Eric Yuan - Director, IR Charles Zhang - Chairman and CEO Belinda Wang - Co-President and COO Carol Yu - Co-President and CFO Xiaochuan Wang - CEO of Sogou Alex Ho - CFO, Changyou

Eddie Leung - Merrill Lynch C. Ming Zhao - 86Research Alicia Yap - Barclays Philip Wan - Morgan Stanley Mark Marostica - Piper Jaffray Alex Young - JPMorgan Jiong Shao - Macquarie Jialong Shi - CLSA Muzhi Li - Citigroup Fei Fang - Goldman Sachs Chit Tsang - HSBC Thomas Chong - BOCI Wendy Huang - Standard Chartered

Ladies and gentlemen, thank you for standing by, and good evening. Thank you for joining Sohu's Second Quarter 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a Q&A session. Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I would now like to hand the conference over to your host for today's conference call, Mr. Eric Yuan, Investor Relations Director of Sohu. Thank you. Please go ahead, sir.

Thank you, operator. Thank you all for joining us today to discuss Sohu's second quarter 2013 results. On the call are Chairman, Chief Executive Officer, Dr. Charles Zhang; Co-President and the Chief Operating Officer, Belinda Wang; Co-President and the Chief Financial Officer, Carol Yu. Also with us from Changyou are, President Dewen Chen; Chief Financial Officer, Alex Ho; and Chief Information Officer, Wendy Pan; as well as CEO of Sogou, Xiaochuan Wang; Vice President of Sohu Entertainment and Sohu Video, Ye Deng. Before management begins their prepared remarks, I would like to remind you of the company's Safe Harbor statement in connection with today's conference call. Except for the historical information contained herein, the matters discussed in this conference call are forward-looking statements. These statements are based on current plans, estimates and projections and therefore you should not place undue reliance on them. Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statements. For more information about the potential risks and uncertainties, please refer to the company's filings with Securities and Exchange Commission, including its registration statement and most recent Annual Report on Form 10-K. Now, let me turn the call over to Dr. Charles Zhang, Chairman and CEO. Charles, please proceed.

