This excerpt taken from the SOHU 10-Q filed Aug 6, 2007.
Our investment in the online game business may not be successful.
We have invested and may invest further in our online game business. The offering of online game is currently one of the fastest growing online services in the PRC. Sohu had operated two online games, namely KO and BO, which we licensed from third party game companies. Our license of KO expired in November 2006, and we discontinued our operation of KO when the license contract expired. Our license of BO will expire in September 2008. In the event that a license expires and we wish to renew such license, the licensor may only agree to renew such license upon an increase in the license fee that we pay to such licensor. In May 2007, we began open beta testing of our first in-house developed online game TLBB. If the operation of TLBB is not as successful as we have expected, our online game business may be negatively impacted. In addition, our business might be significantly affected if there are any changes in the PRC laws or regulations in relation to these businesses. For example, the PRC government has issued a
new law to implement restrictions and further regulation on the online game industry. Based on these rules, online game companies are required to install an anti-fatigue system, which discourages game participants from playing games for more than five hours per day. In addition, the PRC government made a compulsory requirement for online game players to register their real names and provide ID numbers when playing games. Also, with the requirement of the real name registration for online game players, the government implements a rating system for online game. For those online game rated as not suitable for children under the age of 18, children under the age of 18 will be unable to access such game if a real name registration is in place. As a result, our revenues from online game may be adversely affected. We may not succeed in these markets despite our investment of time and funds. If we fail to achieve a significant market position, we will fail to realize our anticipated returns on these investments.