XSEL Xinhua Sports & Entertainment Limited ADS, Each Representing Two Class A Common Shares (MM)

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 20-F

(Mark One)

o		REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

or

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2009.

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                   

or

o		SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

Commission file number: 001-33328

XINHUA SPORTS & ENTERTAINMENT LIMITED

(Exact name of Registrant as specified in its charter)

              N/A                

      Cayman Islands    

18/F, Tower A, Winterless Centre,
No. 1 West Da Wang Road, Chaoyang District,
Beijing, 100026, People’s Republic of China
(Address of principal executive offices)

Fredy Bush
Chief Executive Officer
18/F, Tower A, Winterless Centre,
No. 1 West Da Wang Road, Chaoyang District,
Beijing, 100026, People’s Republic of China
Tel: +86-10-8567-6000
Fax: +86-10-6448-0585
Email: info@xsel.com

(Name, Telephone, E-mail and/or Facsimile number and Address of the Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of Each Class		Name of Each Exchange on Which Registered
American depositary shares, each representing two common shares, par value US$0.001 per share		The NASDAQ Stock Market LLC (The NASDAQ Global Market)

Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)

Indicate the number of outstanding shares of each of the Issuer’s classes of capital or common stock as of the close of the period covered by the annual report. 176,466,050 common shares, par value US$0.001 per share as of December 31, 2009.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes o No þ

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ

U.S. GAAP þ International Financial Reporting Standards as issued by the International Accounting Standards Board o Other o

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 o Item 18 o

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes o No o

 

 

TABLE OF CONTENTS

Item 1. Identity of Directors, Senior Management and Advisers			3
Item 2. Offer Statistics and Expected Timetable			3
Item 3. Key Information			3
Item 4. Information on the Company			27
Item 4A. Unresolved Staff Comments			61
Item 5. Operating and Financial Review and Prospects			61
Item 6. Directors, Senior Management and Employees			93
Item 7. Major Shareholders and Related Party Transactions			103
Item 8. Financial Information			109
Item 9. The Offer and Listing			111
Item 10. Additional Information			111
Item 11. Quantitative and Qualitative Disclosures About Market Risk			118
Item 12. Description of Securities Other Than Equity Securities			119
Item 13. Defaults, Dividend Arrearages and Delinquencies			120
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds			120
Item 15. Controls and Procedures			120
Item 16A. Audit Committee Financial Expert			120
Item 16B. Code of Ethics			121
Item 16C. Principal Accountant Fees and Services			121
Item 16D. Exemptions From The Listing Standards For Audit Committees			121
Item 16E. Purchases of Equity Securities By The Issuer And Affiliated Purchasers			121
Item 16F. Change In Registrant’s Certifying Accountant			122
Item 16G. Corporate Governance			122
Item 17. Financial Statements			122
Item 18. Financial Statements			122
Item 19. Exhibits			122
Exhibit 4.62
Exhibit 4.63
Exhibit 4.64
Exhibit 4.65
Exhibit 4.66
Exhibit 4.67
Exhibit 8.1
Exhibit 12.1
Exhibit 12.2
Exhibit 13.1
Exhibit 13.2
Exhibit 15.1

INTRODUCTION

In this annual report, except where the context otherwise requires and for purposes of this annual report only:

•

“we,” “us,” “our company,” “our,” “XSEL” and “Xinhua Sports & Entertainment” refer to Xinhua Sports & Entertainment Limited, and its subsidiaries, including direct subsidiaries and affiliated entities, except where the context requires otherwise;

•

“production of” or “to produce” drama series refer to “co-production with third parties who hold drama series production licenses” or “to cooperate with third parties who hold drama series production licenses to produce;”

•

“shares” or “common shares” refers to our class A common shares;

•

“ADSs” refers to our American depositary shares, each of which represents two common shares, and “ADRs” refers to the American depositary receipts that evidence our ADSs;

•

“China” or “PRC” refers to the People’s Republic of China, excluding, for the purpose of this annual report on Form 20-F only, Taiwan, Hong Kong and Macau;

•

“GAAP” refers to general accepted accounting principles in the United States;

•

all references to “RMB” or “Renminbi” are to the legal currency of China, all references to “$,” “dollars,” “US$,” “USD” and “U.S. dollars” are to the legal currency of the United States and all references to “HK$” are to the legal currency of Hong Kong;

•

any discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding; and

•

the conversion of RMB into U.S. dollars in this annual report is based on the noon buying rate in The City of New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York. Unless otherwise noted, all translations from RMB to U.S. dollars and from U.S. dollars to RMB in this annual report were made at a rate of RMB6.8259 to $1.00, the noon buying rate in effect as of December 31, 2009.

This annual report on Form 20-F includes our audited consolidated financial statements for the years ended December 31, 2007, 2008 and 2009.

FORWARD-LOOKING INFORMATION

This annual report on Form 20-F contains statements of a forward-looking nature. You can identify these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. You must remember that our expectations may not be correct, even though we believe that they are reasonable. These forward-looking statements include, among others:

•

our goals and strategies;

•

our ongoing extension into the sports and entertainment markets;

•

our future business development, financial condition and results of operations;

•

projected revenues, profits, earnings and other estimated financial information;

•

our plans to expand our Internet presence, and expand into new media, such as, broadband wireless and Internet television;

•

the growth or acceptance of our integrated platform;

•

our plans to identify and create new advertising networks that target specific consumer demographics, which could allow us to charge a separate fee; and

•

competition in the PRC media and advertising industries.

We do not guarantee that the events described in this annual report will happen as described or that they will happen at all. You should read this annual report completely and with the understanding that actual future results may be materially different from what we expect. The forward-looking statements made in this annual report relate only to events as of the date on which the statements are made. We undertake no obligation, beyond that required by law, to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made, even though our situation may change in the future.

Whether actual results will conform to our expectations and predictions is subject to a number of risks and uncertainties, many of which are beyond our control, and reflect future business decisions that are subject to change. Some of the assumptions, future results and levels of performance expressed or implied in the forward-looking statements we make inevitably will not materialize, and unanticipated events may occur which will affect our results. The “Item 3.D. Key Information — Risk Factors” section of this annual report describes the principal contingencies and uncertainties to which we believe we are subject. You should not place undue reliance on the forward-looking statements.

PART I

Item 1. Identity of Directors, Senior Management and Advisers

Not Applicable.

Item 2. Offer Statistics and Expected Timetable

Not Applicable.

Item 3. Key Information

A. Selected Financial Data

The following selected consolidated statements of operations data for our company for the years ended December 31, 2007, 2008 and 2009 and the selected consolidated balance sheet data for our company as of December 31, 2008 and 2009 have been derived from our audited financial statements included elsewhere in this annual report. You should read the selected consolidated financial data in conjunction with those financial statements and the accompanying notes and “Item 5. Operating and Financial Review and Prospects.”

The following selected consolidated statements of operations data for our predecessor, EconWorld Media Limited, or EconWorld Media, for the period ended May 25, 2005 and for our company for the period from May 26, 2005, the date Xinhua Finance Limited, or XFL, acquired 60% of EconWorld Media, to December 31, 2005, and for our company for the year ended December 31, 2006 have been derived from our audited financial statements that are not included in this annual report.

Our consolidated financial statements are prepared and presented in accordance with U.S. GAAP. Our historical results do not necessarily indicate our results expected for any future periods.

		Period					Period
		from					from
		January 1, 2005 to					May 26,
		May 25,					2005(1) to				Year Ended				Year Ended				Year Ended				Year Ended
		2005					December 31,				December 31,				December 31,				December 31,				December 31,
		(Predecessor)					2005				2006				2007				2008				2009
		(In thousands, except for per share data)
Selected consolidated statement of operations data
Net revenues:
Advertising services		$	—				$	—			$	35,628			$	75,337			$	99,575			$	78,016
Advertising sales			—					—				—				8,141				21,912				21,215
Total net revenues			—					—				35,628				83,478				121,487				99,231
Cost of revenues:
Advertising services			—					—				23,954				54,255				71,230				61,888
Advertising sales			—					—				—				3,805				9,483				23,554
Total cost of revenues			—					—				23,954				58,060				80,713				85,442
Operating expenses:
Selling and distribution			—					—				2,355				5,662				10,683				7,708
General and administrative			—					4				10,131				17,890				45,604				27,762
Impairment charges			—					—				—				—				159,938				176,772
Loss on disposal of subsidiaries			—					—				—				—				4,721				25,640
Total operating expenses			—					4				12,486				23,552				220,946				237,882
Other operating income			—					—				—				2,262				1,251				2,065
Income (loss) from operations			—					(4	)			(812	)			4,128				(178,921	)			(222,028	)
Other income (expense), net			—					—				(167	)			5,745				(27,308	)			4,651
Equity in loss of an investment			—					—				52				—				—				—
Provision for income taxes (benefit)			—					—				(164	)			671				1,728				(4,057	)
Net income (loss) from continuing operations			—					(4	)			(867	)			9,202				(207,957	)			(213,320	)
Discontinued operations, net of taxes			(884	)				1,484				5,915				20,140				(66,274	)			(100,296	)
Net income (loss)			(884	)				1,480				5,048				29,342				(274,231	)			(313,616	)
Net income (loss) attributable to non-controlling interest			—					129				1,704				1,303				641				(2,041	)
Net income (loss) attributable to XSEL		$	(884	)			$	1,351			$	3,344			$	28,039			$	(274,872	)		$	(311,575	)
Deemed dividend on redeemable convertible preferred shares			—					—				(2,157	)			—				—				—
Dividends declared to redeemable convertible preferred shares			—					—				(5,335	)			(1,338	)			(2,000	)			(2,560	)
Net income (loss) attributable to holders of common shares			(884	)				1,351				(4,148	)			26,701				(276,872	)			(314,135	)
Net income (loss) from continuing operations per share:
Basic — Class A common share		$	—				$	—			$	(0.18	)		$	0.06			$	(1.55	)		$	(1.35	)
Basic — Class B common share		$	—				$	—			$	(0.18	)		$	0.06			$	(1.55	)		$	—
Diluted — Class A common share		$	—				$	—			$	(0.18	)		$	0.06			$	(1.55	)		$	(1.35	)
Diluted — Class B common share		$	—				$	—			$	(0.18	)		$	0.06			$	(1.55	)		$	—
Net income (loss) from discontinued operations per share:
Basic — Class A common share		$	—				$	—			$	0.10			$	0.17			$	(0.49	)		$	(0.64	)
Basic — Class B common share		$	(7.85	)			$	0.03			$	0.10			$	0.17			$	(0.49	)		$	—
Diluted — Class A common share		$	—				$	—			$	0.10			$	0.15			$	(0.49	)		$	(0.64	)
Diluted — Class B common share		$	(7.85	)			$	0.03			$	0.10			$	0.15			$	(0.49	)		$	—
Shares used in computation:
Basic — Class A common share			—					—				5,084				66,166				85,927				157,730
Basic — Class B common share			113					42,613				44,693				50,055				49,917				—
Diluted — Class A common share			—					—				5,084				86,315				85,927				157,730
Diluted — Class B common share			113					42,613				44,693				50,055				49,917				—
Dividend per redeemable convertible preferred share		$	—				$	—			$	0.34			$	0.08			$	6.67			$	7.81

		As of December 31,
		2008				2009
		(In thousands)
Selected consolidated balance sheet data
Cash and cash equivalents		$	54,089			$	13,230
Goodwill			46,993				7,238
Intangible assets			200,529				19,298
Total assets			508,250				242,559
Convertible loan-current			—				59,379
Total current liabilities			106,275				201,755
Convertible loan-non current			33,200				—
Net assets (liabilities)			268,791				(26,170	)
Total equity (deficiency)			238,185				(59,936	)

As of January 1, 2009, we adopted an authoritative guidance, which changed the accounting for and the reporting of minority interests, now referred to as non-controlling interests, in our consolidated financial information. Due to our corporate repositioning, certain businesses ceased operations or were sold and we have reclassified these businesses as discontinued operations in the consolidated financial information. Prior period financial information has been reclassified to conform to the current period presentation.