Thank you and thanks to everyone for joining our call. We are pleased to report encouraging results across our business lines for the second quarter. Notably, for our online video business; most, if not all, operating metrics are ramping up fast during the first seven months of 2013, showing robust growth in user traffic and revenues. Sogou and Changyou business continues to track well, building further on their solid fundamentals. Our group total revenues grew 33% year-over-year to $339 million. On the Mobile front, the Group has secured a strong foothold in this important space. Within six months, Sogou Pinyin mobile version added 60% more users since the beginning of 2013. With its 115 million monthly active users, it solidified its position as one of the top three applications in China. Given the strength here, Sohu News and Sohu Video, the other two leading mobile apps also grew the total user base rapidly. Now I would like to share some second quarter financial highlights with you. Total revenues were $339 million, up 33% year-over-year and 10% quarter-over-quarter. Net brand advertising revenues were $100 million, up 45% year-over-year and 25% quarter-over-quarter. Sogou revenues were $50 million, up 64% year-over-year and 27% quarter-over-quarter. Online games revenue were $168 million, up 24% year-over-year and 1% quarter-over-quarter. Non-GAAP diluted EPS was $0.58, exceeding the high end of our guidance by $0.03. Now let me discuss our online video business in more detail. For Sohu Video, we have seen robust user and traffic growth, in particular, the mobile phone, where daily unique visitors and the video views for phone almost doubled that of January. Upon launching the new season of The Voice of China on July 12, daily unique visitors and daily views on both PC and mobile, jumped by a further 20% to 30% in the past two weeks. The growth in the user traffic is primarily attributable to our diversified and a vast quality content portfolio. In the second quarter, we maintained our strong position in domestic TV dramas, broadcasting a vast majority of the popular dramas. Our efforts in original productions also brought unprecedented success off two original web series, mainly Diors Men and [My Ex]. The two dramas collected a wave of several comments, [upon their reviews], generated over 300 million video views, and ranked among top 10 search words. Viewers enthusiasm is comparable to a top notch license content. The superior performance clearly demonstrates Sohu Video's undisputable ability, introducing content that will best fit the appetite of Chinese online users. As early as mid-2012, we have a variety of shows on an important part of our content strategy, and have successfully established ourselves as the largest platform for this popular category, as measured by user base, according to iResearch. Continuing to pursue this strategy, on July 12, we began exclusively broadcasting the most anticipated reality show of the year, The Voice of China, Season Two. This show ran for 15 weeks, until early October on a weekly basis on national TV networks, that first three episodes consecutively ranked number one in viewership during the Friday night primetime. And on our platform, I must say, the performance is outstanding. As mentioned above, those users and the video views expanded by 20% to 30% even at this early stage of the show. To date, it's accumulated viewers reached 55 million, over half of whom are new viewers. With 12 more weeks to go, we are highly confident about converting a good portion of them into repeated users to our platform. Benefitting from our strong content offerings and a fully functional sales team, we also saw significant growth in advertising sales. For the first two quarters of the year, ad revenues for both quarters achieved about 30% sequential growth. In July, starting with The Voice of China, we began to offer advertisers mobile ad packages, and have already signed up with some big name advertisers from luxury groups and auto manufacturers. We see the strong momentum continue, with ad revenues for the third quarter to grow by over 60% sequentially, and the full year revenue likely to double from 2012. Moving on to our Sogou business; in order with the emergence of a new entrant, that brings the search market into a three way competition, Sogou continues to expand in terms of user traffic and revenues during second quarter. In June, Sogou search market share was up to 8.8% from 8.1% in March, according to CNVV. While revenues grew to $50 million, representing growth of 27% quarter-over-quarter and 64% year-over-year. On PC front, Sogou's series of innovative features and products continue to be well received by its more than 400 million users. (Inaudible) improved user loyalty and their stickiness. For example, Sogou browser intelligent version, carries a recommendation feature which displays relevant webpages to the content that users are browsing, without having to go through a search process. Another example is a new product, Sogou Wallpaper, which enables users to personalize their desktops, now with daily active use of users of over 10 million. On the mobile front, Sogou has developed a comprehensive roadmap and accumulated large scale users, our flagship app Sogou Pinyin mobile version with its 150 million monthly active users, solidified its position as one of the top three mobile applications in China. In the coming months, we will roll out a series of mobile applications, apps, which encompass a wide variety of product offerings. Such includes adaptation of our PC products like Sogou Browser, Search and Maps, as well as mobile-only products such as yellow pages, Sogou mobile assistant, and others. Moving on to Changyou business; for MMO games, our flagship game Tian Long Ba Bu, TLBB continues to be one of the most popular martial arts MMO game in China. In July, we released a new extension pack, with content for both casual players and advanced players. Development on the next major extension pack is on track. We expect to release it in this October. On April 10, we launched Dou Po Cang Qiong, a self developed MMO game. The game has attracted a good level of interest from players, and has begun to already generate revenue for us. In August, we will officially begin with selling Xuan Yuan Jian 6 our licensed PC game, and the sixth sequel in the popular Xuan Yuan Jian game series. There are two other MMO games in our pipeline due to launch in the fourth quarter of 2013. For web games; in the second quarter, Changyou successfully completed the acquisition of the remaining stake and the [mentioned transition to] 7Road. Although other than the announced of 7Road's former CEO, the whole key development team at 7Road has remained with Changyou. For 7Road, two popular web games, DDTank and Wartune, (inaudible) expansion pack for both games in the third quarter. And now I will pass the call over to Belinda for an overview of our brand advertising business, and from mobile product developments. Belinda?

