Sohu.com (SOHU)

All of our online game revenues are generated under the item-based model, which has a short history of commercial application and presents risks related to consumer preferences and regulatory restrictions.

When we first launched BO in October 2004, it generated revenue under the time-based revenue model. Currently, we operate both of our games, TLBB and BO, under the item-based revenue model. We expect that a substantial of our online game revenue, including revenues from all of our current pipeline games, will continue to be generated under the item-based revenue model.

Under the item-based revenue model, our game players are free to play the games for an unlimited amount of time, but are charged for the purchases of certain virtual items. The item-based revenue model requires us to design games that not only attract game players to spend more time playing, but also encourage them to purchase virtual items. The sale of virtual items requires us to track closely consumer tastes and preferences, especially as to in-game spending trends. If we fail to design virtual items so as to incentivize game players to purchase our virtual items, we may not be able to effectively translate player base and player time into revenues. Although the item-based revenue model is currently a prevalent revenue model for MMORPGs in China, it does not have a long history of proven commercial application. In addition, the item-based revenue model may cause additional concerns with PRC regulators who have been implementing regulations designed to reduce the amount of time that Chinese youths spend on online games and intended to limit the total amount of virtual currency issued by online game operators and the amount of purchase by individual game players. A revenue model that does not charge for time may be viewed by the PRC regulators as inconsistent with these goals. We cannot assure you that the item-based revenue model will continue to be commercially successful, or that we will not in the future need to change our revenue model back to the time-based revenue model or to a new revenue model. Any change in revenue model could result in disruption of our online game operations and a decrease in the number of our game players.

All of our online game revenues are generated under the item-based model, which has a short history of
commercial application and presents risks related to consumer preferences and regulatory restrictions.

When we first launched BO in October 2004,
it generated revenue under the time-based revenue model. Currently, we operate both of our games, TLBB and BO, under the item-based revenue model. We expect that a substantial of our online game revenue, including revenues from all of our current
pipeline games, will continue to be generated under the item-based revenue model.

Under the item-based revenue model, our game players are free to play
the games for an unlimited amount of time, but are charged for the purchases of certain virtual items. The item-based revenue model requires us to design games that not only attract game players to spend more time playing, but also encourage them to
purchase virtual items. The sale of virtual items requires us to track closely consumer tastes and preferences, especially as to in-game spending trends. If we fail to design virtual items so as to incentivize game players to purchase our virtual
items, we may not be able to effectively translate player base and player time into revenues. Although the item-based revenue model is currently a prevalent revenue model for MMORPGs in China, it does not have a long history of proven commercial
application. In addition, the item-based revenue model may cause additional concerns with PRC regulators who have been implementing regulations designed to reduce the amount of time that Chinese youths spend on online games and intended to limit the
total amount of virtual currency issued by online game operators and the amount of purchase by individual game players. A revenue model that does not charge for time may be viewed by the PRC regulators as inconsistent with these goals. We cannot
assure you that the item-based revenue model will continue to be commercially successful, or that we will not in the future need to change our revenue model back to the time-based revenue model or to a new revenue model. Any change in revenue model
could result in disruption of our online game operations and a decrease in the number of our game players.