Exchange Rate Information

Our business is primarily conducted in China and substantially all of our revenues are denominated in RMB. However, periodic reports made to shareholders will include current period amounts translated into U.S. dollars using the then current exchange rates, for the convenience of readers. The conversion of RMB into U.S. dollars in this annual report is based on the noon buying rate in The City of New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York. Unless otherwise noted, all translations from RMB to U.S. dollars and from U.S. dollars to RMB in this annual report were made at a rate of RMB6.8259 to $1.00, the noon buying rate in effect as of December 31, 2009. We make no representation that any RMB or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or RMB, as the case may be, at any particular rate, or at all. The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of RMB into foreign exchange and through restrictions on foreign trade. On July 9, 2010, the noon buying rate was RMB6.7720 to $1.00.

The following table sets forth information concerning exchange rates between the RMB and the U.S. dollar for the periods indicated.

		Noon Buying Rate
Period		Period End				Average(1)				Low				High
2005			8.0702				8.1826				8.2765				8.0702
2006			7.8041				7.9579				8.0702				7.8041
2007			7.2946				7.5806				7.8127				7.2946
2008			6.8225				6.9193				7.2946				6.7800
2009			6.8259				6.8295				6.8470				6.8176
2010
January			6.8268				6.8269				6.8295				6.8258
February			6.8258				6.8285				6.8330				6.8258
March			6.8258				6.8262				6.8270				6.8254
April			6.8247				6.8256				6.8275				6.8229
May			6.8305				6.8275				6.8310				6.8245
June			6.7815				6.8184				6.8323				6.7815
July (through July 9, 2010)			6.7720				6.7762				6.7807				6.7709

B. Capitalization and Indebtedness

Not Applicable.

C. Reasons for the Offer and Use of Proceeds

Not Applicable.

D. Risk Factors

Risks related to our business

There is substantial doubt as to our ability to continue as a going concern, which could adversely affect our ability to meet our ongoing financing needs as well as to obtain third party financing.

As indicated in the emphasis of matter language included in the report on our financial statements issued by our auditors, Deloitte Touche Tohmatsu CPA Ltd., there is “substantial doubt” about our ability to continue as a going concern. As of December 31, 2009 our current liabilities exceeded our current assets by $50.9 million and our net shareholders’ deficit was $61.4 million. Our cash and cash equivalent as of December 31, 2009 was $13.2 million. We cannot assure you that our business will generate sufficient cash flow from operations in the future to service our debts and make necessary capital expenditures, in which case we may (i) seek additional financing, (ii) dispose of certain assets or (iii) seek to refinance some or all of our debts. We are also taking a number of other actions to address the issue, including restructuring outstanding indebtedness, disposing of non-core businesses and adopting other cost-saving strategies. We cannot assure you that any of the alternatives above can be implemented on satisfactory terms, if at all. The inclusion of the substantial doubt language in the audit report about our ability to continue as a going concern could affect our ability to obtain financing from third parties or could result in increased costs of such financing. In the event that we are unable to meet our liabilities when they are due or if our creditors take legal action against us for payment, we may have to liquidate long-term assets to repay our creditors. We may have difficulty converting our long-term assets into current assets in such a situation and may suffer losses upon the sale of our long-term assets.

We have sustained net losses in the past and may continue to sustain net losses in the future or may not grow as expected.

We recorded an aggregate of $267.8 million in 2009 for impairment charges relating to goodwill and intangible assets, driven mainly by (i) our repositioning in the sports and entertainment fields, (ii) the global economic downturn, (iii) the release of Rule 61 (“Rule 61”) in October 2009 by the State Administration of Radio, Film and Television, which substantially cuts the time allowed for brand advertisements in each hour of programming and the aggregate amount of time allotted for infomercials, (iv) the loss of major customers to competitors or from our Advertising Group and (v) the failure to renew an agency contract for internet property advertising. Partially because of this, we reported a net loss of $313.6 million for the year ended December 31, 2009. As of December 31, 2009, after recording these impairment charges, we had goodwill and other intangibles in an aggregate amount of $30.9 million, or approximately 12.7% of our total assets.

An asset impairment charge may result from the occurrence of unexpected adverse events that impact our estimates of expected cashflows generated from our assets. Goodwill and intangible assets with indefinite lives are required to be tested for impairment at least annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. If the estimates or related assumptions change in the future, we may be required to record additional impairment charges. Additionally, continued adverse conditions in the economy and future volatility in the stock market could continue to impact the valuation of our reporting units, which could trigger additional impairment of goodwill and intangibles in future periods and have a material adverse effect on our results of operations and the market price of our ADSs.

We may not be able to comply with the financial covenants contained in an outstanding secured convertible loan facility, which would give the lenders under such facility the right to require us to repay the outstanding balance at any time. We may not be able to make such a repayment on demand, and any acceleration of the loan would have an adverse effect on our financial condition.

In October 2008, we obtained a secured convertible loan facility from affiliates of Patriarch Partners Agency Services, LLC, or Patriarch. As of the date of this annual report, the outstanding principal amount under the secured convertible loan facility is $41.5 million. In addition, we obtained a term loan of $7.6 million from Patriarch. The credit agreement contains financial covenants relating to the business of our subsidiaries, including minimum consolidated EBITDA, interest coverage ratios, a leverage ratio and a minimum cash balance requirement. We did not meet certain of these financial covenants for the quarter ended September 30, 2009, for which we obtained a waiver. We also did not meet certain of these financial covenants for the quarters ended December 31, 2009, March 31, 2010 and June 30, 2010. We entered into an amendment and waiver to the secured convertible loan facility on July 12, 2010, which effectively waives our breach of financial covenants for the quarters ended December 31, 2009, March 31, 2010 and June 30, 2010 and up to the date of the amendment, and lowers the financial covenant requirements on a prospective basis.

Upon the occurrence of any default under the secured convertible loan facility, including our failure to comply with all financial covenants, Patriarch could elect to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be due and payable, or could require us to apply all of our available cash to repay these borrowings. If we cannot repay these amounts, Patriarch could proceed against the collateral granted to it to secure our indebtedness. We have pledged our television assets as collateral under the secured convertible loan facility. If Patriarch accelerates the repayment of borrowings, we may not have sufficient assets to repay the loans under the secured convertible loan facility and our other indebtedness, or be able to borrow sufficient funds to refinance such indebtedness. Even if we are able to obtain new financing, it may not be on commercially reasonable terms, or terms that are acceptable to us.

We cannot assure you that we will be able to comply with the covenants contained in the secured convertible loan facility in the future, and if we breach the covenants, we cannot assure you that we would be able to obtain any amendments to or waivers of the covenants contained in the secured convertible loan facility. In addition, any amendment to or waiver of the covenants may involve upfront fees, higher annual interest costs and other terms less favorable to us than those currently offered by the secured convertible loan facility. In addition, our failure to comply with the covenants under the secured convertible loan facility or an assessment that we are likely to fail to comply with such covenants could lead us to seek an amendment to or a waiver of the covenants contained in the secured convertible loan facility. 

Under the terms of our advertising agency agreement with Shaanxi Television Station, it held the right to terminate the agreement if we failed to make certain required payments. Shaanxi Television Station exercised this right on June 30, 2010, which could have a material and adverse impact on our business and financial conditions.

Through our subsidiary, Everfame Development Ltd., or Everfame Development, we acted as the sole advertising agent for Shaanxi Television Station, a free-to-air TV channel. Our agreement with Shaanxi Television Station provided it the right to terminate the agreement where we failed to pay the required annual license fee or make certain guarantee payments. This agreement was terminated by Shaanxi Television Station effective June 30, 2010 due to our failure to make required payments. We derived revenue of $20.8 million from this agreement for the year ended December 31, 2009, which represents 14.9% of our total revenue for that period. We may not be able to enter into a satisfactory agreement to make up for this loss of revenues, which could have a material and adverse effect on our business and financial conditions.

We have substantial indebtedness and may incur substantial additional indebtedness in the future, which could adversely affect our financial health and our ability to generate sufficient cash to satisfy our outstanding and future debt obligations.

As of December 31, 2009, we had total borrowings of $89.1 million. Our substantial indebtedness could have important consequences to you. For example, it could:

•

limit our ability to satisfy our obligations under our debt;

•

increase our vulnerability to adverse general economic and industry conditions;

•

require us to dedicate a substantial portion of our cashflow from operations to servicing and repaying our indebtedness, thereby reducing the availability of our cashflow to fund working capital, capital expenditures and other general corporate purposes;

•

limit our flexibility in planning for or reacting to changes in our businesses and the industry in which we operate;

•

place us at a competitive disadvantage compared to our competitors that have less debt; and

•

increase the cost of additional financing.

Our ability to generate sufficient cash to satisfy our outstanding and future debt obligations will depend upon our future operating performance, which will be affected by prevailing economic conditions and financial, business and other factors, many of which are beyond our control. We anticipate that our operating cashflow may not be sufficient to meet our anticipated operating expenses and to service our debt obligations as they become due. If we are unable to service our indebtedness, we will be forced to adopt an alternative strategy that may include actions such as reducing or delaying capital expenditures, selling assets, restructuring or refinancing our indebtedness or seeking equity capital. These strategies may not be instituted on satisfactory terms, if at all.

We are refocusing our scope of operations to include sports and entertainment media. Failure to successfully implement these new business strategies could have an adverse effect on our financial condition, results of operations and cashflow from operations.