Thank you, Charles. Our quarterly brand advertising revenue for the first time hit $100 million mark, up 45% from a year ago. The growth demonstrates the overall strength of our marketable media platforms, in particular with the strong traffic and the improved self execution of the online video business. We are [tracked greater] by the education front advertisers. On our last conference call, I had mentioned that Sohu was shifting its strategic focus to mobile. In the second quarter, we continue to execute this strategy, as Charles has covered the Sogou part, I will now briefly go over the latest developments of the other mobile products. In our media business, the Sohu News Mobile Application, [reaching for] it's number one position in the market. In the second quarter, total user base of the Sohu News Application increased more than 20% sequentially. [We will find] a 15th open platform feature, with integrating subscription center, while people can subscribe to all kinds of media. The Sohu Media Mobile Application, in the second quarter, the daily active usage and video views, respectively, grew by 60% and 70% sequentially. For Changyou, we recently launched two mobile casual games. Changyou is using them to build its mobile game marketing and the promotion channels. We also secured the rights to make mobile games for 10 martial arts novels written by Louis Cha, including Tian Long Ba Bu. In the second half of 2013, Changyou plans to launch a number of mobile games, half of which will be self developed. Now let me provide brand advertising revenue guidance for the third quarter, based on the current information, we expect for Sohu Group, including once in a lifetime, it's (inaudible) brand advertising revenues before tax to be between $132 million and $137 million; net brand advertising revenue to be between $120 million and $125 million, this implies a sequential increase of 20% to 25%, and the annual increase of 54% to 61%. I will now turn the call over to our Co-President and CFO, Carol Yu, who will walk you through the quarter's financials. Carol?

Thank you, Belinda. Hello everyone. I will now take you through our financials for the second quarter. One, revenues; total revenues were $339 million, up 33% year-over-year and 10% quarter-over-quarter. Brand advertising revenues were $100 million, up 45% year-over-year and 25% quarter-over-quarter. Sogou revenues were $50 million, up 64% year-over-year and 27% quarter-over-quarter. Of this, search related revenues were $46 million, up 61% year-over-year and 28% quarter-over-quarter. The number of search customers and the average spend per customer increased by 32% and 30% year-over-year. Online games revenues were $168 million, up 24% year-over-year and 1% quarter-over-quarter. Wireless revenues were $15 million, a year-over-year decrease of 2% and quarter-over-quarter increase of 11%. Now let me provide some more details of our other financials; from now on, most of the figures discussed will be non-GAAP. As a reminder, you can find a reconciliation of these non-GAAP measures in our official earnings release. Two, gross margins; non-GAAP gross margin in the second quarter was 66%, as compared with 66% in the previous quarter and 61% for the same period last year. Three; operating expenses; non-GAAP operating expenses for the second quarter of 2013, totaled $160 million, an increase of 21% from the previous quarter, and an increase of 50% from the same period last year. The year-over-year increase, as well as the quarter-over-quarter increase were primarily due to an increase in the number of employees, average compensation, and higher expenses associated with marketing and promotional activities. Four, operating margins; non-GAAP operating margin was 19%, compared with 23% in the previous quarter, and 19% for the same period of 2012. Five, income tax expense; for the second quarter of 2013, both GAAP and non-GAAP income tax expense were $16 million. Six, net income; before deducting the share of net income, pertaining to the noncontrolling interest, non-GAAP net income was $54 million. Non-GAAP income attributable to Sohu.com Inc. was $23 million or $0.38 per fully diluted share. Seven, net margin; non-GAAP net margin before deducting the share of net income, pertaining to the non-controlling interest were 16%, compared with 19% in the previous quarter, and 16% in the same period of 2012. Eight, moving on to the balance sheet and cash flow statement; for the second quarter, we generated about $105 million in operating cash flow. Changyou generated $97 million, while operating cash flow for the other business units were $8 million. As of June 30, 2013, net accounts receivable was $139 million, compared with $116 million at the end of the first quarter of 2013. Brand advertising DSO for the second quarter was 54 days, compared to 58 days in the previous quarter, and 75 days in the second quarter of 2012. Nine, our outlook for the third quarter of 2013 is as follows; we are expecting total revenues to be between $358 million to $370 million. Brand advertising revenues to be between $120 million to $125 million. This implies the sequential increase of 20% to 25%, and an annual increase of 54% to 61%. Sogou revenues to be between $54 million and $56 million. This implies the sequential increase of between 8% to 12%, and an annual growth of 45% to 50%. Online games revenues to be between $161 million and $166 million. Before deducting the share of non-GAAP net income, pertaining to the noncontrolling interest, non-GAAP net income to be between $43 million and $46 million. Non-GAAP net income, attributable to Sohu.com Inc. to be between $19 million to $21 million, and non-GAAP fully diluted earnings per share to be between $0.50 and $0.55. Assuming no new grants of share based awards, we assume a compensation expense related to share-based awards to be between $3 million to $4 million. The estimated impact of this expense is likely to reduce Sohu fully diluted earnings per share for the third quarter of 2013, under U.S. GAAP by $0.07 to $0.09. In conclusion, for the first half of 2013, we invested extensively in key initiatives for video, search, games and mobile. I am delighted that these investments have further strengthened our competitiveness in China's internet market. I am confident, this momentum will continue into the remaining months in 2013 and beyond. Before I end my remarks, I'd like to take a quick moment to address some of the rumors about Sogou, that is circulating around the market. As we mentioned in the press release a few days ago, we are exploring various options. However, we do not have any updates to report on today's call, and as such, we won't be able to answer any questions about it during the Q&A. This concludes our prepared remarks. Thank you for joining the call today. Operator, we'd now like to open the call to questions.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions). Your first question comes from the line of Eddie Leung from Merrill Lynch. Please ask the question. Eddie Leung - Merrill Lynch: Good evening. Thank you for taking my question. My question is more about your mobile initiative. As we know that, it seems to be a bit difficult to monetize on mobile, if we are focusing more on, let's say your portal advertising. So just wondering, if you guys can elaborate more on your strategy, to monetize mobile on brand advertising? Both on the portal, as well as video? Thank you.

