This excerpt taken from the SOHU 10-Q filed Aug 8, 2006.
Our investment in online games businesses may not be successful.
We have invested and may invest further in our online games businesses. Online game is currently one of the fastest growing online services in the PRC. We currently rely on licenses from third party game companies. Our licenses of Knight Online and Blade Online will expire in November 2006 and September 2007, respectively. 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 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 games industry. Based on these rules, online games companies are required to install an anti-fatigue system, which discourages the game participants from playing games for more than five hours per day. In addition, it is possible that the PRC government will make a compulsory requirement for online game users to register their real names and provide ID numbers when playing games. Also, upon the requirement of the real name registration for online game users, the government will implement a rating system for online games. For those online games rated as not suitable for child under 18, such child will be not able to access the game if a real name registration is in place. As a result, our revenues from online games 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.