Our content previously focused on business and financial news as well as on wealth management and affluent lifestyle programming. In late 2008 we decided to expand the scope of our business to include sports and entertainment media, in addition to our existing finance focus, to more broadly address market demand and maximize shareholder value. In connection with our re-positioning, we have made several key investments to better position ourselves for growth in the sports and entertainment markets. We have also reallocated some of our resources to these new businesses. Our re-positioning and growth of our operations have placed, and will continue to place, significant demand on our management, operational and financial resources. If we do not effectively manage our re-positioning and the growth of our operations, the quality of our services could suffer, which could negatively affect our brand and operating results. Any failure to efficiently or effectively manage this growth of our operations may limit our future growth and hamper our business strategy.

In addition, as a result of the repositioning, we discontinued our print business and most of our broadcasting business. A number of our entities were either terminated or disposed of in 2009, which were reflected as discontinued operations in our consolidated statements of operation. In 2009, we incurred a loss from discontinued operations of $100.3 million. Our repositioning and new business strategies may result in additional discontinued operations and losses from discontinued operations, which could have an adverse effect on our financial condition and results of operations.

We may need additional capital to finance general operating costs and future acquisitions and we may not be able to obtain it.

We may require additional cash resources in order to financing general operating costs and to make acquisitions. We plan to expand through acquisitions, but have not yet identified many targets for acquisition. Often the cost of acquisitions is not known until the opportunities are analyzed, due diligence has commenced and negotiations are underway. We also may need to pay large amounts in additional earnout considerations in connection with acquisitions structured to include these types of payments. As of the date of this annual report, we may need to pay as much as $53.5 million in additional earnout considerations in connection with past acquisitions. If the cost of the acquisitions that our management deems appropriate is higher than our cash resources, we will need to seek additional cash resources, and may seek to sell additional equity or debt securities or obtain a credit facility. We also require capital to fund our ongoing general operating costs. The sale of additional equity securities could result in additional dilution to our shareholders. If we sell additional equity securities and our shareholders experience dilution, you will also experience dilution of your ADSs. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. We may not be able to obtain financing in amounts or on terms acceptable to us, if at all. As a result, our operating results and financial condition could be adversely affected.

Our successive acquisitions make evaluating our business and prospects difficult.

We were incorporated in November 2005. Since our incorporation, we have acquired various operating entities with distinct businesses. Some of the businesses we acquired have short operating histories. Our successive acquisitions make comparisons with historical data difficult. Accordingly, you should consider our future prospects in light of the risks and uncertainties experienced by early stage companies in evolving and heavily regulated industries such as the media industry in China. Some of these risks and uncertainties relate to our ability to:

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successfully integrate the recently acquired companies;

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navigate the regulatory landscape and respond to changes in the regulatory environment;

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offer new and innovative services to attract and retain an audience and readers;

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attract additional advertisers and increase advertising fees;

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increase awareness of our branded media platforms;

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respond to competitive market conditions;

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manage risks associated with intellectual property rights;

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maintain effective control of our costs and expenses;

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raise sufficient capital to sustain and expand our business; and

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attract, retain and motivate qualified personnel.

If we are unsuccessful in addressing any of these risks and uncertainties, or any other risks listed below, our business may be materially and adversely affected.

We may not be able to achieve the benefits we expect from recent and future acquisitions, and recent and future acquisitions may have an adverse effect on our ability to manage our business.

Our recent acquisitions and any future acquisitions expose us to potential risks, including risks associated with unforeseen or hidden liabilities, the diversion of resources from our existing businesses and technologies, the change of laws and policies or their interpretations that affect the operations of the acquired businesses, the inability to generate sufficient revenue to offset the costs and expenses of acquisitions, and potential loss of, or harm to, relationships with employees, customers and business partners as a result of the integration of new businesses. As of the date of this filing, we have not encountered any of those potential risks. In addition, the revenue and cost synergies that we expect to achieve from our acquisitions may not materialize. The overhead and personnel cost of running a large organization could be significantly higher than that of a smaller organization. Any of these events could have an adverse effect on our business, financial condition, results of operations and cashflow from operations.

Strategic acquisitions are a key part of our growth strategy. Historically we have made acquisitions that were critical in providing us with product and service suites, an audience and readers, a customer base, market access and our talent pool. If we are presented with appropriate opportunities, we may acquire additional complementary companies, products or technologies. The integration of acquired companies diverts a great deal of management attention and dedicated staff efforts from other areas of our business. A successful integration process is important to realizing the benefits of an acquisition. If we encounter difficulty integrating our recent and future acquisitions, our business may be adversely affected. Certain of our acquired companies are held in the form of affiliated entities, which provides us less control than if they were direct subsidiaries, and may cause difficulty in the integration process. See “— Risks related to the regulation of our business and to our structure — We rely on contractual arrangements with our PRC operating affiliates and their subsidiaries and shareholders for our China operations, which may not be as effective in providing operational control as direct ownership.” The acquisitions may not result in the expected growth or development, which may have an adverse effect on our business.

We may not be successful in identifying, financing, consummating and integrating future acquisitions, which could significantly impair our growth potential. We plan to continue to make strategic acquisitions, and identifying acquisition opportunities could demand substantial management time and resources. Negotiating and financing the potential acquisitions could involve significant cost and uncertainties. If we fail to continue to execute advantageous acquisitions in the future, our overall growth strategy could be impaired, and our operating results could be adversely affected.

We rely on key contracts and business relationships, and if our current or future business partners or contracting counterparties fail to perform, or terminate, any of their contractual arrangements with us for any reason or cease operations, or should we fail to adequately identify key business relationships, our business could be disrupted, our reputation may be harmed and we may have to resort to litigation to enforce our rights, which may be time consuming and expensive.

We rely on a number of arrangements with partners and suppliers to conduct our businesses. These arrangements govern, among others, our rights to sell advertising, provide consulting and advisory services and to serve as an exclusive advertising agent. See “Item 4.B. Information on the Company — Business Overview — Arrangements with partners and suppliers.” Some of these key contracts have long terms, while others have short terms generally ranging from one year to a few years and will need renewal.

If any of our business partners or contracting counterparties fails to perform or terminates its agreement with us for any reason (including, for example, a breach by them or the lack of proper regulatory approvals), or if our business partners or contracting counterparties with which we have short-term agreements refuse to extend or renew the agreement or enter into a similar agreement, our ability to carry on operations in that sector, and our ability to cross-sell advertising services among different platforms, may be impaired. Depending on the circumstances, the consequences could be far-reaching and extremely harmful to our reputation, existing business relationships and future growth potential. In addition, we depend on the continued operation of our long-term business partners and contracting counterparties and on maintaining good relations with them. If one of our long-term partners or counterparties is unable (including as a result of bankruptcy or a liquidation proceeding) or unwilling to continue operating in the line of business that is the subject of our contract, we may not be able to obtain similar relationships and agreements on terms acceptable to us or at all. The failure to perform or termination of any of the agreements by a partner or a counterparty, the discontinuation of operations of a partner or counterparty, the loss of good relations with a partner or counterparty or our inability to obtain similar relationships or agreements may have an adverse effect on our operating results and financial condition. If any of these business partners or contracting counterparties fails to perform its obligations, we may not be able to enforce the relevant agreements if the agreements are ruled in violation of the PRC laws, even if the agreements are otherwise legal and valid.

We will seek to enforce our rights to the maximum extent allowed by law. However, dispute resolution through litigation and arbitration in China could be time-consuming and expensive. Since the results of bringing actions in court and enforcing arbitration awards in China are not predictable, we may not prevail in court or at arbitration hearings even if we believe we should win based on the merits of the case and may not be able to collect arbitration awards even if there is no defect on the arbitration rulings.

In addition, we may need to form new strategic partnerships or joint ventures to access appropriate assets and industry know-how. Failing to identify, execute and integrate such future partnerships or joint ventures may have an adverse effect on our business, financial condition, results of operations and cashflow from operations.

We are not a party to some of the key contracts on which we rely. Instead, we have contracts with companies which in turn have these key contracts with third parties. If the third parties fail to perform or terminate any of these key contracts for any reason or cease operations, our business could be disrupted, our reputation may be harmed and we will not be able to enforce our rights in court.

Our business relies on certain key contracts to which we are not a party. Instead, we have contracts with the companies that in turn have those key contracts with third parties. The contracts we have allow us to benefit financially and strategically from our contracting counterparties’ roles in the contracts. These arrangements govern, among others, our rights to sell advertising, provide consulting and advisory services and to serve as an exclusive advertising agent. See “Item 4.B. Information on the Company — Business Overview— Arrangements with partners and suppliers.”

If our contracting counterparties do not perform or terminate their agreements with the third parties, or if the third parties do not perform or terminate their contracts with our contracting counterparties for any reason, including a breach by either party, our ability to use the media platforms, and our ability to cross-sell advertising services among different platforms may be impaired. Depending on the circumstances, the consequences of a failure to perform under the terms or the termination of a contract could be far-reaching and extremely harmful to our reputation, existing business relationships and future growth potential. We may not be able to enforce these contracts in court or at arbitration because we do not have direct contractual relationships with these entities. Our contracting counterparties may be unable or unwilling to enforce their rights under the key contracts, and if they are unwilling to do so we have no direct recourse against the third parties. In addition, we rely on the continued operation of the third parties to carry out certain parts of our operations. If any of them are unable or unwilling to continue operating in the line of business that is the subject of our contract, we do not have contractual rights to enforce against them. We may not be able to obtain access to similar platforms on terms acceptable to us or at all. A failure to perform under the terms of or the termination of any of these key contracts, the discontinuing of operations of the third parties or our inability to obtain access to similar media platforms may have an adverse effect on our financial condition, results of operations and cashflow from operations.

Our future success depends on attracting advertisers who will advertise across our various platforms. If we fail to attract a sufficient number of advertisers, our operating results and revenues may not meet expectations.

One important strategy underlying our recent acquisitions is to create an integrated media platform on which advertisers wishing to reach an affluent audience and readers may advertise simultaneously on multiple media outlets. However, advertisers may decide that they do not need to use multiple outlets, find that our targeted demographic does not consist of their desired consumers or a critical mass of consumers, decide to use a competitor’s services or decide not to use our services for other reasons. If the advertisers decide against advertising with us, we may not realize our growth potential or meet investor expectations. Our future operating results and business prospects could be adversely affected.

We derive a substantial proportion of our revenues from advertising, and the advertising market is particularly volatile.

Our operating groups, including Broadcast and Advertising, derive the majority of their revenues from the provision of advertisements and sponsorships. Advertising spending is volatile and sensitive to changes in the economy. Our advertising customers may reduce the amount they spend on our media for a number of reasons, including:

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a downturn in economic conditions in China or around the globe;

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a decision to shift advertising expenditure to other media and platforms;

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a deterioration of the ratings of our programs;

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a change of government policy with regard to the types of programs that can be broadcast; or

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a decline in advertising spending in general.