I think the monetization of the mobile is not only Sohu's problem, it's actually the industry's problem. It will take probably another two years for some business models to emerge. Now it's really for every company -- it's really the time to have market share for their applications, or capabilities. Eddie Leung - Merrill Lynch: Is there any monetization plan on mobile video?

Probably, that will be one of the earlier possibilities to monetize, off the various applications, video advertising, we are probably the earliest to monetize -- one of the ways to monetize mobile traffic. But definitely, will be combined with a small screen of the mobile phone, there will be probably some possibility of a transaction of a paid subscription based service.

Eddie, as of now, we already starting selling mobile ads on video, especially on the iPad side. We do not expect revenue contribution to be significant for the current year. But going into 2014, that will be more meaningful.

When we talk about mobile phones, so you have to make a distinction between those two. I think the iPad, the (inaudible) from mobile devices, it's just -- it's the same as the PC advertising. But for mobile phones, it will be a mixture, and won't happen soon. Eddie Leung - Merrill Lynch: Sure. Thanks.

Your next question comes from the line of Ming Zhao from 86Research. Please ask the question. C. Ming Zhao - 86Research: Thank you for taking the question. I have a question on the video business. We understand you have this very successful program called The Voice of China. But to what extent, in the second quarter, video ad revenue was coming from that show or related to that show, and how does it progress during the next two quarters, is it going to drop off to the third quarter strength? Any color would be helpful. Thank you.

I can take that question. We are booking the majority of The Voice of China revenue in Q3. It would be around 80% of the total revenue. In Q2 it would be a relatively small amount, low single digits, and in Q4, it will be minimal. The program ends on a week into October.

Yeah, 80% of the increase of the video revenue. C. Ming Zhao - 86Research: Okay, thanks for the answer. Thanks. (Inaudible) comment on each vertical's performance in the second quarter please? Thank you.

This quarter or the next quarter, Ming? C. Ming Zhao - 86Research: Second quarter and third quarter.

The industry [technically] will be rented by auto, real estate, fast moving consumer groups, and IT, and telecom. C. Ming Zhao - 86Research: Thank you.

Thank you. Your next question comes from the line of Alicia Yap from Barclays. Please ask your question. Alicia Yap - Barclays: Hi good evening everyone. Thanks for taking my questions. My question is related to the margins. So since there have been a few quarters that, why you had a pretty decent top line growth? We continue to see some margin pressure. So just wondering, when do we expect online video to turn profitable and start to help the margins? And as far as the overall margins trend for the rest of this year?

Carol, can you answer that question?

Regarding -- as we mentioned late last year, early this year, we do expect video to turn breakeven in 18 to 20 more months. We are actually very encouraged by the progress that we made during the first half. Everything continued to track well, so we do expect in 2014 the losses would be narrowed, and then hopefully we can have -- we will breakeven in 2015. Alicia Yap - Barclays: And just to follow-up on that, how should we expect The Voice of China to impact the cost of revenue for 3Q?

