Sohu's new integrated multimedia Platform

I prepared this article about one month ago. But I miss placed this article until now.

One can find my last article on Sohu’s marketing campaign here:
http://chinese-net-gaming-stock.blogspot.com/2009/04/sohu-major-marketing-push.html

From the above article, Sohu is conducting a major marketing push to inform average Chinese of Sohu’s new integrated multimedia platform.

But what is this platform. Mr. Charles Zhang, the CEO of Sohu talked about it in the following article:
http://tech.163.com/09/0409/01/56E16DNS000915BF.html

It is an integrated platform consists of many components. Sohu is no longer just a portal. Sohu has many multimedia products that would entice the users.

It has the portal and blogs that can draw the users. By May of this year, Sohu will have its SNS (Social Network Service) product. All of them will be integrated.

In addition, Sohu had recently developed the HD (high definition) video channel. It includes the HD TV channel and movies. Sohu had purchased the IP right to those video contents.

Sohu’s biggest push is in the area of software applications. A major push will be in the area of Sogou Search, Sogou Pinyin Input Method, and Sogou browser.

Thus, Sohu is no longer just a portal. A portal is more like a channel. Sohu has many channels. Portal, blog, SNS, video, search, Pinyin method, browsers are all channels that an average user can use to access Sohu.

One can think of this as a spider with many legs. The portal is only one of its legs. A user can get to Sohu’s integrated platform through any of its legs (blog, video, PC applications, etc.).

It is going to be exciting time for Sohu.

CYOU – Why does Sohu have to set CYOU free?

This is my first post on CYOU. My last post on Cyou’s game can be found here:
http://chinese-net-gaming-stock.blogspot.com/2009/02/sohus-surprise-new-game-dj2.html

I wrote this article a while ago. For some reason, I never got the chance to put into my blog. It may be a little late. But here it is.

After Sohu decided to split up its game division and having an IPO for its gaming division, its stock had been under great pressure. All of the Wall Street analysts hated it.

Why are they so short-sighted?

Many years ago, Charles Zhang, the CEO of Sohu knew of a young and talent engineer named Robin Li. He wanted very much to hire Robin to take charge of Sohu’s search engine business. He did everything he could to convince the young Robin Li. But eventually, Robin wants to be his own boss and starts a company called Bidu.

If the Mr. Charles Zhang had offered Robin Li the same deal that he offered to Mr. Tao Wang, the CEO of Cyou, Robin would probably agree to work for Sohu. If that was the case, today Sohu would own 70% of Bidu. How much would Sohu worth now if that is the case?

From the following articles,
http://tech.163.com/09/0409/01/56E16DNS000915BF.html
and
http://tech.163.com/09/0409/03/56E9785F000915BF.html
and
http://tech.163.com/09/0409/04/56EAL64Q000915BF.html
and
http://it.sohu.com/20090413/n263356894.shtml

Charles Zhang talked about the decision to split off Sohu’s gaming division.

Even way back in 2002, Charles knew of the importance of MMORPG gaming in China. He license games and develops in-house games, but Sohu’s gaming business continues to flounder. Mr. Charles Zhang was so desperate, he went to Great Wall, puts on a ancient knight costume and hop on a horse. It made some nice PR on the news in China. But the game sucks and people still don’t want to play.

Each MMOPG game is heavily influenced by its chief game designer. Just like a director for a movie, the chief game designer determines the overall feel and the general direction of the game. Just like movie directors, those hot shot chief game designers have ego the size of Texas.

By 2004, Mr. Charles Zhang finally find a hot shot named Mr. Tao Wang. Mr. Wang had a great resume. He developed PC games as a software developer. He was the chief game designer for internet games. He then become vice President of a company who is responsible for game operation and distribution. Then he became the top guy in Sina responsible for gaming operation and development.

In 2004, Sina is number 1 and Sohu is number 2. To a guy like Mr. Tao Wang, to become the top game guy for Sohu would equate as a demotion.

Mr. Charles Zhang can see the future in the gaming business in China. But he just can’t find the right guy to do it. Finally he found Mr. Tao Wang. Eventually, they worked out the agreement. Mr. Tao Wang basically guaranteed the success of Sohu’s gaming business and Charles allows Mr. Wang to be his own boss through the IPO of Cyou.