If we are unable to continually attract advertisers to our media services, we will be unable to maintain or increase our advertising fees and sales, which could negatively affect our ability to generate revenues in the future. A decrease in demand for advertising in general, and for our advertising services in particular, could materially and adversely affect our operating results.

Our operating results may fluctuate, which makes our results difficult to predict and could cause our results to fall short of expectations.

Our operating results may fluctuate as a result of a number of factors, many of which are outside of our control. Our quarterly and annual revenues and costs and expenses as a percentage of our revenues may be significantly different from historical or projected levels. Our operating results in future quarters may fall below expectations. Any of these events could cause the price of our ADSs to fall. Any of the risk factors listed in this section could cause our operating results to fluctuate from quarter to quarter.

Because of our limited operating history, our rapidly evolving business and our repositioning and other growth strategies, our historical operating results may not be useful to you, and you should not rely on our past results in predicting our future operating results. Advertising spending in China has historically been volatile, reflecting overall economic conditions as well as budgeting and buying patterns. We expect that the volatility in our business may cause our operating results to fluctuate. If our revenues for a particular quarter are lower than we expect, we may be unable to reduce our operating expenses for that quarter by a corresponding amount, which would harm our operating results for that quarter relative to our operating results from other quarters.

If we do not maintain and develop our brands and those of our strategic partners, we will not be able to attract an audience and readers to the media platforms we use.

Many of the media platforms we use attract readers, audiences and advertisers partly through brand name recognition. We believe that establishing, maintaining and enhancing our portfolio of brand names and those of our strategic partners will enhance our growth prospects. Some of our competitors have well-established brands in the media industry. The promotion of our brands and those of our strategic partners will depend largely on our success in maintaining a sizable and loyal audience and readership, providing high-quality content and organizing effective marketing programs. While many of the media platforms we utilize currently have a high level of brand recognition, we may not be able to maintain our existing brands or those of our strategic partners or develop new brands on a cost-effective basis, which may have an adverse impact on our operating results.

In addition, Xinhua Financial Network Limited, or Xinhua Financial Network, and China Economic Information Service, entered into an agreement, pursuant to which China Economic Information Service granted Xinhua Financial Network and its affiliates the right to use the word “Xinhua” in its corporate name worldwide. Xinhua Financial Network is a subsidiary of XFL and our company is considered an affiliate of Xinhua Financial Network. We have in turn entered into an agreement with Xinhua Financial Network to use the word “Xinhua.” Our agreement with Xinhua Financial Network covers only the rights of Xinhua Financial Network and not any rights held by XFL. In addition, if we were to cease to be an affiliate of XFL, we may be unable to continue using the “Xinhua” name. If we are unable to continue using the name “Xinhua,” our branding will be affected, which may have an adverse impact on our operating results.

If we do not compete successfully against new and existing competitors, we may lose our market share, and our operating results may be adversely affected.

We compete with international and local media entities on various platforms, and with advertising service providers. The media, advertising and research sectors in China are very competitive and constantly evolving. Many of our competitors have a longer operating history, larger product and service suites, greater capital resources and broader international or local recognition. Given the recent growth in the China market, we expect international competitors to increase their focus in this region and local competitors to increase their focus in these sectors, intensifying the competition in our business areas. If we cannot successfully compete against new or existing competitors, our operating results may be adversely affected.

Our Broadcast business faces increasing competition from new technologies, such as the Internet, broadband wireless and Internet television, and new consumer products, such as portable digital audio players and personal digital video recorders. These new technologies and alternative media platforms compete with our Broadcast Group for audience and readership shares and advertising revenue, and in the case of some products, allow audience and readers to avoid traditional advertisements. China has also established a timetable to switch its radio and television broadcasting from analog to digital. We are unable to predict the effect such technologies and related services and products will have on our broadcast operations, but there exist certain risks, including, among others, that the capital expenditures necessary to adapt our services to such technologies could be substantial, and other companies employing such technologies could compete with our businesses.

Our business depends substantially on the continuing efforts of our key executives. Our business may be severely disrupted if we lose their services.

Our future success heavily depends upon the continued services of our key executives, particularly Fredy Bush, who is the Chief Executive Officer of our company. Moreover, if Fredy Bush ceases to be our Chief Executive Officer, it could be construed as a change of control event under the convertible loan facility credit agreement we entered into in October 2008 which would trigger our mandatory prepayment obligations under the credit agreement. We rely on the expertise of our key executives in business operations in the advertising and media industries and on their relationships with our shareholders, business partners and regulators. If one or more of our key executives are unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all. Therefore, our business may be severely disrupted, our financial condition and results of operations may be materially and adversely affected and we may incur additional expenses to recruit and train personnel.

In addition, if any of these key executives joins a competitor or forms a competing company, we may lose customers and business partners, and our operating results may be adversely affected. Certain of our key executive officers have entered into an employment agreement with us that contains confidentiality and non-competition provisions. If any disputes arise between our executive officers and us, these agreements may not be enforced effectively.

Our senior management and employees have worked together for a short period of time, which may make it difficult for you to evaluate their effectiveness and ability to address challenges.

Due to our limited operating history, recent acquisitions of substantial portions of our business operations and recent additions to our management team, certain of our senior management and employees have worked together at our company for only a relatively short period of time. As we acquired substantially all of our business operations recently, none of our senior management has worked with our operating groups for a substantial period of time. As a result of these circumstances, it may be difficult for you to evaluate the effectiveness of our senior management and other key employees and their ability to work with the employees of our operating groups and address future challenges to our business.

If we are unable to attract, train and retain key individuals, highly skilled employees and important talents, our business may be adversely affected.

We expect to need to hire additional employees, including personnel to maintain and expand our graphics design, production personnel to create advertisements and produce programming, information technology and engineering personnel to maintain and expand our delivery platform, marketing personnel to sell our products and administrative staff to support our operations. Some of our operating groups, especially our Broadcast Group, also rely on the appearances of well-known personalities and talents during programming. If we are unable to identify, attract, hire, train and retain individuals in these areas or retain our existing employees due to our failure to provide them with adequate incentives or otherwise, the quality of our services may be negatively impacted, which could adversely affect our business and results of operations.

We may not be able to prevent others from using our intellectual property, which may harm our business and expose us to litigation.

We regard our content, copyrights, domain names, trade names, trademarks and similar intellectual property as critical to our success. We try to protect our intellectual property rights by relying on trademark, copyright and confidentiality laws and contracts. The copyright, trademark and confidentiality protections in China may not be as effective as in other countries, such as the United States or elsewhere.

We seek to limit the threat of content misappropriation. However, policing the unauthorized use of our services and related intellectual property is often difficult and the steps we have taken may not in every case prevent the infringement by unauthorized third parties. Developments in technology, including digital copying, file compressing and the growing penetration of high-bandwidth Internet connections increase the threat of content misappropriation by making it easier to duplicate and widely distribute misappropriated material. In addition, the risk exists that some local television stations or channels may, when airing our programs, remove the original advertisements placed by us from the programs and replace them with their own advertisements. Content misappropriation presents a threat to our revenues from services, including, but not limited to, television and media production.

There can be no assurance that our efforts to enforce our rights and protect our products, services and intellectual property will be successful in preventing content misappropriation. Any misappropriation could have a negative effect on our business and operating results. Furthermore, we may need to resort to litigation to enforce our intellectual property rights. Litigation relating to our intellectual property might result in substantial costs and diversion of resources and management attention.

In addition, the ownership of certain trademarks used by us or our strategic partners may be subject to claims by other parties and if litigation of such disputes arises, substantial costs and interruption of our business, or the business of our strategic partners, may result, which may adversely affect our business or results of operations.

Failure to achieve and maintain effective internal controls could have a material and adverse effect on the trading price of our ADSs.

We are subject to reporting obligations under the U.S. securities laws. The SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, adopted rules requiring every public company to include a management report on such company’s internal control over financial reporting in its annual report, which contains management’s assessment of the effectiveness of the company’s internal control over financial reporting. These requirements were applied to this annual report on Form 20-F for the fiscal year ended December 31, 2009.

In connection with the preparation of this annual report on Form 20-F, we carried out an evaluation of the effectiveness of our internal control over financial reporting. Based on this evaluation, our management concluded that our internal control over financial reporting is effective as of December 31, 2009. See “Item 15. Controls and Procedures.”

However, if we fail to achieve and maintain the adequacy of our internal controls, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with the Sarbanes-Oxley Act. Moreover, effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports and are important to help prevent fraud. As a result, any failure to achieve and maintain effective internal control over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could negatively impact the trading price of our ADSs.

Our strategy of expanding our television programming and new media presence may not be well received or may be more expensive than we expected.

We are expanding our television presence and are also expanding the media platforms we use to include new media, such as broadband wireless broadcasting and Internet television. However, the market for television and new media platforms is rapidly evolving and is becoming increasingly competitive. We cannot predict whether, or how fast, this market will grow. Moreover, if we fail to expand our television and new media presence or adapt to the rapid changes in the television and new media markets and technology, our business, competitiveness, or results of operations could be materially affected.

Our success with expansion into these media platforms depends on a number of factors, including:

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sufficient demand for these services from our existing and potential audience and readers, and sufficient advertising revenues from customers, to offset the substantial investment we will make in order to provide them;

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our ability to compete effectively with other providers of these services;

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our ability to adapt and develop our services in order to conform to market conditions and customer needs; and

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our ability to form, acquire or cooperate with Internet content and service providers and obtain the appropriate licenses to conduct this business.

The absence or failure of any one or more of these factors, based on our inability to predict the effect of emerging technology or competition on the viability of our broadcast operations, products or investments, may materially and adversely affect our business, results of operations, financial condition, cashflow from operations and prospects.

Risks related to the regulation of our business and to our structure

If the PRC government finds that the agreements that establish the structure for operating our China businesses do not comply with PRC governmental restrictions on foreign investment in the media and telecommunications industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.

Most of our operations are conducted through operating subsidiaries in China, and through our contractual arrangements with several of our affiliated entities and their shareholders in China. PRC regulations currently prohibit or restrict foreign ownership of media, advertising and telecommunications companies. We have entered into contractual arrangements with these affiliated entities and their shareholders, all of whom are PRC citizens, which enable us to, among other things, exercise effective control over these affiliated entities and their respective subsidiaries. We believe the business operations of our subsidiaries in China and our affiliated entities and their respective subsidiaries comply in all material respects with existing PRC laws and regulations.

