Sohu.com Stock

Sohu.com Limited (Sohu) operates as a leading Chinese online media, video, and game business company. The company provides comprehensive online products and services on PCs and mobile devices in the Chinese mainland. The company’s businesses are conducted by the Sohu Group, which consists of Sohu and Changyou.com Limited (Changyou).

Sohu is a leading Chinese language online media content and services provider, and Changyou is a leading online game developer and operator in the Chinese mainland. Most of the company’s operations are conducted through its Chinese mainland-based subsidiaries.

Sohu’s Business

Brand Advertising Business

Sohu’s main business is the brand advertising business, which offers to users, over the company’s matrices of Chinese language online media, various content, products and services across multiple Internet-enabled devices, such as mobile phones, tablets and PCs. The majority of the company’s products and services are provided in the Chinese mainland through Sohu Media Portal, Sohu Video and Focus.

Sohu Media Portal. Sohu Media Portal is a leading online news, information and content services provider in the Chinese mainland. It provides users with access to comprehensive content through the mobile phone application Sohu News APP, the mobile portal m.sohu.com and www.sohu.com for PCs;

Sohu Video. Sohu Video is an online video content and services provider in the Chinese mainland through the mobile phone application Sohu Video APP, tv.sohu.com and the video application ifox for PCs; and

Focus. Focus (www.focus.cn) is an online real estate information and services provider in the Chinese mainland.

Other Sohu Business

Sohu also engages in the other business, which consists primarily of paid subscription services, interactive broadcasting services, and revenue sharing from other platforms. Revenues generated by Sohu from the other business are classified as other revenues in the company’s consolidated statements of comprehensive income.

Changyou’s Business

Changyou’s business lines consist of the online game business and the platform channel business, which consists primarily of online advertising and mobile game distribution services.

Online Game Business

Changyou’s online game business offers PC games and mobile games to game players. All of Changyou’s games are operated under the item-based revenue model, meaning that game players can play the games for free, but may choose to pay for virtual items, which are non-physical items that game players can purchase and use within a game, such as characters, weapons, gems, pets, skills, fashion items and other in-game consumables, features and functionalities. Revenues derived from the operation of online games are classified as online game revenues in the company’s consolidated statements of comprehensive income.

PC Games

PC games are interactive online games that are accessed and played simultaneously by hundreds of thousands of game players through personal computers and require that local client-end game access software be installed on the computers used. Changyou’s dominant game is TLBB PC, a PC based client-end game.

Mobile Games

Mobile games are played on mobile devices and require an Internet connection. In the second quarter of 2017, Changyou launched a mobile game, Legacy TLBB Mobile, which is operated by Tencent under license from Changyou.

Platform Channel Business

Changyou’s platform channel business consists primarily of the operation of the 17173.com Website. The 17173.com Website provides news, electronic forums, online videos, and other online game information services to game players, as well as mobile game distribution services. Changyou generates online advertising revenues from providing advertising services to third-party advertisers on the 17173.com Website and online game revenues from mobile game distribution services.

Products and Services

Sohu’s Business

Brand Advertising Business

Sohu’s main business is the brand advertising business, which offers to users, over the company’s matrices of Chinese language online media, various content, products and services across multiple Internet-enabled devices, such as mobile phones, tablets and PCs. The majority of the company’s products and services are provided in the Chinese mainland through Sohu Media Portal, Sohu Video and Focus.

Sources

Sohu Media Portal

Sohu Media Portal is a leading online news, information and content services provider in the Chinese mainland. The company provides users comprehensive content by aggregating content from professional media organizations and partnering with independent contributors. The company recommend to users personalized content that may interest them, and encourage them to interact with each other based on its social distribution features. The company provides content through the mobile phone application Sohu News APP, the mobile portal m.sohu.com and www.sohu.com for PCs.

Sohu Video

Sohu Video is an online video content and service provider in the Chinese mainland. The company provides users free access to the majority of its extensive and comprehensive video content library, which includes popular domestic and overseas television programs purchased from third parties; self-developed video content; variety shows; UGC; PGC; and other content generated through live broadcasting. The company also offers selected content from which it generates subscription revenues. Users can access the company’s video content via mobile devices by visiting its mobile video site or installing Sohu Video APP, its mobile video application, or via PCs through tv.sohu.com or ifox, its PC video application.

Focus

Focus (www.focus.cn) is an online real estate information and services provider in the Chinese mainland.

