Whether that moves involves gracing America's shore is a question only the industry's exciting future can answer.