However, if we or any of our subsidiaries or affiliated entities are found to be in violation of any existing or future PRC laws or regulations (for example, if we are deemed to be holding equity interests in certain of our affiliated entities in which direct foreign ownership is prohibited), the relevant PRC regulatory authorities, including the State Administration of Radio, Film and Television, the Ministry of Culture, and the Ministry of Industry & Information Technology, which regulate the media and telecommunications industries, would have broad discretion in dealing with such violations, including:

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revoking the business and operating licenses of our PRC subsidiaries or affiliates;

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confiscating relevant income and imposing fines and other penalties;

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discontinuing or restricting our PRC subsidiaries’ or affiliates’ operations;

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requiring us or our PRC subsidiaries or affiliates to restructure the relevant ownership structure or operations; or

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imposing conditions or requirements with which we or our PRC subsidiaries or affiliates may not be able to comply.

The imposition of any of these penalties would result in a material and adverse effect on our ability to conduct our business.

We conduct our business through agreements with our strategic partners. Under these agreements, we provide services to our strategic partners in return for a fee from, or the exclusive rights to sell advertising for, our strategic partners. If any of these agreements is found to be in violation of any existing or future PRC laws or regulations, we would have to terminate our operation under that particular agreement or otherwise restructure our operation to bring it into compliance with the relevant laws or regulations. In addition, the relevant PRC regulatory authorities may impose further penalties. Any of these consequences could have a material and adverse effect on our operations.

In many cases, existing regulations with regard to investments from foreign investors and domestic private capital in the media industry lack detailed explanations and operational procedures, and are subject to interpretation, which may change over time. Most of these regulations have not been interpreted by the relevant authorities in circumstances similar to our corporate structure. Accordingly, we cannot be certain how the regulations will be applied to our business, either currently or in the future. Moreover, new regulations may be adopted or the interpretation of existing regulations may change, any of which could result in similar penalties, resulting in a material and adverse effect on our ability to conduct our business.

We rely on contractual arrangements with our PRC operating affiliates and their subsidiaries and shareholders for our China operations, which may not be as effective in providing operational control as direct ownership.

We rely on contractual arrangements with several affiliated PRC entities and their shareholders to operate our businesses. See “Item 4.C. Information on the Company — Organizational Structure — Our corporate structure and contractual arrangements.” We believe these contractual arrangements are valid, binding and enforceable, and will not result in any violation of PRC laws or regulations currently in effect. These contractual arrangements may not be as effective in providing us with control over these entities as direct ownership. If we had direct ownership of these entities, we would be able to exercise our rights as a shareholder to effect changes in the boards of directors of these entities, which in turn could effect changes, subject to any applicable fiduciary obligations, at the management level. However, if any of these entities or any of their subsidiaries or their shareholders fails to perform its or his respective obligations under these contractual arrangements, we may not be able to enforce the relevant agreements if the agreements are ruled in violation of the PRC laws as mentioned above, even if the contracts are otherwise legal and valid. We may have to incur substantial costs and resources to enforce them, and seek legal remedies under PRC law, including specific performance or injunctive relief, and claiming damages, which may not be effective. Accordingly, it may be difficult for us to change our corporate structure or to bring claims against any of these entities if they do not perform their obligations under their contracts with us.

Many of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through either arbitration or litigation in the PRC. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal environment in the PRC is not as developed as in other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements. In the event we are unable to enforce these contractual arrangements, we may not be able to exert effective control over our operating entities, and our ability to conduct our business may be negatively affected.

The shareholders of our PRC affiliated entities may breach our agreements with them or may have potential conflicts of interest with us, and we may not be able to enter further agreements to extract economic benefits from these entities, which may materially and adversely affect our business and financial condition.

The shareholders of our PRC affiliated entities may breach or cause our PRC affiliated entities and their subsidiaries to breach or refuse to renew the existing contractual arrangements that allow us to effectively control our PRC affiliated entities and their subsidiaries, and receive economic benefits from them. In addition, conflicts may arise between the dual roles of the shareholders of our PRC affiliated entities as shareholders and as our employees. We cannot assure you that when conflicts of interest arise, they will act in the best interests of our company or that conflicts of interests will be resolved in our favor. We do not have existing arrangements to address potential conflicts of interest between these individuals and our company. We have made long-term loans to these shareholders to help them fund the initial capitalization, additional capitalization or purchase of those entities. The security on the loans is limited to their pledge of the shares of those affiliates. According to the PRC Property Rights Law, effective as of October 1, 2007, and Measures for the Registration of Equity Pledge with the Administration for Industry and Commerce, effective as of October 1, 2008, however, such pledge will be effective upon registration with the relevant administration for industry and commerce. We are still in the process of applying for such registration. The refusal of the relevant administration for industry and commerce to register these pledges may allow the shareholders to dishonor their pledges to us and re-pledge the shares to another entity or person. We rely on these individuals to abide by the contract laws of China and honor their contracts with us. If we cannot resolve any conflicts of interest or disputes between us and the shareholders of our PRC affiliated entities, we would have to rely on legal proceedings, which could result in disruption of our business. There is also substantial uncertainty as to the outcome of any such legal proceedings.

Moreover, some of the subsidiaries of these entities have minority shareholders and we may not be permitted to enter into contracts to receive economic benefits from the entities because these contracts may not be on an arm’s length basis. If we are unable to enter into these contractual arrangements, we may attempt to receive dividends through the shareholders of these entities, but the minority shareholders may also be entitled to their share of dividends. Any inability to transfer economic benefits from our affiliated entities to us may have an adverse effect on our business, and on our ability to pay dividends to our shareholders, including our ADS holders.

Contractual arrangements we have entered into with our subsidiaries and affiliated entities or acquisitions of offshore entities that conduct PRC operations through affiliates in China may be subject to scrutiny by the PRC tax authorities, and we may have to pay additional taxes or be found ineligible for a tax exemption.

Under PRC law, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities. If any of the transactions we have entered into with our subsidiaries and affiliated entities are found not to be on an arm’s length basis, or to result in an unreasonable reduction in tax under PRC law, the PRC tax authorities have the authority to disallow our tax savings, adjust the profits and losses of our respective PRC entities and assess late payment interest and penalties. In addition, we have not paid, nor have we recorded any deferred tax liability attributable to the undistributed earnings in our affiliated entities. We believe such undistributed earnings can be distributed in a manner that would not be subject to tax and we are in the process of working with our tax consultant on a group restructuring plan to address this issue. However, a finding by the PRC tax authorities that we are ineligible for any such tax savings we may achieve, or that any of our affiliated entities are not eligible for their tax exemptions, would substantially increase our taxes owed and reduce our net income and the value of your investment. In addition, in the event that in connection with some of our acquisitions of offshore entities that conducted their PRC operations through their affiliates in China, the sellers of such entities failed to pay any taxes required under PRC law, the PRC tax authorities may require us to pay the tax, together with late-payment interest and penalties. The occurrence of any of the foregoing could have a negative impact on our financial condition, results of operations and cashflow from operations.

Changes to the interpretation of certain PRC tax policies will cause us to incur additional tax liability, which will have an adverse effect on our financial condition.

On April 21, 2010 the State Administration of Taxation issued Circular 157 which is titled Further Clarification on Implementation of Preferential EIT Rate during Transition Periods, or Circular 157. Circular 157 seeks to provide additional guidance on the interpretation of certain preferential tax rates under the transition rules of the New EIT Law. Prior to Circular 157, we interpreted the law to mean that if an entity was in a period where it was entitled to a 50% reduction in the tax rate and was entitled to a 15% rate of tax due to its HNTE status under the New EIT Law, it was thus entitled to pay tax at a rate of 7.5%. Circular 157 indicates that such an entity is instead entitled to pay tax at either 15% or 50% of the standard PRC tax rate. The effect of Circular 157 is retrospective and would apply to 2008 and 2009. As a consequence of Circular 157, the preferential tax rate enjoyed by our subsidiary which qualified as a HNTE during its reduction period in 2008 and 2009 will be 12.5% for the relevant years rather than 7.5%, which is the rate we used prior to the issuance of Circular 157. We believe that Circular 157 is similar to a change in tax law, the cumulative effect of which should be reflected in the period of the change. As a result, we will recognize an additional tax liability in the second quarter of 2010 of approximately $0.2 million in respect of this change.

Certain of our PRC operating companies or strategic partners have previously engaged or may currently engage in activities without appropriate licenses or approvals or outside the authorized scope of their business licenses or permitted activities. This could subject those companies to fines and other penalties, which could have a material adverse effect on our business.

Some of our operating companies or strategic partners have previously engaged or may currently engage in activities without appropriate licenses or approvals or outside the authorized scope of their business licenses or permitted activities. If we or our strategic partners do not receive any necessary licenses or approvals, broaden the authorized business scope or narrow the scope of the activities as appropriate, we or the relevant strategic partner may have to cease the operations or contract our operations to third parties who hold the appropriate licenses. In addition, counterparties to contracts we make when engaging in activities that require licenses may legally default on those contracts if we or the relevant strategic partner do not possess the appropriate licenses. The occurrence of any of these events would have an adverse effect on our business, results of operations and cashflow from operations.

The authorities may refuse to grant any licenses we may seek. For companies that exceeded the scope of their business licenses or permitted activities, operated without a license or needed approval in the past but are now compliant, as well as for any companies that may currently operate without the appropriate license or approval or outside the scope of their business license or permitted activities, the relevant PRC authorities have the authority to impose fines or other penalties, sometimes as much as five to ten times the amount of the illegal revenues and may require the disgorgement of profits or revocation of the business license. Due to the inconsistent nature of regulatory enforcements in the PRC, those of our PRC operating companies and strategic partners that exceeded the scope of their business licenses or permitted activities or operated without the appropriate licenses or approvals in the past or may be doing so currently may be subject to the above fines or penalties, including the disgorgement of profits or revocation of the business license of one or more of these companies. These fines or penalties may have a material adverse effect on our business.

Any limitation on the ability of our subsidiaries and affiliated entities to make dividend or distribution payments to us could have a material adverse effect on our ability to conduct our business.

Current PRC regulations permit our subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, each of our subsidiaries and affiliated entities in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. These reserves are not distributable as dividends. Furthermore, if our subsidiaries and affiliated entities in China incur debt on their own behalf in the future, the loan agreements governing that debt may restrict their ability to pay dividends or make other payments to us. In addition, the PRC tax authorities may require us to adjust our taxable income under the contractual arrangements we currently have in place in a manner that would materially and adversely affect our subsidiaries’ ability to pay dividends and other distributions to us. Any limitation on the ability of our subsidiaries and affiliated entities to distribute dividends or other payments to us could materially limit our ability to grow, make investments or acquisitions that could be beneficial to our businesses, or otherwise fund and conduct our business.

We may be treated as a resident enterprise for PRC tax purposes and our global income may be subject to PRC tax under PRC tax law, which would have a material adverse effect on our results of operations.