Business Model

Through mobile devices and PCs, the company provides advertisement placements to its advertisers on different Internet platforms and in different formats. The company relies on both direct sales by its internal sales force and sales by advertising agents for advertising on its Internet platforms. The company’s advertisers include multinational companies and Chinese mainland domestic medium-sized and small companies.

The company has three main types of pricing models, consisting of the Fixed Price model, the Cost Per Impression (CPM) model, and the Cost Per Click (CPC) model.

Fixed Price model

Under the Fixed Price model, a contract is signed to establish a fixed price for the advertising services to be provided. Given that advertisers benefit from displayed advertisements evenly over the period the advertisements are displayed, the company recognizes revenue on a straight-line basis over the period of display, provided all revenue recognition criteria have been met.

CPM model

A qualifying display is defined as the appearance of an advertisement, where the advertisement meets criteria specified in the contract.

CPC Model

The company charges advertisers on a per-click basis, when the users click on the advertisements.

Other Sohu Business

Sohu also engages in the other business, which consists primarily of paid subscription services, interactive broadcasting services, and revenue sharing from other platforms. Revenues generated by Sohu from the other business are classified as other revenues in the company’s consolidated statements of comprehensive income.

Changyou’s Business

Online Game Business

Business Model

Changyou’s game players typically access Changyou’s games through personal computers and mobile devices, such as mobile phones and tablets, connected to the Internet. In order to access Changyou’s PC games, game access software must be installed in the computer being used. Game players using PCs can typically download Changyou’s game access software, interim updates and expansion packs directly from its main game Website. Game players access Changyou’s mobile games by downloading its mobile game applications, primarily from third-party mobile application stores or, to a lesser extent, from Changyou’s game Website.

Changyou’s online games consist primarily of MMORPGs. Changyou is also expanding its game portfolio with additional types of card-based role-playing games (RPGs), casual games and strategy games. MMORPGs are massive multiplayer online role-playing games that allow a large number of players to take on the role of a character and interact with one another within a virtual world. Card-based RPGs are RPGs in which players collect characters or other virtual items in the form of cards. Casual games generally involve simpler rules, shorter sessions, and require less learned skills. Strategy games are simulation games that allow players to control, manage and use game characters and items and to design and implement their own strategies to win the games.

Changyou’s games are operated under the item-based revenue model, meaning game players can play Changyou’s games for free, but may choose to pay for virtual items, which are non-physical items that game players can purchase and use within a game, such as characters, weapons, gems, pets, skills, fashion items and other in-game consumables, features and functionalities. Through virtual items, players are able to enhance their squad or characters, accelerate their progress in Changyou’s games, and share and trade with friends.

For players who choose to purchase virtual goods, Changyou delivers enhanced gameplay experiences and benefits, such as:

Accelerated Progress. Many of Changyou’s games offer players the option to purchase items that can accelerate their progress in the game and increase their capabilities, so that they level up more quickly and compete more effectively against others in the game. While Changyou sells many items that accelerate progress in its games, Changyou monitors and carefully balances the disparity in capabilities between paying and non-paying game players to avoid discouraging non-paying game players and to keep the game challenging and interesting for paying game players.

Enhanced Social Interaction. Changyou uses a variety of virtual items to promote interaction and to facilitate relationship-building among game players in its games.

Personalized and Customized Appearance. Many of Changyou’s games offer players the option to purchase decorative and functional items to customize the appearance of their characters, pets, vehicles, houses and other in-game possessions to express their individuality.

Gifts. Many of Changyou’s games offer players the option to purchase gift items to send to their friends. Examples of gift items include decorative items and time-limited items for special holiday events and festivals, such as Valentine’s Day, Spring Festival (Chinese New Year) and Christmas.

Changyou’s online game business includes games that it self-operates and games that it licenses out to third-party operators.

Self-Operated Games

For self-operated games, Changyou determines the price of virtual items based on the demand or expected demand for such virtual items. Changyou may change the pricing of certain virtual items based on their consumption patterns. Changyou hosts the games on its own servers and is responsible for sales and marketing of the games as well as customer service. Changyou’s self-operated games include PC games and mobile games developed in house, as well as PC games and mobile games that Changyou licenses from or jointly develops with third party developers.

