The video game live streaming market overview

Video game live streaming in China has been through four stages.

Starting from 2013, this new form of live streaming made its appearance via the hot multiplayer online battle arena (MOBA) games such as DOTA 2 and League of Legends. At the same time, relatively mature online chatting apps like YY and video platforms such as ACFUN in China assisted its emergence.

From 2013 to 2014, the infrastructure policy in China enabled the live streaming industry with high brand quality, accelerating this video game sector’s revenue to grow with a three-digit percentage speed. The current two most significant players in China – Huya and Douyu – were separated from YY and ACFUN respectively and became independent platforms. Meanwhile, the US e-sports and video live streaming player Twitch was acquired by Amazon in 2014 for USD 940 million, encouraging China’s capital to invest deeply in the game-based live streaming sector.

The following three years (2015-2018) witnessed the burst of video game live streaming. With the help of capital firms, over 120 streaming platforms were competing at the same time. The excess platforms drove up the video streamers’ price and the market entered a feverish stage.

Since 2018, this industry has gradually matured. The competition and departure of platforms also brought vitality to the market. Tencent has successively invested in Douyu and Huya, and the rapid growth of the two has effectively driven the growth of the overall market scale. The industry is more standardized and regulated, heading in the direction of healthy competition.

Market size

According to Analysys, the market scale of China’s live streaming will reach CNY 48.35 billion (USD 6.87 billion) in 2020, while video game live streaming will occupy a CNY 16.61 billion (USD 2.36 billion) market share, accounting for 38.2% of the total.

Who are the video game live streaming users?

In 2019, the number of live streaming users reached 506 million. 320 million were video game live streaming users. Examining their distribution in China, we find that first and newly first-tier cities in China represented over 50% of total users. Of the 10 provinces that have the most users, Guangdong province ranked first while Beijing and Shanghai were not in the Top 10 list. The driving force for the growth of live broadcast users is the flow of continuously updated online games such as MOBA, multiplying E-sports events and the uptrending short video platforms that are nipping Huya and Douyu’s heels.

Though the total market revenue growth rate in 2018 declined from the previous two years, video game live streaming remains on a high-speed track. Despite Analysys predictions (over 11% increase rate), Shengang Securities expects the market to maintain a five-year compound growth rate of around 20-25%, starting from 2019.

However, the growth rate of video game live streaming users is slowing down year by year. As the figures approach the ceiling of the total live streaming users, companies should strive to convert more paying users and to increase the average revenue per user (ARPU) as soon as possible.

What’s the role of video game live streaming in the whole industry chain?

For video game live streaming platforms, their role in the industry chain is to gather content and distribute it to target users.

The main upstream suppliers or the content generators include video game developers & operators, e-sports events and live streaming hosts. They provide video game-related content, making it into videos and live streaming shows for the platforms. Platforms then pay them in the form of intellectual property (IP) fees, live streaming authorization fees and revenue sharing fees, etc.

The downstream players, which are quite simple in this case, are the users of the platform – since the platforms are doing to C business. Users will watch live shows to learn game techniques or follow some star players they like; in return, they will buy virtual gifts provided by the platform to reward their streamers. Viewers’ virtual-gifts donation or user contribution is one of the most critical revenues of both the streamers and the platform.

One thing that needs to be mentioned is the evolving relationship between China’s video game live streaming platforms and video game developers. Frequent IP infringement is still an important factor that restricts the healthy development of the live streaming industry. However, few game developers and operators have proactively sued over the violation of the platform or the live streamers. Most of the video game developers in China are not hugely concerned over litigation – they value the traffic brought by the live streaming platform users more. Even if they are watching an uncopyrighted video, they can still benefit from the platforms’ popularity.

The good news is that Tencent announced cooperation with Chusho, a Shanghai-based video game live streaming platform, in November 2019, making Chushou the first of its kind to launch a content-based partnership with Tencent through a licensing agreement. From ignoring copyright to seeking cooperation, we can see the gradual transformation of the industry in a healthy direction.

What’s the core competency?

As content gatherers and distributors, the key competence of video game live streaming platforms lies in two aspects: the capability of attracting traffic and the ability to transfer traffic into profit.

The traffic increase essentially lies in the quality of the content one’s platform provides. Whether it is diversified in its categories, rich in performing format and able to differentiate itself from other platforms are all significant. The profitability or monetization ability is more related to the company’s development strategy and operation level.

After feverish competition among hundreds of video game live streaming platforms, Douyu and Huya stand out due to the two above-mentioned reasons. In the next article, we will unveil the magic behind these two players that form the duopoly in the sector.