Under the Enterprise Income Tax Law enacted by the National People’s Congress of China and the Implementation Regulations of the Enterprise Income Tax Law, or collectively, the New EIT Law, both of which became effective on January 1, 2008, an enterprise established outside of the PRC with “de facto management bodies” within the PRC is considered a resident enterprise and is subject to the enterprise income tax at the rate of 25% on its global income. “De facto management bodies” is defined as the bodies that have material and overall management and control over the business, personnel, accounts and properties of the enterprise. If the PRC tax authorities determine that we and our subsidiaries established outside of China should be classified as resident enterprises, then our global income will be subject to the enterprise income tax at the rate of 25%, which would have a material adverse effect on our business, financial condition, results of operations and cashflow from operations. The New EIT Law further provides an exemption from enterprise income tax for dividends distributed between qualified resident enterprises, which means the investment income derived by resident enterprises from direct investment in other resident enterprises, other than investment income from circulating stocks issued publicly by resident enterprises and traded on stock exchanges where the holding period is less than 12 months. As the term “resident enterprises” has not been fully clarified by the relevant authorities, we cannot assure you that if we and our subsidiaries established outside of China were deemed to be resident enterprises, the dividends distributed by our subsidiaries incorporated in China as foreign-invested enterprises to their direct shareholders would be regarded as dividends distributed between qualified resident enterprises, and be exempt from the enterprise income tax.

In addition, even if we and our subsidiaries established outside of China are not deemed to be resident enterprises, they still may be regarded as “non-resident enterprises,” and under the New EIT Law dividends payable by a foreign-invested enterprise in China to a foreign investor that is a non-resident enterprise will be subject to a 10% withholding tax unless the foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. The direct shareholders of our subsidiaries incorporated in China as foreign-invested enterprises are located either in the British Virgin Islands or Hong Kong. The British Virgin Islands does not have such a tax treaty with China, while according to the Mainland and Hong Kong Special Administrative Region Arrangement on Avoiding Double Taxation or Evasion of Taxation on Income agreed between China and Hong Kong in August 2006, dividends paid by a foreign-invested enterprise in China to its direct holding company in Hong Kong will be subject to withholding tax at a rate of no more than 5% (if the foreign investor owns directly at least 25% of the shares of the foreign-invested enterprise).

The imposition of withholding tax on dividends payable by our PRC subsidiaries to us, or the imposition of PRC tax on our global income as a “resident enterprise” registered outside the PRC under the New EIT law could have a material adverse effect on our financial condition, results of operations and cashflow from operations.

Foreign holders of our ADSs or common shares may be subject to PRC withholding tax on dividends payable by us and on gains realized on the sale of our ADSs or common shares if we are classified as a PRC “resident enterprise.”

Under the New EIT Law, withholding tax at a rate of 10% is applicable to dividends payable to investors that are “non-resident enterprises,” which do not have an establishment or place of business in the PRC, or which have such establishment or place of business but the relevant income is not effectively connected with the establishment or place of business, to the extent such interest or dividends have their sources within the PRC unless such non-resident enterprise can claim treaty protection. Similarly, any gain realized on the transfer of our ADSs or common shares by such investors is also subject to a 10% withholding tax if such gain is regarded as income derived from sources within the PRC. Since the New EIT Law is relatively new and ambiguous in certain aspects, there is uncertainty as to whether the dividends we pay with respect to our ADSs or common shares, or the gain you may realize from the transfer of our ADSs or common shares, would be treated as income derived from sources within the PRC and be subject to PRC withholding tax. If we are required under the New EIT Law to withhold PRC income tax on such dividends or your gains realized on the sales of our ADSs or common shares, your investment in our ADSs or common shares may be materially and adversely affected.

The PRC government may prevent us or our strategic partners from producing or distributing, and we or they may be subject to liability for content that it believes is inappropriate.

The media sector in China is highly regulated and closely monitored by various government agencies, in particular the State Administration of Radio, Film and Television. China has enacted laws and regulations governing the production and distribution of news, information or other content. In the past, the PRC government has prohibited the production or distribution of information or content that it believes violates PRC law and the media entities in breach of such laws have been severely reprimanded. The State Administration of Radio, Film and Television continues to promulgate new regulations which prohibit information and content from being distributed through the media. Inappropriate content includes, among others, information that threatens the unity, sovereignty and territorial integrity of the PRC, endangers national security, incites violence and uprising, propagates obscenity or undermines public morality.

It may be difficult to determine the type of content that may result in liability. Censorship is carried out on a case-by-case basis, often without consistency between the cases and without explanation. If any of our content or the content of our strategic partners is deemed to have violated any of such content restrictions, we or they would not be able to continue to create or distribute such content and could be subject to penalties, including confiscation of income, fines, suspension of our business and revocation of licenses for operating media services, which would materially and adversely affect our business, financial condition, results of operations and cashflow from operations.

We may be subject to litigation for information provided in our media services, which may be time-consuming and costly to defend.

PRC advertising laws and regulations require advertisers, advertising operators and advertising distributors, including businesses such as ours, to ensure that the content of the advertisements they prepare or distribute is fair and accurate and is in full compliance with applicable law. Violation of these laws or regulations may result in penalties, including fines, confiscation of advertising fees, orders to cease dissemination of the advertisements and orders to publish an advertisement correcting the misleading information. In circumstances involving serious violations, the PRC government may revoke a violator’s license for advertising business operations.

We and our strategic partners are obligated under PRC laws and regulations to monitor the advertising content that is shown, displayed or printed on any of our or their media outlets for compliance with applicable law. In addition, for advertising content related to specific types of products and services, such as alcohol, cosmetics, pharmaceuticals and medical facilities, we and our strategic partners are required to confirm that the advertisers have obtained the requisite government approvals, including the advertisers’ operating qualifications, proof of quality inspection of the advertised products, and government pre-approval of the contents of the advertisement and filing with the local authorities. We and, to the best of our knowledge, our strategic partners, employ qualified advertising inspectors who are trained to review advertising content for compliance with relevant PRC laws and regulations, and we endeavor to comply, and encourage our strategic partners to take measures to comply, with such requirements, by methods including requesting relevant documents from the advertisers.

Our services contain information such as financial news, interviews, quotes of securities prices, analytical reports, investment recommendations and portrayals of people in our television productions. It is possible that if any information contains errors or false or misleading information, or is perceived to infringe the intellectual property rights of others, third parties could take action against us for losses incurred in connection with the use of such information. Any claims, with or without merit, could be time-consuming and costly to defend, result in litigation and divert management’s attention and resources, which could have an adverse effect on our operating results.

Civil claims may be filed against us for fraud, defamation, subversion, negligence, copyright or trademark infringement or other violations due to the nature and content of the advertisements displayed on our advertising network. In addition, our reputation will be tarnished and our results of operations may be adversely affected.

Control or significant influence by our existing shareholders may limit your ability to affect the outcome of decisions requiring the approval of shareholders.

As of December 31, 2009, XFL, Yucaipa Global Partnership Fund L.P., or Yucaipa, Patriarch Partners Media Holdings, LLC, or Patriarch Partners, and Dragon Era Group Limited beneficially own approximately 20.4%, 9.6%, 26.1% and 4.0% of the outstanding shares of our equity, respectively. Ms. Fredy Bush, our Chief Executive Officer and director, has control over Dragon Era Group Limited. Accordingly, XFL, Ms. Bush, Yucaipa and Patriarch Partners may have significant influence in determining the outcome of any corporate transaction or other matter submitted to the shareholders for approval, including mergers, consolidations, the sale of all or substantially all of our assets, the election of directors and other significant corporate actions. They will also have significant influence in preventing or causing a change in control. In addition, without their consent, we may be prevented from entering into transactions that could be beneficial to us. Their interests may differ from the interests of our other shareholders.

Risks related to doing business in China

Adverse changes in economic and political policies of the PRC government could have a material adverse effect on the overall economic growth of China, which could adversely affect our business.

We conduct substantially all of our business operations in China. As the media industry is highly sensitive to business and personal discretionary spending levels, it tends to decline during general economic downturns. Accordingly, our results of operations, financial condition and prospects are subject to a significant degree to economic, political and legal developments in China. China’s economy differs from the economies of most developed countries in many respects, including with respect to the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. While the PRC economy has experienced significant growth in the past 20 years, growth has been uneven across different regions and among various economic sectors of China. The PRC government has implemented various measures to encourage economic development and guide the allocation of resources. While some of these measures benefit the overall PRC economy, they may also have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us. As the PRC economy is increasingly intricately linked to the global economy, it is affected in various respects by downturns and recessions of major economies around the world, such as the recent financial services and economic crises of these economies. The various economic and policy measures the PRC government enacts to forestall economic downturns or shore up the PRC economy could affect our business.

The PRC economy has been transitioning from a planned economy to a more market-oriented economy. Although the PRC government has implemented measures since the late 1970s emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China are still owned by the PRC government. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. The PRC government also exercises significant control over China’s economic growth through allocating the resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Since late 2003, the PRC government has implemented a number of measures, such as raising interest rates and bank reserve requirements to place additional limitations on the ability of commercial banks to make loans, in order to contain the growth of specific segments of China’s economy that it believed to be overheating. These actions, as well as future actions and policies of the PRC government, could materially affect our liquidity and access to capital and our ability to operate our business.

Uncertainties with respect to the PRC legal system could adversely affect us.

We conduct our business primarily through our subsidiaries and affiliated entities in China. Our operations in China are governed by PRC laws and regulations. Our subsidiaries are generally subject to laws and regulations applicable to foreign investments in China and, in particular, laws applicable to wholly foreign-owned enterprises. The PRC legal system is based on written statutes. Prior court decisions may be cited for reference but have limited precedential value.

Since 1979, PRC legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, China has not developed a fully integrated legal system and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, because these laws and regulations are relatively new, and because of the limited volume of published decisions and their non-binding nature, the interpretation and enforcement of these laws and regulations involve uncertainties. In addition, the PRC legal system is based in part on government policies and internal rules (some of which are not published on a timely basis or at all) that may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until some time after the violation. In addition, any litigation in China, regardless of outcome, may be protracted and result in substantial costs and diversion of resources and management attention.

The regulations on mergers and acquisitions of PRC enterprises may delay or inhibit our ability to complete certain mergers and acquisitions and expand our business or maintain our market shares.

On August 8, 2006, six PRC regulatory agencies, namely, the Ministry of Commerce, the State Assets Supervision and Administration Commission, the State Administration for Taxation, the State Administration for Industry and Commerce, the CSRC, and the PRC State Administration of Foreign Exchange, or SAFE, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the New M&A Rule, which became effective on September 8, 2006. The New M&A Rule purports, among other things, to require offshore special purpose vehicles, formed for overseas listing purposes through acquisitions of PRC domestic companies and controlled by PRC companies or individuals, to obtain the approval of the CSRC prior to publicly listing their securities on an overseas stock exchange. The New M&A Rule also established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time-consuming and complex, including requirements in some instances that the Ministry of Commerce be notified in advance when a foreign investor acquires equity or assets of a PRC domestic enterprise. Complying with the requirements of the New M&A Rule to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval from the Ministry of Commerce, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.

