Nasdaq-listed DouYu CEO Arrested on Suspicion of Opening Casino

Credit: Visual China

BEIJING, November 22 (TMTPOST) – Chen Shaojie, the chairman and CEO of Chinese video game live-streaming platform DouYu, has been arrested on suspicion of gambling related activities.

The Chengdu Dujiangyan Public Security Bureau announced on Wednesday that a 39-year old male surnamed Chen has been arrested on suspicion of running gambling operations. The case is under further investigation.

Chen had been reportedly missing for weeks. On Tuesday evening, DouYu issued a statement, revealing that the company learned on Monday that Chen had been arrested by the Chengdu police around last Thursday. DouYu's stock fell by 5.93% at the close of the U.S. stock market on Tuesday.

DouYu has not yet revealed more information related to this. In the announcement on Tuesday evening, the company said that it has not received any official notification regarding the specific reasons for Chen’s arrest. The ongoing detention of Chen and any subsequent legal procedures and law enforcement actions may have a significant adverse impact on the company's reputation, business, and operating results.

DouYu said that it will continue its normal business operations and is committed to complying with regulatory requirements. The board of directors and management will supervise the company's operations and formulate emergency plans to respond to Chen's arrest.

Since November 4, news of Chen’s disappearance for nearly three weeks has been circulating online. On November 6, the following trading day, DouYu’s stock plunged by 10.04%.

Chen, born in 1984 in Jinan, graduated from Shandong Youth Political College with a degree in computer science in July 2007. From May 2008 to March 2010, he founded a game battle platform. After selling the platform to Shanda Games, he bought the second-dimensional online video platform Acfun in 2010 and served as CEO. He later developed the live streaming business "Shengfangsong" on Acfun, spinning it off and renaming it DouYu. From May 2014, Chen served as chairman and CEO of DouYu.

DouYu, headquartered in Wuhan, focuses on gaming live streaming. On July 17, 2019, it went public on Nasdaq at an issue price of $11.5. However, its current market value is less than one-tenth of its initial listing, with a total market value of less than $300 million.

As of March 2023, Tencent, DouYu's major shareholder, held a 37.7% stake in the company, and Chen held a 17% stake.

On October 25, DouYu announced that it had received a written notice from Nasdaq. The closing price of the company's stock had been below the minimum requirement of $1 per ADS for 30 consecutive trading days and faced the risk of delisting if the share price is still below $1 by April 22, 2024. On Tuesday, DouYu closed at $0.905 per ADS, with a market value of nearly $289 million.

DouYu's revenue has declined for two consecutive years. In 2021, the revenue was 9.17 billion yuan, a year-on-year decrease of 4.55%. By 2022, the revenue had further dropped to 7.11 billion yuan, a year-on-year decrease of 22%. In the first half of 2023, its revenue was 2.88 billion yuan, a year-on-year decrease of 20.78%. In addition, the company's user activity has been continuously declining. In the second quarter of 2023, the average monthly active users on its mobile platform were 50.3 million, a nearly 10% decrease from the same period last year. The average number of paying users dropped to 4 million in the second quarter of 2023 from 6.6 million in the same period of 2022.

The company’s net profit has also declined significantly. From 2020 to 2022, DouYu's adjusted profits were 542 million yuan, -440 million yuan, and -7.6 million yuan, respectively. In the first half of 2023, thanks to cost reduction and efficiency improvement, its adjusted profit was 87.13 million yuan, representing a turnaround from the same period of 2022. Although gaming live-streaming platforms like DouYu and Huya still maintain leading positions in the industry, short video platforms have been rapidly seizing user attention. DouYu's revenue is no longer comparable to Douyin (TikTok) and Kuaishou, with Kuaishou's revenue in 2022 alone being more than ten times that of DouYu and Huya combined.

Affected by regulatory policies such as measures to prevent minors from indulging in games, the game live-streaming industry is in a downturn. DouYu has attempted to revive its fortunes through entertainment live streaming, but regulatory measures affecting the entire industry are gradually tightening. In 2022, live-streaming platforms were required to remove reward rankings and strictly prohibit minors from giving rewards. At the end of March 2023, DouYu frequently trended on Weibo due to the keywords "DouYu Dance Zone" and "DouYu Official Pushing Soft Porn Performances." Several users complained that there were scantily clad anchors using suggestive gestures during their livestreaming to encourage users to tip, and DouYu tacitly allowed such behavior to exist, even pushing soft porn livestreaming in the late night.

Throughout this year, DouYu has been named by regulators multiple times for issues such as obscene content, vulgar content, and gambling-related activities. On May 8, the Cyberspace Administration of China (CAC) reported that in response to serious issues such as explicit and vulgar content on the DouYu platform, the CAC instructed the Hubei provincial cyberspace administration to send a working group to DouYu for a one-month supervision and rectification.

Chen attended the company's second-quarter earnings conference call on August 14 and responded to analysts by saying that the company fully cooperated with the supervision. “During the supervision period, the company's operations were normal. After the supervision, DouYu continued to optimize relevant rules and procedures of the entire platform,” he said.

According to the Cyberspace Administration's report on the national administrative law enforcement and supervision of the Internet for the first quarter released on April 30, major internet platforms such as Baidu, Sina Weibo, DouYu, and Douban were found to have inadequately fulfilled their primary responsibilities. They failed to fulfill the obligations related to content review, leading to the dissemination of harmful information such as explicit content and feudal superstitions. The National Cyberspace Administration guided local cyberspace administrations to lawfully summon responsible persons from these websites, instructing them to rectify the issues within a specified timeframe.

Additionally, in the Cyberspace Administration's introduction to the "Combating Pornography and Illegal Publications" work released on February 27, DouYu was named for disseminating harmful and inappropriate content, including explicit content promotions. Alongside platforms such as Douyin, Kuaishou, Bilibili, and Huya, DouYu was subject to legal summons, mandatory rectification within a set period, strict measures against responsible individuals, and fines.

In October 2020, Tencent tried to facilitate the merger of DouYu and Huya. However, on July 10, 2021, the merger was vetoed by the State Administration for Market Regulation. The regulatory authority believed that the merger would have exclusionary and competition-restricting effects on the relevant market, as Huya and DouYu held over 40% and 30% market share, respectively, in the live-streaming market.