In addition, with the IPO of Cyou, it also allows Cyou to attract more top level chief gaming designers. By providing more share based compensation, it allows these finicky game designers the monetary rewards they can’t refuse.

Today, more than 50% of the revenue for Sohu comes from its gaming division. Without Mr. Tao Wang, these revenue would not have been there. I for one am extremely happy of the decision that Charles had made.

Sohu: full speed into Internet Video – part 2. Sohu sued 3 companies for piracy

1^st part of this article can be found here:

http://chinese-net-gaming-stock.blogspot.com/2009/04/sohu-full-speed-into-internet-video.html

2 years ago, when the video sharing/video broadcasting war broke out in China, I thought this area had great potential. Advertisers love it. They could take market share away from TV advertising. In addition, this is a very costly venture. One would think the cash –rich portals will have the upper hand.

By early 2009, it is clear that portals are a non-actor in this fight, see the following survey result:

http://chinese-net-gaming-stock.blogspot.com/2009/02/chinas-video-and-music-web-site-survey.html

Sina could only get 3.2% market share and Sohu could only have 2.1% market share. Tencent does a little better with the help of its powerful internet messaging service. But overall, the portals are non-factor.

The reason the portals are doing so badly was because of piracy. China's video sharing and video broadcasting industry is dominated by all the pirated materials (TV and movies). While the new startups have no problems broadcasting those pirated materials, the portals can't.

But you may ask 「didn't the portals also have their own search engines and those search engines will help users find pirated materials?」 Yes, the search engine will find the pirated materials. But the difference is that the search engines only facilitate. They don't host the actual pirated materials.

I guess in China, there is a clear difference between the two.

Those video sharing startups were the darlings of the venture capitalists in 2008. Even though this is an expansive venture, they are flushed with money from the venture capitalists. But then the global financial crisis hits. Now those video sharing startups have three major problems:

First, there is a lot of bandwidth and hardware (server) cost to be in this business.

Second, because of the huge potential payoff, it was easy for these startups to get money from the venture capitalists. But now those funding dried up over night after the global economic crisis. But the cost are not going away.

Third, now these startups are forced to start making money before they are ready. But they find out that they can't make money. They have lots of traffics but they can't monetize them. The reason is because most of their traffics are generated from pirated materials, most companies are afraid to advertise with them. Why would any companies spend money and get negative coverage against them?

Now, those new startups are vulnerable. On the other hand, Sohu had just split its gaming unit and got tons of money. Video sharing/video broadcasting is an area of great future growth, its existing players are gasping for air and are running out for cash. Now is a perfect time for Sohu to go in for the kill. And this is exactly what Sohu is doing.

Sohu had been spending money buying broadcasting rights to Chinese movies and Chinese TV series. It spends money for broader bandwidths and more servers. It created a brand new video service called high definition TV channel. One can find that channel here: http://tv.sohu.com/hdtv/

Finally, Sohu starts suing. In the following article, Sohu sued three video sharing sites:

http://it.sohu.com/20090430/n263701826.shtml

The three video sharing sites Sohu sued are Xunlei, 56, and Ku6. They also stopped other video sharing sites from broadcast a particle TV series.

The following article talks about why Sohu is taking this action.

http://it.sohu.com/20090430/n263706783.shtml

One can find some quote by Sohu's CEO regards this:

http://tv.sohu.com/20090429/n263695144.shtml

He said that because it is very expensive venture. Sohu is not making money now in this area. But it is doing it for the future. This is an area with explosive growth. But it would only grow if piracy is stopped.

In another article, he also said the reason why he thinks right now is the right time for China to go against piracy. Before, all the film studios and TV stations are state owned. They don't care about making money. They love it that those video sharing site gets their product more viewers and more famous. But now, even if they are semi-state owned, their existence depends on how much money they make. Now, they start to demand money for their work. Now there are incentives for all the players to demand piracy to be stopped.

If one wants to investigate this more, Sohu's news portal created a special news area regards this topic:

http://tv.sohu.com/s2009/qcwq/

If one is curious about this new HDTV channel Sohu created, its web address is here:

http://tv.sohu.com/hdtv/

Just click on one of the show, it would then go to the web site dedicated to that TV show. Then just click on the episode number. The video quality is very very good. But it freezes very often. I am here in the US while Sohu's server is in China. I imaging that might have something to do with it.