In addition, according to the New M&A Rule and other PRC rules regarding foreign exchange, an offshore company’s shares can be used as consideration for the acquisition of a domestic PRC company’s equity only under very limited circumstances and prior approval from the Ministry of Commerce must be obtained before such a share swap could be done. When we acquired control of certain of our PRC affiliates, we issued and promised to issue common shares to PRC citizens or to offshore entities beneficially owned by PRC citizens or entities, in exchange for each of them entering into a non-competition agreement on transferring the equity interests in the offshore companies which have the contractual arrangements with the PRC affiliates. We believe that, even though under PRC law the transaction of entering into such a non-competition agreement or transferring the equity interests in the offshore companies and the acquisition of the corresponding affiliated entity are regarded as separate transactions, the PRC governmental agencies may consider that the shares issued for a non-competition agreement or the equity transfer of an offshore company that has the contractual agreement with the PRC companies are in substance part of the consideration for the corresponding acquisition of domestic equities because we have accounted for them as if they are related transactions, and therefore may take the view that we have acquired the equity of domestic companies by using offshore shares as consideration without prior approval of the Ministry of Commerce and are therefore in violation of PRC laws. In such an event, we may face sanctions by the Ministry of Commerce, the State Administration of Foreign Exchange and the State Administration for Taxation.

We have grown our business in part by acquiring complementary businesses and we plan to do so in the future. Complying with the requirements of the New M&A Rule to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval from the Ministry of Commerce, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.

Recent PRC regulations relating to offshore investment activities by PRC residents may increase our administrative burden and restrict our domestic, overseas and cross-border investment activities. If our shareholders who are PRC residents fail to make any required applications and filings under such regulations, we may be unable to distribute profits and may become subject to liability under PRC laws.

Regulations were recently promulgated by the PRC National Development and Reform Commission and the PRC State Administration of Foreign Exchange that will require registrations with, and approvals from, PRC government authorities in connection with direct or indirect offshore investment activities by PRC residents, including PRC individuals and PRC corporate entities. These regulations apply to our shareholders who are PRC residents and may also apply to certain of our offshore acquisitions.

The State Administration of Foreign Exchange regulations retroactively require registration of direct or indirect investments previously made by PRC residents in offshore companies. In the event that a PRC shareholder with a direct or indirect stake in an offshore parent company fails to make the required State Administration of Foreign Exchange registration, the PRC subsidiaries of that offshore parent company may be prohibited from making distributions of profit to the offshore parent and from paying the offshore parent proceeds from any reduction in capital, share transfer or liquidation in respect of the PRC subsidiaries. Further, failure to comply with the various State Administration of Foreign Exchange registration requirements described above could result in liability under PRC law for foreign exchange evasion.

We have notified our shareholders, and the shareholders of the offshore entities in our corporate group who are PRC residents, to urge them to make the necessary applications and filings as required under these regulations and under any implementing rules or approval practices that may be established under these regulations. However, as a result of the newness of the regulations, lack of implementing rules and uncertainty concerning the reconciliation of the new regulations with other approval requirements, it remains unclear how these regulations, and any future legislation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant government authorities. We attempt to comply, and attempt to ensure that our shareholders who are subject to these regulations comply, with the relevant rules. However, we cannot provide any assurances that all of our shareholders who are PRC residents will comply with our request to make or obtain any applicable registration or approvals required by these regulations or other related legislation. The failure or inability of our PRC resident shareholders to receive any required approvals or make any required registrations may subject us to fines and legal sanctions, restrict our overseas or cross-border investment activities, limit our PRC subsidiaries’ ability to make distributions or pay dividends or affect our ownership structure, as a result of which our acquisition strategy and business operations and our ability to distribute profits to you could be materially and adversely affected.

Restrictions on currency exchange may limit our ability to utilize our revenues effectively.

The PRC government imposes controls on the convertibility of RMB into foreign currencies and, in certain cases, the remittance of currency out of China. We receive much of our revenues in RMB. Under our current structure, our income is primarily derived from dividend payments from our PRC subsidiaries. Shortages in the availability of foreign currency may restrict the ability of our PRC subsidiaries and our affiliated entities to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated obligations. Under the existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade-related transactions, can be made in foreign currencies without prior approval from the PRC State Administration of Foreign Exchange by complying with certain procedural requirements. However, approval from appropriate government authorities is required where RMB are to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of bank loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including the holders of our ADSs.

Fluctuation in the value of the RMB may have a material adverse effect on your investment.

The value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions and China’s foreign exchange policies. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the RMB to the U.S. dollar. Under the new policy, the RMB is permitted to fluctuate within a managed band based on market supply and demand and by reference to a basket of certain foreign currencies. This change in policy caused the Renminbi to appreciate approximately 21.2% against the U.S. dollar over the following four years. During the course of 2010 the Renminbi has continued to appreciate against the U.S. dollar.

Our revenues and costs are mostly denominated in RMB, while a significant portion of our financial assets are denominated in U.S. dollars. We rely substantially on dividends and other fees paid to us by our subsidiaries and affiliated entities in China. Any significant appreciation of RMB against the U.S. dollar may materially and adversely affect our cashflows, revenues, earnings and financial position, and the value of, and any dividends payable on, our ADSs in U.S. dollars. For example, an appreciation of RMB against the U.S. dollar would make any new RMB denominated investments or expenditures more costly to us, to the extent that we need to convert U.S. dollars into RMB for such purposes.

We have limited insurance coverage in China.

The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited insurance products. We have determined that the risks of disruption or liability from our business, or the loss or damage to our property, including our facilities, equipment and office furniture, the cost of insuring for these risks, and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. As a result, we do not have any business liability, disruption, litigation or property insurance coverage for our operations in China except for insurance on certain vehicles. Any uninsured occurrence of loss or damage to property, litigation or business disruption may result in our incurring substantial costs and the diversion of resources, which could have an adverse effect on our operating results.

Risks related to the ADSs

The market price for our ADSs may be volatile.

The market price for our ADSs is likely to be highly volatile and subject to wide fluctuations in response to factors including the following:

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announcements of technological or competitive developments;

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regulatory developments in our target markets affecting us, our customers or our competitors;

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announcements of studies and reports relating to the circulation, ratings, audience or readership size or composition, quality or effectiveness of our and our strategic partners’ products and services or those of our competitors;

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actual or anticipated fluctuations in our quarterly operating results;

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changes in financial estimates by securities research analysts;

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changes in the economic performance or market valuations of other media and advertising companies;

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addition or departure of our executive officers and key personnel;

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fluctuations in the exchange rates between the U.S. dollar and RMB;

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release or expiration of lock-up or other transfer restrictions on our outstanding ADSs; and

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sales or perceived sales of additional ADSs.

In addition, the securities markets have from time-to-time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also have a material adverse effect on the market price of our ADSs.

Our ADSs are currently at risk for delisting from the Nasdaq Global Market. Delisting could adversely affect the liquidity of our ADSs and the market price of our ADSs could decrease, and our ability to obtain adequate financing for the continuation of our operations would be substantially impaired.

Our ADSs are currently listed on the Nasdaq Global Market. The Nasdaq Stock Market LLC, or Nasdaq, has minimum requirements that a company must meet in order to remain listed on the Nasdaq Global Market. These requirements include maintaining a minimum closing bid price of $1.00 per share, and the closing bid price of our ADSs on July 9, 2010 was $0.31 per ADS. These requirements also include maintaining a minimum market value of publicly held shares, and, as of July 9, 2010, we met this minimum requirement. Nasdaq notified us on February 4, 2010 that we have failed to meet the minimum bid price listing requirements and has given us until August 3, 2010 to comply with these requirements. Thereafter, Nasdaq may initiate the delisting process. If our ADSs are delisted, the liquidity of our ADSs would be adversely affected, the market price of our ADSs could further decrease, and our ability to obtain adequate financing for the continuation of our operations would be substantially impaired. Delisting may also cause us to default under a credit agreement we entered into in October 2008, which could have a material adverse effect on our financial condition, results of operations or cashflow from operations.

Substantial future sales or perceived sales of our ADSs in the public market could cause the price of our ADSs to decline.

Sales of our ADSs in the public market, or the perception that these sales could occur, could cause the market price of our ADSs to decline. Immediately after the completion of our initial public offering, we had 23,076,923 ADSs outstanding. All ADSs sold in the initial public offering are freely transferable without restriction or additional registration under the Securities Act of 1933, as amended, or the Securities Act. The remaining ADSs outstanding after the initial public offering are currently available for sale, subject to volume and other restrictions as applicable under Rule 144 and Rule 701 of the Securities Act.

You may not have the same voting rights as the holders of our common shares and may not receive voting materials in time to be able to exercise your right to vote.

Except as described in this filing and in the deposit agreement, holders of our ADSs will not be able to exercise voting rights attaching to the shares represented by our ADSs on an individual basis. Holders of our ADSs will appoint the depositary or its nominee to vote the shares represented by the ADSs. You may not receive voting materials in time to instruct the depositary to vote and it is possible that you, or persons who hold their ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote. Upon our written request, the depositary will mail to you a shareholder meeting notice which contains, among other things, a statement as to the manner in which your voting instructions may be given, including an express indication that such instructions may be given or deemed given to the depositary to give a discretionary proxy to a person designated by us if no instructions are received by the depositary from you on or before the response date established by the depositary. However, no voting instruction shall be deemed given and no such discretionary proxy shall be given with respect to any matter as to which we inform the depositary that (i) we do not wish such proxy given, (ii) substantial opposition exists or (iii) such matter materially and adversely affects the rights of shareholders.

Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings and you may not receive cash dividends if it is impractical to make them available to you.

We may from time-to-time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make rights available to you in the United States unless we register the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements is available. Also, under the deposit agreement, the depositary bank will not make rights available to you unless the distribution to ADS holders of both the rights and any related securities are either registered under the Securities Act or exempted from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings.

In addition, the depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on our common shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of common shares your ADSs represent. However, the depositary may, at its discretion, decide that it is inequitable or impractical to make a distribution available to any holders of ADSs. For example, the depositary may determine that it is not practicable to distribute certain property through the mail, or that the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may decide not to distribute that property and you will not receive that distribution.

We are a Cayman Islands company and, because judicial precedent regarding the rights of shareholders is more limited under Cayman Islands law than that under U.S. law, you may have less protection for your shareholder rights than you would under U.S. law.

Our corporate affairs are governed by our amended and restated memorandum and articles of association, the Cayman Islands Companies Law and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as that from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. In addition, some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands.

As a result of the above, public shareholders of our company may have more difficulty protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders of our company than they would as shareholders of a U.S. public company.