We are portioning the cost on a [straightline] basis, so the bulk of the costs again will come in, in Q3. So it would be around at least 70% to 80%, if not more. Alicia Yap - Barclays: Okay. Thank you.

Thank you. Your next question comes from the line of Philip Wan from Morgan Stanley. Please ask the question. Philip Wan - Morgan Stanley: Hi, thank you for taking my question. Could you share with us, excluding the online video, what kind of growth rate are you seeing for the online advertising business? And then, a follow-up to the previous question, it would be very helpful if you could provide us with your contribution for the top categories in that (inaudible). Thank you.

Top growth categories? Philip Wan - Morgan Stanley: Yes. Top categories and growth rate for this quarter?

Excluding the online video revenue, right? Philip Wan - Morgan Stanley: Yes, first question excluding online video, what kind of growth rate are we seeing for --

I think the second quarter is -- the revenue growth, it's driven by online video and also by real estate. So the most fast consumer good coming to -- entirely to online video, while the real estate provide another growth engine -- drive the growth. We have not separated -- actually we haven't released the amount of video advertising. Although the growth rate is pretty high, 7% to 8%, year-by-year. So both -- I can tell you, it's basically the real estate and online video revenue high growth, that drives the revenue growth of the Sohu Group.

In terms of the industry category's contribution, as (inaudible) will be from auto to real estate to fast moving consumer goods, and IT and telecom. Philip Wan - Morgan Stanley: All right. Thank you very much.

Thank you. Your next question comes from the line of Mark Marostica from Piper Jaffray. Please ask the question. Mark Marostica - Piper Jaffray: Yes, thank you for taking my question. I am just curious about your budget for online video, in terms of the allocation for self-developed content versus licensed content. Where that stands today, and then how you anticipate that will change over the next two to three quarters?

I think up to now, most of our expenses have been on the purchased content. While the sales produced content actually cost a very minimum -- very minimum cost, like the -- actually Sohu chain, they grow up basically within Sohu. So it's very minimum, up to now, it's insignificant, the amount of the investment. But definitely, we are going to increase that part, to invest more in our in-house production -- in-house production of content, upon the success of our two miniseries. So, but it won't be a lot, in terms of -- because we are spending so economical, I mean, of total costs, so it won't be a lot. But I feel that the majority of the -- most of the content costs are still purchased content. Mark Marostica - Piper Jaffray: Thank you, and just as a follow-up; can you give us a sense of your -- some online video content costs going forward?

Our content value will be $80 million for the --

Just to add to that, the spread is about $70 million to $10 million regarding professional content versus self-produced content. Like Charles has said, it's a very efficient way of generating video views for us. Mark Marostica - Piper Jaffray: Okay. Thank you.

Thank you. Your next question comes from the line of Alex Young from JPMorgan. Please ask the question. Alex Young - JPMorgan: Hi good evening everyone, and thank you very much for taking the question. My question is regarding the brand advertising outlook for the rest of the year, especially given the recent liquidity -- actually cash crunch from the central government. How would you guys think about the growth outlook for portal, as well as video advertising for the rest of the year? Thank you.

I think we have a leveraged growth rate from the online video advertising, and also we have a stable revenue growth from [auto] sites. So actually we have released our first half year of the 2013 revenue picture to the [topic]. So for the next half of the year, I think because of The Voice of China, the revenue from The Voice of China program, it must be adequate in Q3, so if we take the sequential revenue growth rate for Q4, it will be slightly slowed down to a moderate rate. So for the full year, I think we can expect a 40% to 45% growth rate for brand advertising revenue. Alex Young - JPMorgan: Thank you very much.

Thank you. The next question comes from the line of Jiong Shao from Macquarie. Please ask your question. Jiong Shao - Macquarie: Thank you. My question is on Sogou business. Obviously the revenue growth is very strong. I was hoping you can elaborate a bit more on some of the other operating metrics for Sogou, such as the year-over-year PC query growth, and how is the positioning in the mobile storage and what's the mobile search track, I guess, percentage of total query, pricings, any of you can share, will be appreciated. Thank you.

On the PC search, we already mentioned in Charles' script that the overall market share increase from 8.1% to 8.8%. Jiong Shao - Macquarie: I was asking about your PC search query growth year-over-year, sorry if I was unclear there?