Sohu is doing extremely well during this difficult time. I am extremely glad Sohu uses this opportunity to take over new and exciting industries. I am absolutely certain that this new industry will be extremely lucrative. However, there will be higher short term expenses.

Sohu: full speed into Internet Video – part 1. more IP protection in China

One can find my last post on the state of video industry here:
http://chinese-net-gaming-stock.blogspot.com/2009/02/chinas-video-and-music-web-site-survey.html

This is the first part of a 2 part article. From the above article, one can find the internet video industry is dominated by the young startups. The traditional portals such as Sina and Sohu can’t compete at all. Tencent fares better because it can rely on its powerful QQ instant massager to help push its new products. But still, Tencent is an also-ran.

But the real reason that the portals are not doing well is because the lack of IP protection.

From the following article:
http://it.sohu.com/20090409/n263287553.shtml

While it is easy for the young startups to broadcast unlicensed video contents (TV, Movies), it is starting to be difficult for the portals to do so. Therefore, the portals are in a major disadvantage.

But China starting to emphasis IP protections for its own video contents. Many TV stations and movie studio in China are starting to enforce their own right, the petulant might have move to the side with more money.

In this case, the portals definitely hold all the cards. Sohu has more money than they know how to spend, it will benefit them the most. But Sina, Tencents, and Ntes can benefit as well.

In the above article, Sohu is busy buying up contents from Chinese TV stations and movie studios.

Again, this may be a case of great long term plus and short term pain.


The following more articles shed more lights on this subject. But it is late and I am not going to talk about them.
http://it.sohu.com/20090411/n263326266.shtml
http://it.sohu.com/20090411/n263326274.shtml

Sohu actually sued three Chinese internet video companies. Tomorrow I will talk about that in the second part of this article.

China's Internet Advertising Market Survey by Nielsen

You can find my previous article on the survey of China's Internet advertising market here:

http://chinese-net-gaming-stock.blogspot.com/2009/04/1q2009-internet-advertising-month-to.html

I guess it that time of the season where all the survey shops come out with their survey result for the 1^st quarter. Nielsen and ChinaRank jointly conducted the survey for China's Internet Advertising Market. One can find the article below:

http://tech.sina.com.cn/i/2009-04-28/18093046575.shtml

I like this survey because it breaks out the month by month survey results. It can clearly show the trend. For March 2009, China's Internet Advertising market has revenue of $1.14B. That number is an increase of 61.6% year over year (YoY).

The following plot has the revenue by month from January 2008 to March 2009:

I will tabulate the data below:

Month	2/08	3/08	4/08	5/08	6/08	7/08	8/08	9/08	10/08	11/08	12/08	1/09	2/09	3/09
Revenue	.6	.78	1.02	.96	1.18	1.14	1.22	1.36	1.14	1.24	1.73	.85	.71	1.14
YoY												2.4%	18%	46%

It is a little hard to believe the survey result for December 2008. I think that was too strong. But still, it is clear that there is a very drastic decline from 4Q2008 to 1Q2009. Within the three months of the 1Q2009, February 2009 was so weak you have to go all the way to a year ago to find one weaker. In addition, the data also showed that there is a very strong pick up in March 2009. There is an amazing 61% pick up from February 2009 to March 2009.

This survey results pretty much confirmed the other three surveys conducted by three other survey houses. We are probably going to see pretty nasty 1^st quarter results.

On the other hand, even though it is still too early to tell, but tt will probably follows by a very strong V-shaped pick up in the 2^nd quarter.

Addendum: Somebody mentioned that I interpreted the data incorrectly. The weakness of the 1^st quarter was due to seasonality factor (i.e. Chinese New Years). Note that Chinese New Years occurs in February in 2008 and January in 2009. The logical conclusion shall be that the weakest one shall be on January 2009 because of Chinese New Year. But that is not the case.

He has a point. Seasonality has more of an effect than general economic conditions. If we use the year over year comparison, we will have an increase of +2.4% in January 2009, +18% in February 2009, and 46% in March 2009. I don't have the year over year number for the 4^th quarter 2008. Therefore, it is possible that February 2009 is not the lowest point. It is possible that the lowest point was some month in the 4^th quarter 2008.

Personally I still think February 2009 is the lowest point. But I don't have enough data to verify that.

But regardless whether the low point is on 4Q2008 or February 2009, what is not debated is that the March survey result indicated the start of an acceleration of revenue growth.