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Tencent shuts down Amazon rival Twitch Penguin Esports as Chinese tech crackdown continues

The streaming platform, Penguin Esports, announced on Thursday that it would end all services on June 7, citing changes to the “business development strategy”. Just nine months ago, antitrust regulators blocked Tencent from merging the company with its other live streaming interests.

Penguin Esports was created by Tencent in 2016 and is similar to Amazon (AMZN)The Twitch service. It holds the streaming rights to several of Tencent’s hit games in the country, such as Honor of Kings and League of Legends, as well as esports competitions.
But Penguin Esports is not close to becoming a dominant player in the market. Listed on Nasdaq Houya (HUYA) and Douyu (DO YOU) are currently leading China’s video game streaming wars, accounting for more than 70% of the market, according to the country’s antitrust regulator. Tencent also owns a significant stake in Huya and Douyu separately.

In 2020, Tencent planned to sell Penguin Esports to Douyu for $500 million and then merge Douyu and Huya into a new company that would streamline its shares in the platforms. The deal was valued at nearly $6 billion based on each company’s stock price at the time.

But the merger deal stalled. The State Administration of Market Regulation said in a statement in July that the merger of Douyu and Huya would strengthen Tencent’s dominance in the video game streaming market, giving the company too much market power. and potentially deterring fair competition.
The termination of Penguin Esports came as an unprecedented government crackdown has severely slowed revenue growth for the nation’s most powerful internet companies, forcing them to lay off employees and seek ways to cut operating costs. Since late 2020, Chinese authorities have launched an extensive campaign in an effort to rein in big players in sectors ranging from technology and finance to gaming, entertainment and private education.
Last month, Tencent reported its slowest revenue growth since listing in 2004.

The shutdown of the video game streaming service also comes amid an intensified crackdown on tax evasion in the country’s booming live streaming industry.

Last month, the state tax office said it would begin requiring online platforms to report live streamers’ personal information and earnings every six months.

Authorities have previously targeted some live-streaming stars for tax evasion, such as internet celebrity Viya, who was fined 1.34 billion yuan ($211 million) in December for concealing personal income .
Tencent co-founder Pony Ma and chairman Martin Lau said on an earnings call in March that the new regulations have brought “fundamental changes and challenges” to the internet industry, affecting Tencent’s financial performance.

The company would “proactively embrace the changes” to better align with a new industry paradigm, Lau said.

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