I won't fully disclose that metrics. It's a market share that we don't talk about. So we now have 8.8% market share. Jiong Shao - Macquarie: Okay, and about mobile?

Mobile is very-very difficult to measure, because it comes like from a variety of distribution channels. So -- and it's not very significant on our site. Jiong Shao - Macquarie: And could you tell about your mobile search strategy going forward, how are you going to tap into that market, or expand in that segment rather?

I will ask Xiaochuan, our Sougou CEO to talk about that, the mobile search strategy.

Yes, we develop a lot of applications on the mobile site. First is mobile assistant, just like (inaudible). Second, we have three kind of search products. The first one is the web search, just use Pinyin software and search model. The second one is just like Siri. It's a voice assistant, and third one, we call it the yellow pages. So it's an application that connects the user to search the mobile phone numbers. So that is all three products of our mobile (inaudible) search site. Jiong Shao - Macquarie: Okay. All right. Thank you, that's helpful.

Thank you. Your next question comes from the line of Jialong Shi from CLSA. Please ask the question. Jialong Shi - CLSA: Hi. Thank you for taking my question, and first of all, can management clarify whether Mobile China should contribute 80% of your video revenue in 3Q, or it is video revenue growth in 3Q?

Video revenue growth. Jialong Shi - CLSA: Thanks. And also for Sougou. Sougou business has grown very nicely in the past couple of quarters. But if we look at the Sougou revenue for 2Q, actually the revenue was slightly below your previous guidance. So could you give us some color, as why Sougou revenue was below your previous expectation?

It is not. I think one of the analysts has got that number wrong. So we are within our guided range, in fact it's on the high end of the guided range. We guided 48 to 50, and then we hit 50. Jialong Shi - CLSA: Okay. Lastly I have a question for Changyou, and in the past couple of quarters, M&A in the game factor is quite active. There is a view in the industry, that the U.S. listed game companies like Changyou, might be disadvantaged compared to Asia listed buyers, because the latter are trading at much higher multiples, and are more likely to update you as U.S. game companies for potential good targets. So that's why in the past years, most of the acquisition in the games factor, were actually done by Asia listed companies. So just wondering, what's Changyou management's take on this view?

Hi Jialong, this is Alex. First, I don't have any particular on the question or the issue that you have just mentioned. I think for the M&A target, they will have a list of matters that they need to evaluate, whether this could go to whatever targets. Just to remind that Changyou did a number of quite good M&A exercise before. So we will continue to leverage our capability in this area as well. Thank you. Jialong Shi - CLSA: Thank you.

Thank you. Your next question comes from the line of Muzhi Li from Citigroup. Please ask your question. Muzhi Li - Citigroup: Hi good evening. Thanks for taking my question. Will the management please kind of share the mobile traffic volume in portal, the video, and the search as percentage of the total? Thank you very much.

For the second quarter -- for the Sohu News Application, the total user base increased more than 20% sequentially, and for the online video mobile application, we have doubled our daily DAU and daily video views.

Mostly the leading traffic is really the portal side, I mean, the content side, I mean, the text based content, and there is also some user generated content. So as our news application, new app, Sohu News Application client software, with 100 million install base is the leading news provider for mobile phones, number one, yeah, the number one provider of this application.

Then I can share on the search side. The aggregate mobile search traffic accounts for about 20% of our total search traffic. Muzhi Li - Citigroup: Thank you very much.

Then, have we talked about video? On the video sire, because PC based is just growing very fast. So what we see here, is that the denominator changes every day. So what we would like to give out, is the fact that the mobile traffic, user and traffic both doubles during the first half of 2013, and then the momentum continues. Muzhi Li - Citigroup: Thank you very much.

Thank you. Your next question comes from the line of Fei Fang from Goldman Sachs. Please ask the question. Fei Fang - Goldman Sachs: Hi, thanks for the opportunity. I just have a quick follow-up question on the video content pipeline. So The Voice of China has apparently been very effective piece of content, and so with $80 million-ish of run-rate, content cost run rate, do we have similar high quality content in the pipeline for next year, and when you acquire those content, how do you [set] the current pace of content contemplation, and who are your major competitors right now? Thank you.

