China tightens its grip on tech giants, killing a merger that would have allowed Tencent to dominate the video game streaming industry

• Beijing has blocked a major deal between two rival sites that would have brought technology conglomerate Tencent to a roaring lead in the live game streaming industry.
• China continues to crack down on monopolies among big tech companies, which once saw almost free rein of their markets.
• It also ordered Tencent to drop exclusive music rights with some labels.

Beijing continues to clamp down on monopolies within its booming tech industry, blocking plans by tech conglomerate Tencent to merge China's top two video game streaming websites.

The $5.3 billion deal involved rival sites Douyu and Huya, both of which have dominated China's live game streaming scene. Tencent is Huya's biggest shareholder at 36.9% and owns a third of Douyu, meaning that it would have surged ahead of its competitors had the deal been successful.

China's State Administration for Market Regulation said on Saturday that it would kill the merger because the deal would give Tencent control of more than 70% of the industry, letting it create a "two-way vertical blockade in the upstream and downstream market."

"Under China's recent anti-trust drive, this is a no-go zone," wrote Kendra Schaefer, head of tech policy research at Beijing-based consultancy Trivium China, in an email to Insider.

"This is a simple question of market dominance," she added.

With the deal blocked, there is now more opportunity for Tencent's competitors, including TikTok developer ByteDance and e-Commerce king Alibaba, to tap into China's billion-dollar game streaming market.

Bytedance hosts live game streaming on Douyin, its Chinese version of TikTok, while Alibaba has been pushing livestreams where influencers sell products to viewers.

Beijing's crackdown on big tech antitrust

Meanwhile, SAMR has also ordered Tencent this week to drop exclusive rights with some music labels, reported Reuters, but then allowed it to buy Sogou, China's second-largest search engine.

Schaefer told Insider that the antitrust watchdog approved the latter deal because it would not give Tencent a market monopoly.

But there will definitely be more scrutiny on mergers and acquisitions in China's big tech moving forward, she added.

Beijing has set its sights on big tech antitrust issues in recent years, especially since it launched SAMR in 2018. Most notably, it blocked a record-breaking $37 billion move to go public by Jack Ma's Ant Group in late 2020.

The Chinese Communist Party has continued to step up pressure on its tech giants - which were previously unchecked in their explosive growth - and warned in December 2020 that it would move to "prevent the disorderly expansion of capital."

Spokespersons for Tencent and Douyu both told Insider that they would accept and fully comply with the termination of the merger. Huya did not immediately respond to Insider's request for comment.