Licensed-Out Games

Changyou also authorizes third parties to operate its online games. Changyou has granted an exclusive license to Tencent to distribute and operate its mobile game Legacy TLBB Mobile within the Chinese mainland, and has licensed its PC game TLBB PC and mobile game Legacy TLBB Mobile to third-party operators in selected overseas markets outside of the Chinese mainland, including Vietnam and Malaysia.

The licensed-out games include PC games and mobile games developed in house as well as mobile games licensed from or jointly developed with third-party developers. Under Changyou’s licensing arrangements with third-party operators, the operators pay Changyou upfront license fees and Changyou has revenue sharing rights over the terms of the licenses. The licenses are typically for a term of one to three years. Changyou provides updates and expansion packs for the licensed-out games and, for the games licensed to Offshore markets, the updates and expansion packs are typically launched after their launch in the Chinese mainland.

For licensed-out games, the third-party operators are responsible for all operations and costs, including marketing and customer service, as well as the leasing and maintenance of servers.

Platform Channel Business

Changyou’s platform channel business consists primarily of the operation of the 17173.com Website. The 17173.com Website provides news, electronic forums, online videos, and other online game information services to game players, as well as mobile game distribution services. Changyou generates online advertising revenues from providing advertising services to third-party advertisers on the 17173.com Website and online game revenues from mobile game distribution services.

Intellectual Property and Proprietary Rights

The company has been issued 361 patents in the Chinese mainland covering inventions, utility models, and designs; the company has 162 patent applications pending in the Chinese mainland; and it intends to apply for more patents in the Chinese mainland and in countries and regions outside of the Chinese mainland to protect its core technologies and intellectual property.

The company has registered three service marks with the U.S. Patent and Trademark Office of the CNIPA, consisting of Sohu.com, registered on August 1, 2000; Sohu.com (stylized), registered on August 1, 2000; and Sohu, registered on June 13, 2000. The company has registered 3,719 trademarks with the Trademark Office of the CNIPA, including the marks SOHU.com, ChangYou.com, and cyou.com and marks relating to its products, such as Sohu.com, Sohu Fox, GoodFeel, Sohu Focus, Blade Online, and 17173, and the corresponding Chinese versions of the marks. The company is the registered owner of 350 registered trademarks and have also applied for 10 trademarks in countries and regions outside of the Chinese mainland. In addition, certain of the company marks have been recognized as well-known Chinese trademarks by Chinese mainland courts in a series of court rulings. The company also filed registration of trademarks relating to its subsidiary companies’ names and Changyou’s online games and other businesses in various countries and regions, such as the United States, European Union, Japan, South Korea, Malaysia, Brazil, Taiwan and Hong Kong. In addition, Changyou has the license rights to use the trademarks, such as TLBB, TLBB logos and TLBB 3D, for its mobile games TLBB 3D and Legacy TLBB Mobile and for its PC game TLBB under its existing license agreements with the holder of the intellectual property rights with respect to the popular Chinese martial arts novel Tian Long Ba Bu written by Louis Cha.

The company is the registered owner of 890 software copyrights and 666 copyrights for works in the Chinese mainland, each of which it has registered with the State Copyright Bureau of China and its local branches. In addition, the company has also registered the copyrights for 20 works in countries and regions outside of the Chinese mainland.

The company owns the rights to 310 domain names that it uses in connection with the operation of its business, including the Sohu and Changyou websites.

Technology Infrastructure

The Sohu Group has built what is a reliable and secure network infrastructure, with both physical and cloud-based servers that will fully support the company’s operations. The company has professional technical support teams to maintain its technology infrastructure and online operating platforms, as well as develop new software features to further enhance the functionality of its management and security systems. The company monitors the operation of its server network 24 hours a day, seven days a week.

Sohu

As of December 31, 2022, Sohu maintained approximately 10,681 servers in the Chinese mainland. To fully support the operation of Sohu’s content and services, Sohu established these data centers primarily through China Mobile, China Unicom, and China Telecom, which are the three largest Internet connection service providers in the Chinese mainland, to support most of Sohu’s core services. In addition, Sohu has established branch nodes in different provinces throughout the Chinese mainland through different telecommunication operators in order to establish national coverage and provide fast and stable access to Sohu’s Internet platforms properties to users across the Chinese mainland. In addition, Sohu has developed cooperation with other Internet service providers.