Can you repeat your question, it's actually a bit longwinded. Fei Fang - Goldman Sachs: My question is regarding the top line that you have for your video content for this year and next year, do you have similarly high profile content like The Voice of China right now, and also how do you assess the current content cost inflation pace? Meaning -- the current cost inflation, yes.

Cost of the content base. Fei Fang - Goldman Sachs: Meaning, how fast is the content price increasing?

We didn't get you. We did not get what you said. So you said content costs, content inflation or --?

Inflation?

Inflation? Fei Fang - Goldman Sachs: Somewhat, is the content price going up?

Oh. I think it's very similar to this year, right?

Yes, it's actually pretty stable. We see some premium content costs going up. We also see other media (inaudible) content trending down. So I think on an overall basis, it will be pretty stable.

I think it is really -- management's ability to select accurately the best content. A content that will be a hit; because for content, that's really the key. For a hit drama, or a hit show, the traffic is probably, five times of the show that they missed. So that's very important, and that's one of the core capability of the Sohu organization. Fei Fang - Goldman Sachs: Thanks Charles. Sorry, it's interesting that you mentioned that the premium content cost is going up, versus the mediocre ones are coming down. Could you give us a sense of which other competitors are progressing the bidding for the premium content?

Oh.

Premium content, there is definitely, Voice of China is one of its kind. It belongs to the category of a variety of shows. But that is mostly -- the content in the (inaudible) form of TV dramas. And the TV dramas, there will be -- there would be much more competition for content and quality, in the content production industry, and so the average price -- I don't think the average price will be much inflated. It's stable. The competition intensified, so that it has to produce the best content, and well sometimes we don't know, we don't know whether it's going to be a big hit or not. Fei Fang - Goldman Sachs: Right, that's helpful. Thank you.

Thank you. Your next question comes from the line of Chit Tsang from HSBC. Please ask your question. Chit Tsang - HSBC: Good evening. Thanks a lot for taking my question. I am wondering how you folks think about the long term growth in operating margins of the video business? That's sort of a recurring question that I get from investors. Thank you.

Carol?

I don't hear the question, can you repeat that? Chit Tsang - HSBC: Sure, for your video business -- can you hear me now?

Yes. Chit Tsang - HSBC: Great. For the video business, I am wondering how you think about the long term gross margin and operating margins of that business? That's the recurring question that I get a lot from investors, and I am hoping you can help clarify -- give thoughts on that?

I think gross margin will start to improve when we see continued scale, like what we are seeing -- expanding of our scale that we are seeing today. So -- and then, for -- because content costs, like we said, we expect that to stabilize, and our user base is quickly expanding, and our advertising capabilities has improved significantly. So I would expect both gross margin -- the only variable cost in that equation is bandwidth. So we do expect, like what I said earlier, the margins to improve next year, and then hopefully we can break even in the year 2015. Chit Tsang - HSBC: But if you think about this business over like a five year basis, or even a seven year basis, gross margins for video in general is in more like a 50% gross margin business, and operating margins are between 20% and 30%, is that the right way to think about it?

I do hope that I have a crystal ball, but if I really have to make a wild guess, these will be the numbers that I will be looking forward to. Chit Tsang - HSBC: Thank you.

I think it's really a good business. If you look at the content, the cost is stabilized, but as our user base continues to grow, with the same kind of content, the same amount of money you buy, you actually sell them to more people, and that means more (inaudible) and that means more advertising dollars. So it's really a good business model in the long term.

Well you look at the TV stations in China, that's what matters, like CCTV. Chit Tsang - HSBC: Great. Thank you.

And one thing, why video business is so hot in China? Instead of like the user sharing like YouTube, it's actually replacing television stations, unlike in the U.S., where TV stations are still alive and well, because it has a market economy competing for 100 years. In China, the TV stations are most state-owned, and they are producing -- Voice of China is exceptional, (inaudible) is exceptional but other content -- the younger generation is shifting away from TV stations, that's why it's our task or it's our responsibility for the video websites, some leading companies' responsibility to basically receive these -- to serve these younger generation, who (inaudible), to serve them with good quality content on video. That's what China's video business is about, it's about replacing the television, and providing entertainment for a whole new generation of Chinese young people.

