The Duopoly of China’s Video Game Live Streaming, Part II
This article features the two major players in China’s game-based live streaming sector. We will take a deeper look into the industry landscape and the companies’ business models, as well as the coming challenges they face.
This is the part ii of the series article on China’s Video Game Live Streaming, check the previous article here.
The impregnable position of the two
China’s video game live streaming market is dominated by Huya and Douyu, whose success leaves other players far behind. The once third-ranking player, Panda TV, announced bankruptcy in March 2019. After that, over 70% of Panda’s game streamers relocated to the top two remaining platforms, making it improbable for other upstarts to form another decent assault on the duopoly.
In the last four years, the added-up market value of Huya and Douyu versus the total market size increased from 52.3% in 2016 to 64% in 2018. The rising concentration rate also implies the above-average revenue growth of the two.
Besides, the monthly active users (MAU) of Huya and Douyu are increasing at a speed of 19.9% and 21.1% respectively, taking over 90% of MAU in the whole game live streaming sector in China in 2018.
From the perspective of streamers, Huya and Douyu have gained the coveted resources of top streamers over other platforms. According to Xiaohulu, Huya and Douyu owned 5.17 million and 4.7 million streamers respectively by April 2019. It’s also expected that the game streamers of the two will surpass 50% of all game-centric streamers in China. In fact, they have already occupied over 50% of top streamers across the country.
From 2013 to 2014, infrastructure policy in China enabled the live streaming industry to grow, with high brand quality helping the process along, accelerating this video game sector’s revenue to grow with a three-digit percentage speed. Huya and Douyu were separated from YY (an online chatting app) and ACFUN (a video platform) respectively and became independent platforms.
As two of the first game-centric live streaming platforms to make the foray into eSports, Huya and Douyu strategically focused on the proliferation of the eSports industry. By providing highly attractive game-centric content and investing in top game streamers as their exclusive contracted streamers, the two platforms have accumulated an engaged and vibrant gamer community. The strong sense of belonging in the community effectively increases the user stickiness and the time spent, which in the end, boosts users’ paying habits to realize the platform’s monetization. Moreover, the revenue-sharing agreement and incentive mechanism encourage streamers’ health competition and good performance, forming a good environment to attract top streamers and talent agencies.
After four to five years’ development, Huya made its initial public offering on May 11, 2018, closely followed by Douyu, which was listed on NASDAQ on July 17, 2019 as well.
Business model: two giants raised by virtual gifts
The business models of Huya and Douyu are quite similar. They monetize the user base mainly through two ways: live streaming and advertising services. Revenue from live streaming primarily consists of the sales of virtual gifts that viewers give to streamers during the broadcast to show appreciation and support. Revenue from advertising is mainly attributed to the sale of advertisement services. In addition, a small portion of our revenue is gained from game distribution, which involves revenue-sharing arrangements with game developers and publishers.
From the chart above, we can observe that the revenue generated from live streaming takes a dominant position for both Huya and Douyu; it is expected to represent 95.09% and 90.42% of the two companies’ total revenue respectively in the year ending 2019. Meanwhile, though Huya is heavier than Douyu in terms of the live streaming business, the percentage it takes is going down while Douyu’s is going up. But the latter seems more stable in terms of revenue structure due to its multiple monetization channels.
Differences in development strategies
Though identical in revenue structure, we can still observe preferential patterns in each from their prospectuses as well as their development tracks – these divergences have affected their financial performances.
Both Huya and Douyu diversely cover live streaming shows, including talent shows, music, anime and outdoor activities, to better serve a broad user base. However, they are more identified as game-centric live streaming platforms.
As the previous article discussed, the key competence of video game live streaming players lies in two aspects: the capability of providing good content and the ability to transfer traffic into profit.
From the perspective of providing quality content, Douyu outruns Huya in two ways.
Firstly, Douyu has a deeper pool of top streamers empowered by its streamer development system. According to iResearch, Douyu ranked first in terms of the number of China’s top 100 and top 10 game streamers it contracted with – 50 out of 100 and eight out of 10, respectively.
According to Douyu’s prospectus, its top streamers tend to have large user bases who regularly support these streamers with virtual gifts, and they also tend to attract many integrated promotion activities during live streaming compared to self-registered streamers. Their charisma and the high-quality content that they create are primary contributors to user stickiness and are hard to replicate with self-registered streamers. In 2016, 2017 and 2018, the company’s exclusive streamers accounted for 34.8%, 46.1% and 50.3% of total live streaming revenue.
Secondly, Douyu has strategically focused on eSports since its inception. The company continues to source and promote eSports content to obtain more broadcasting rights, invest in eSports sponsorships and organize high-profile eSports events, which eventually help to attract and retain users.
From the perspective of keeping users engaged and increasing the proportion of paying users, Huya has an advantage over Douyu. Since 2016, Huya has stayed ahead in live streaming revenue, benefiting from the operation ability inherited from its former parent company YY, an online chatting application. That means Huya performs better in cultivating users’ paying habits. According to Huya, one of the competitive strengths is its highly engaged and interactive community. Through a wide array of social functions, including bullet chatting, real-time commenting and gifting, the platform gives users a strong sense of belonging, which effectively increases their paying habits.
From the above chart, we observe a clear advantage in paying ratio of Huya over Douyu, which is attributable to Huya’s better operation capability for its user community.
In the next article, we will look into their financials and valuation, the shared investor (Tencent) behind their competition as well as the future threat posed by short video platforms.