Sohu has developed close working relationships with China Mobile, China Unicom, China Telecom and other telecommunication operators. Sohu’s operations depend on the ability of China Mobile, China Unicom, and China Telecom to protect Sohu’s systems against damage from fire, power loss, telecommunications failure, break-ins and other events. These telecommunication operators provide Sohu with support services twenty-four hours per day, seven days per week. They also provide connectivity for Sohu’s servers through multiple high-speed connections. All facilities are protected by Uninterruptible Power Supplies.

Sohu also uses in-house and third-party monitoring software. Sohu’s reporting and tracking systems generate daily traffic, demographic and advertising reports. Sohu deploys load balance equipment and cloud computing to avoid single point failure. Sohu’s operations must accommodate a high volume of traffic and deliver frequently updated information.

Changyou

As of December 31, 2022, Changyou maintained for its online game business approximately 1,700 physical servers in the Chinese mainland, and 3,100 cloud-based servers that are spread across the Chinese mainland, Hong Kong, other Asia-Pacific regions, Europe and North America. In order to enhance Changyou’s game players’ experience and to improve connectivity, Changyou has located its physical game servers in a number of regions throughout the Chinese mainland. This allows its players to connect to the nearest servers that are located in their region without exchanging data across the national backbone network. Furthermore, to ensure high quality services for its game players, Changyou works with leading domestic cloud technology firms to provide efficient and stable game services using cloud-based resources.

Marketing

Sohu

As Sohu is a leading Chinese online media company, the company’s brand effectively provides it with built-in word-of-mouth marketing and it has significantly benefited from this recognition of its brand in the Chinese mainland. The company works closely with mobile application stores, as well as performance-based online advertising platforms. The company also cooperates with market-dominant mobile phone manufacturers to pre-install its Mobile Apps into their mobile phones to enhance its market influence and enlarge its user base.

Changyou

For self-operated games, Changyou uses different methods to target different demographic groups of game players, and employs a variety of innovative online and offline marketing methods.

For new mobile games in particular, Changyou designs and implements different marketing strategies for different game genres to attract the genres’ target players. Changyou works closely with performance-based online advertising platforms such as Ocean Engine, Guang Dian Tong, and Fen Si Tong where Changyou can target different user groups. Changyou also works with the Apple store and Android mobile application stores to market its games. For games that Changyou believes are likely to be successful, Changyou may seek celebrity endorsements and work with Internet celebrities on live broadcasting platforms to create additional publicity for the games. Changyou accesses online social media by advertising in online videos and marketing its games through various social networking Websites, mobile applications and online forums to reach a wider audience.

For older games, including Changyou’s PC games, Changyou also organizes a variety of offline activities, such as player meetups, offline competitions and carnival events, to connect with core players and maintain player engagement.

In addition, Changyou launches in-game promotional events. Changyou creates in-game events to attract existing and new game players through event-related features, such as offering special holiday-edition virtual items to enhance game player participation at holiday time.

For overseas markets, Changyou promotes its games with a targeted marketing approach, leveraging its data collection and analysis system. Changyou’s overseas marketing strategies also include using social media platforms, search engine management, and outdoor advertisements to promote its games.

Competition

Competition for Sohu’s Business

As an Internet portal, the company competes with 58.com, Alibaba, Autohome, Baidu, Bilibili, BitAuto, Douyin, Douyu, Fang, Huya, iQIYI, JOYY, Kuaishou, Leju, Mango TV, Momo, NetEase, Phoenix, Qutoutiao, Sina, Tencent, TouTiao, and Youku.

The company also competes with traditional forms of media, such as newspapers, magazines, radio and television, for advertisers, advertising revenues and content. Some of these traditional media, such as CCTV, Xinhua News Agency and People’s Daily, have extended their businesses into the Internet market.

Competition for Changyou’s Business

Online Game Business

In the online game industry, Changyou competes principally with online game developers and operators in the Chinese mainland, such as Archosaur, Century Huatong, Giant, IGG, Lilith, miHoYo, NetDragon, NetEase, Perfect World and Tencent.

Platform Channel Business

In the platform channel business, Changyou’s game information portal operated through the 17173.com Website competes in the Chinese mainland with other game information portals, such as Game.sina.com.cn, operated by Sina Corporation.

History

The company, a Cayman Islands company, was founded in 1996. The company was incorporated in 1996. It was formerly known as Internet Technologies China Incorporated and changed its name to Sohu.com Inc. in 1999 and then to Sohu.com Limited in 2018.