Police in Chengdu, the capital of Sichuan province in southwest China, announced the arrest of a 39-year-old man named Chen on suspicion of running a casino. This announcement came a day after Douyu International Holdings, a US-listed video game live-streaming platform, confirmed the arrest of its founder and CEO, Chen Shaojie. Local authorities indicated that the investigation was ongoing, providing no further details.
Douyu, which is backed by Tencent Holdings, released a statement on its website noting that CEO Chen was arrested in Chengdu around last Thursday. While the company assured that its operations remain unaffected, it cautioned investors about the potential “Material adverse impact” on Douyu’s reputation and future operations due to the ongoing detention and subsequent legal proceedings involving its CEO.
The board and management of Douyu International Holdings are actively developing contingency plans in response to the arrest of the company’s founder and CEO, Chen Shaojie, along with the ongoing investigations associated with the case, as stated by the company. This proactive approach suggests that Douyu is taking steps to address the potential impacts of the situation on its operations and reputation. Contingency plans are often put in place to mitigate risks and uncertainties, ensuring that the company can navigate challenges and continue its operations effectively.
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An Arrest Was Made After Speculations Proved to Be True
The confirmation of Chen Shaojie’s arrest comes three weeks after Chinese media reported that he had been held “Incommunicado” by authorities since October, sparking speculation linked to gambling-related live-streaming sessions on the Douyu platform. Reports from The Paper on Tuesday suggested that Chen’s arrest was likely connected to illegal gambling activities, with anonymous sources indicating a history of over a decade in such activities.
Established in 2014, Douyu has risen to become one of China’s top three video game live-streaming platforms, with Tencent holding a significant stake. Both Douyu and its main competitor Huya have Tencent as a major shareholder. Notably, Beijing’s regulatory crackdown on the internet sector in mid-2021 led to the blocking of Tencent’s attempted $5.3 billion merger of the two platforms by China’s antitrust watchdog. Kuaishou Technology, recognised for its TikTok-like short videos, stands as another major player in this market.
Chen Shaojie, born in 1984 in eastern Shandong province, had an entrepreneurial journey that included an early venture with a video gaming platform called Zhangmenren. This platform was later acquired by Shanghai-based Shenda Games in 2009. From 2010 to 2012, Chen served as the chief executive of Acfun, a video-sharing platform akin to Bilibili, focusing on the Millennial demographic. During his tenure at Acfun, Chen established a live-streaming business within the platform, which eventually evolved into the independent platform known as Douyu.
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A Drop in Shares for Douyu Can Be Attributed to Public Unrest and Uncertainty
Chen Shaojie’s last public appearance was in August during Douyu’s second-quarter earnings call, during which he mentioned the company’s efforts in evaluating content management awareness and regulatory guidelines, emphasising the optimisation of the healthy system within their game-centric community.
Douyu, which raised $775 million from its initial public offering in New York in July 2019, has experienced a decline in its stock value, with shares falling 5.9 percent and closing at $0.91 on November 21. The drop may be attributed to concerns and uncertainties surrounding the arrest of Chen and the potential impact on the company’s operations and reputation.
Douyu has been under the scrutiny of the Cyberspace Administration of China, the country’s influential internet regulator, following a rare on-site inspection earlier in the year. In May, the agency disclosed that it had deployed a working group from its local arm in central Hubei province, situated in Douyu’s home city of Wuhan.
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The Move to Tighten Regulatory Control Over the Video Game Industry
The purpose of the deployment was to address “Serious” issues associated with the platform, including the presence of adult and vulgar content. The working group was stationed at the company for a month to oversee and guide its “Rectification” process. This regulatory intervention underscores the heightened oversight and enforcement actions taken by Chinese authorities in the realm of online content and platforms.
The inspection conducted by the Cyberspace Administration of China represents the broader trend of Beijing tightening regulatory control over the video game industry and online content in recent years. In April of the previous year, the National Radio and Television Administration, which serves as the broadcast regulator, had already imposed a ban on online platforms live-streaming video games without obtaining prior approval.
Despite these regulatory challenges, Douyu emphasised in its latest statement that the company is dedicated to maintaining regulatory compliance on its platform. This commitment reflects the ongoing efforts by Chinese companies in the online content and gaming sector to align with regulatory requirements amid a changing and evolving regulatory landscape in the country.
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