Thank you. Your next question comes from the line of Thomas Chong from BOCI. Please ask the question. Thomas Chong - BOCI: Hi, good evening everyone. I have two questions. The first one is regarding the video business. Can management provide some color about the number of sales force, as well as the number of advert prices for your video business, and how should we think about the number of advert prices in the third quarter. Should we expect an increase in spending by 15 advert prices for Voice of China? And then I have a follow-up.

We have a sales force of 200 people, and then coincidentally, number of advertisers are pretty familiar to that number. We do expect an uptick in the number of advertisers as well as ARPU in Q3, because with Voice of China, and the growing popularity of our platform, we are drawing in new advertisers, whereby all advertisers are increasing their spend with us. Thomas Chong - BOCI: I see. Thanks Carol. And my second question is regarding the profitability trend for Sougou. In the second quarter, I see the net [loss] for Sougou is leveling quite rapidly. I just want to get a sense about the [profit line] for Sougou going forward, if possible?

Sougou has been bumping up and down around the breakeven level quarter-to-quarter. At the present moment, we do not spend a lot of attention on that number to start with -- whether it's making a profit or making a loss, it's still a very low single digit number. So I think it will bump around, until we have more uptick in terms of the growth, in the overall PC base and mobile base business model. Thomas Chong - BOCI: I see. Thanks Carol. I will get back in the queue.

Thank you. And the next question comes from the line of Wendy Huang from Standard Chartered. Please ask the question. Wendy Huang - Standard Chartered: Thank you. First Carol, can you clarify your comment (inaudible) just now, are you saying Sougou made low single digits, mainly net profit or low single digit net margin for Sougou?

I am seeing that this number, even if it turned profitable, it will be at the low digit level. So it will be bumping up and down around the breakeven level. So I would not pay particular attention to that. I mean, just say for example, if they have some marketing campaign delayed by quarter, pushing out from Q3 to Q4. They made a small profit in Q3, but then they may go back into a loss position in Q4. So I don't think that number is meaningful in any event. Wendy Huang - Standard Chartered: Okay. Fairly, what kind of price increase are you looking at for photo ads and video ads for this year respectively? Thank you.

For the photo ads, we normally adjust the pricing from Q4. So we haven't done that yet. So for the online video, it will be around 30% to 40% price increase on -- probably on a year-over-year basis. But this is regarding our 'general inventory.' For the Voice of China, it will certainly command a premium. Wendy Huang - Standard Chartered: Okay. Then how about price increase for the video ads?

30% to 40%, I just already said. Wendy Huang - Standard Chartered: Oh. So that's where video, and then how about the price increase for the traditional photo ads?

I mentioned, photo ads pricing will be adjusted around Q4, so we haven't done that yet. So normally, we have a 20% price increase for photo ads. Wendy Huang - Standard Chartered: Okay. Fair enough. Another question is more about -- to your question for your video business. So we have seen in the industry that Youku set up alliance with Tudou, and actually it's combined with (inaudible) stream. So I wonder, how is Sohu Group trying to position Sohu's video business? Are you trying to find some niche techniques, or are you trying to find another partner as well?

Well, we leave the possibility open. I mean, we are optimistic about merger or acquisition of some other video content. But we remain open-minded, but we believe that we -- we are very confident, and believe that with or without merger or acquisition, we will grow our video business through our internal better organization, and positioning strategy, and also our content generation and content selection capabilities. And as we have demonstrated, as we have -- and also I believe that the video business is unlike a -- strictly speaking, web 2.0 product, like WeChat or Viber, it's a 2.0 product. We are a company that grow -- I mean, believe in ads and then monopoly. There is a monopoly effect for those kind of products. For video it's -- I call it the 1.0 products, like broadcasting, and the VOD, with some sharing, but it's mostly 1.5. So it allows several contenders -- it allows several companies to coexist to have market share. So even with our competitors, the two major acquisitions, we are confident that Sohu Video will continue to grow, as demonstrated in Q1, Q2, and also the forecast of Q3, without acquisition, Sohu video continues to grow, and even actually grow faster than our competitors.

Thank you. Ladies and gentlemen, that's all the time we have for questions. I would now like to hand the conference back to Eric Yuan, Investor Relations Director of Sohu, for closing remarks. Thank you.

Thank you all for joining the call. Good bye.

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.