Chinese Portal Sohu's Online Game Firm Files for IPO in US

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The online gaming subsidiary of Chinese Web portal filed for an initial public offering on the Nasdaq stock exchange on Tuesday in a possible step toward offering its games in the U.S. plans to operate massively multiplayer online games in the U.S. from a base it opened there in January, according to a statement the company filed with the Securities and Exchange Commission.

The planned listing follows a boom in online games in China that has slowed only slightly in the economic downturn. China's online gaming market was worth 20.8 billion yuan (US$3 billion) in 2008, an increase of over 50 percent from the year before, according to iResearch, an Internet consulting firm.

Changyou itself has seen explosive growth on the back of its massively popular martial arts game Tian Long Ba Bu, which means "Heavenly Dragon: The Eighth Episode." The game has launched in Taiwan, Hong Kong and several Southeast Asian countries since it was first released in China in 2007.

Changyou's revenue rocketed from less than US$10 million in 2006 to over $200 million last year, the company's filing said.

Online games, a relatively cheap form of entertainment, have outperformed other industries in recent months as rising unemployment leaves players in and outside of China with more free time, analysts say.

Their fastest growth in China has come in the country's less developed western region as Internet access spreads and telecommunications infrastructure improves, said Guo Chenggang, an analyst at research firm JL McGregor.

But while Blizzard Entertainment's World of Warcraft has been hugely successful in China, cultural differences could pose an obstacle in the U.S. for Changyou's games, which do not emphasize the detailed quests and dungeon conquering that U.S. players like, said Guo. Chinese games tend to focus on duels between players rather than tasks achieved against game-controlled beasts or characters, he said.

World of Warcraft's dominance and the small size of the online gaming market in the U.S., where console games and offline PC games are most popular, could also create difficulties for Changyou if it launches its games there, Guo said.

"It might be risky for Sohu," he said.

Changyou expects its IPO to raise $48 million, which will go toward general expenses including possible acquisitions, its filing said. Sohu will retain a 71 percent stake in Changyou.

No one from Sohu or Changyou was immediately available for comment.

(IDG, the parent company of IDG News Service, is an investor in Sohu.)

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