Our memorandum and articles of association contain anti-takeover provisions that could adversely affect the rights of holders of our common shares and ADSs.

We have included certain provisions in our memorandum and articles of association that could limit the ability of others to acquire control of our company, and deprive our shareholders of the opportunity to sell their shares at a premium over the prevailing market price by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transactions.

We have included the following provisions in our articles that may have the effect of delaying or preventing a change of control of our company:

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Our board of directors has the authority to establish from time-to-time one or more series of preferred shares without action by our shareholders and to determine, with respect to any series of preferred shares: the terms and rights of that series, including the designation of the series; the number of shares of the series; the dividend rights, dividend rates, conversion rights and voting rights; and the rights and terms of redemption and liquidation preferences.

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Our board of directors may issue series of preferred shares without action by our shareholders to the extent available authorized but unissued preferred shares exist. Accordingly, the issuance of preferred shares may adversely affect the rights of the holders of the common shares. Issuance of preference shares may dilute the voting power of holders of common shares.

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Subject to applicable regulatory requirements, our board of directors may issue additional common shares without action by our shareholders to the extent available authorized but unissued shares exist.

You may have difficulty enforcing judgments obtained against us.

We are a Cayman Islands company and most of our assets are located outside of the United States. Most of our current operations are conducted in the PRC. In addition, most of our directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons are located outside the United States. As a result, it may be difficult for you to effect service of process within the United States upon these persons. It may also be difficult for you to enforce in U.S. courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors, most of whom are not residents in the United States and the substantial majority of whose assets are located outside of the United States. In addition, there is uncertainty as to whether the courts of the Cayman Islands or the PRC would recognize or enforce judgments of U.S. courts.

We may be classified as a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to U.S. Holders of our ADSs or common shares.

Based on the market price of our ADSs, the value of our assets, and the composition of our income and assets, although not free from doubt, we do not believe that we were a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for our taxable year ended December 31, 2009. However, the application of the PFIC rules is subject to uncertainty in several respects, including how the contractual arrangements between us and our affiliated entities will be treated for purposes of the PFIC rules, and we cannot assure you that the U.S. Internal Revenue Service will not take a contrary position. A non-U.S. corporation will be a PFIC for any taxable year if either (i) at least 75% of its gross income for such year is passive income or (ii) at least 50% of the value of its assets (based on an average of the quarterly values of the assets) during such year is attributable to assets that produce passive income or are held for the production of passive income. We must make a separate determination after the close of each taxable year as to whether we were a PFIC for that year. Because the value of our assets for purposes of the PFIC test will generally be determined by reference to the market price of our ADSs or common shares, fluctuations in the market price of our ADSs or common shares may cause us to become a PFIC. In addition, changes in the composition of our income or assets may cause us to become a PFIC. If we are a PFIC for any taxable year during which a U.S. Holder (as defined in “Item 10.E. Additional Information — Taxation — United States Federal Income Taxation”) holds an ADS or a common share, certain adverse U.S. federal income tax consequences could apply to such U.S. Holder. See “Item 10.E. Additional Information — Taxation — United States Federal Income Taxation — Passive foreign investment company.”

We incur increased costs as a result of being a public company.

As a public company, we incur a significantly higher level of legal, accounting and other expenses than we did as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as other rules subsequently implemented by the Securities and Exchange Commission and the Nasdaq Stock Market LLC, have required changes in corporate governance practices of public companies. These rules and regulations may increase our legal and financial compliance costs and make certain activities more time-consuming and costly. As a result of becoming a public company, we have established additional board committees and adopted and implemented additional policies regarding internal controls over financial reporting and disclosure controls and procedures. In particular, compliance with Section 404 of the Sarbanes-Oxley Act, which requires public companies to include a report of management on the effectiveness of such company’s internal control over financial reporting, has increased our costs. In addition, we incur costs associated with public company reporting requirements, such as the requirements to file filings and other event-related reports with the Securities and Exchange Commission. We also expect the rules and regulations that govern public companies to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage.

Item 4. Information on the Company

A. History and Development of the Company

We were incorporated on November 7, 2005 in the Cayman Islands as an exempted company limited by shares and our affairs are governed by the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands. We have grown significantly since our inception primarily through the acquisition of assets and businesses and the development of distribution rights. For a detailed description of our acquisitions, see “Item 5.A. Operating and financial review and prospects — Operating Results — Acquisitions.”

Our principal executive offices are located at 18/F, Tower A, Winterless Centre, Chaoyang District, Beijing 100026, People’s Republic of China. Our telephone number at this address is 86-10-8567-6000. Our registered office in the Cayman Islands is at Cricket Square, Hutchins Drive, PO Box 2681, Grand Cayman KYI-1111, Cayman Islands. Our agent for service of process in the United States is Law Debenture Corporate Services Inc., located at 400 Madison Avenue, 4th Floor, New York, New York 10017.

We file annual reports and other information with the Securities and Exchange Commission (“SEC”). These materials can be inspected and copied at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of these materials may also be obtained by mail at prescribed rates from the SEC’s Public Reference Room at the above address. Information about the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website that contains reports and other information about issuers that file electronically with the SEC. The address of the SEC’s Internet website is www.sec.gov.

Our Internet website is www.xsel.com. The information contained on our website is not part of this or any other report filed with or furnished to the SEC. We make available free of charge on our website our annual reports on Form 20-F and any amendments to such reports as soon as reasonably practicable following the electronic filing of such reports with the SEC. In addition, we provide electronic or paper copies of our filings free of charge upon request.

B. Business Overview

We are a leading media group in China with a focus on sports and entertainment. Catering to a vast audience of young and upwardly mobile consumers, we believe we are well-positioned in China with our unique access. Through our key international partnerships, we are able to offer our target audience the content they demand — premium sports and quality entertainment. Through our Chinese partnerships, we are able to consult on content across a broad range of platforms, including television, Internet, mobile phones and other multimedia assets in China, subject to the approval of the relevant PRC regulatory authority.

We have developed an integrated platform of advertising resources across television, Internet, mobile phones and other media outlets. Through these outlets, we provide a total solution empowering clients at every stage of the media process linking advertisers with China’s young and upwardly mobile demographic to reach the desired audience in China.

We were incorporated on November 7, 2005 in the Cayman Islands. We have grown significantly since our inception, primarily through the acquisition of assets, businesses and the development of distribution rights.

Our business operates across two groups:

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Broadcast, which refers to the sale of advertising and the consulting on content for and the distribution of our programming through television and radio channels, as well as the new media mobile value-added services we provide to mobile phone users in China. With our business partners, we are consulting on content for four premium tier digital pay television channels to tap into the rapidly growing digital Chinese television market; and

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Advertising, which refers to our advertising agency that plans, creates and places advertising for websites, television, print media, radio, campus billboards and outdoor media, as well as online advertising sales and our below-the-line marketing services.

During 2009 we also operated a print business, which covered, among others, our exclusive right to sell advertising for and provide management and information consulting services to the newspaper the Economic Observer . We discontinued our print business in 2009 and disposed of this right in 2010.

We generate revenue principally by producing and selling advertising time and space on broadcast platforms and outdoor billboards, selling produced television programs and by providing advertising services.

Moving forward, we have developed several initiatives to address liquidity issues and a broader cost reduction effort. These include (i) the restructuring of our secured convertible loan facility, (ii) a plan to dispose of non-core businesses, (iii) termination of our advertising agency agreement with Shaanxi Television Station and (iv) the adoption of various other cost-saving strategies. 

Sports and entertainment strategies

In February 2009, we shifted our corporate focus from finance to sports and entertainment. Positioned to offer advertisers an effective platform to reach the young, upwardly mobile and desirable demographic in China, we have been growing our media platform and business to a larger spectrum beyond financial services. We believe that sports broadcasting and entertainment offer strong growth prospects and high margins in the China market and sports and entertainment are the most logical extensions of our business model in terms of margin and sales growth.

The initiatives we implemented that created the foundation for our sports and entertainment strategies include:

Sports

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Our partner was the only media outlet to offer a nationwide, free to air, live broadcast of the National Football League (NFL) Superbowl XLII in February 2008;

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We obtained the exclusive China media rights for the UEFA Europa League (formerly the UEFA Cup) during the 2009-2012 period;

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We purchased an equity stake in the All Sports Network, “ASN,” giving us exclusive distribution rights via mobile, television, Internet and radio for ASN’s content in China. ASN’s content includes National Collegiate Athletic Association (NCAA), National Hockey League (NHL), extreme sports, motor racing and other top quality sports programming. We made a full provision for the investment in ASN in 2009;

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We are in the process of acquiring the rights to provide consulting and advisory services for four premium PayTV channels;

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We have established a high definition digital television channel focused on showing fight programs; and

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We entered into a long-term contract with CSI Sports for Fight Sports programming giving us exclusive rights in China to their library. CSI Sports is the owner of one of the largest fight libraries in the world with a wide variety of fight programs worldwide.

Entertainment

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We founded a subsidiary, Xinhua Media Entertainment, which will structure, finance and execute co-production films deals in China in association with China Film Group and major Hollywood studios; and

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Our current film slate includes The Spy Next Door starring Jackie Chan, More Than a Game starring Lebron James and Inseparable starring two-time Academy Award Winner Kevin Spacey. The Spy Next Door was released in China in March 2010 and Inseparable is currently in post-production and will likely be released in either the fourth quarter of 2010 or the first quarter of 2011.

Our services

Broadcast

Television

Through June 30, 2010 we held exclusive rights to sell advertising and consulting services for Shaanxi Satellite Television and rights to provide its content through our agreements with Beijing Hantang Yueyi Culture & Media Co., Ltd, or Beijing Hantang, an affiliate of Everfame Development. Shaanxi Satellite Television is the satellite channel of the Shaanxi Province, one of 35 satellite television channels in China operated by regional authorities. China also has 35 terrestrial television channels operated by China Central Television. Shaanxi Satellite Television reaches provincial capital cities and other major cities in 30 of the 34 political subdivisions of the PRC, including Beijing, Shanghai, Guangzhou, and Shenzhen. This agreement was terminated by Shaanxi Television Station effective June 30, 2010 due to our failure to make required payments.

Inner Mongolia Satellite Television is the satellite channel of the Inner Mongolia Autonomous Region, one of the 35 satellite television channels in China operated by regional authorities. China also has 15 terrestrial television channels operated by China Central Television. Through our agreement with Shanghai Camera Media Investment Co., Ltd., or Shanghai Camera, we previously distributed programming by Inner Mongolia Satellite Television to cities where it has landing rights. Inner Mongolia Satellite Television reaches provincial capital cities and other major cities in 30 of the 34 political subdivisions of the PRC, including Beijing, Shanghai and Guangzhou as well as the special administrative regions of Hong Kong and Macau. We terminated the cooperation agreement with Shanghai Camera and Inner Mongolia Satellite Television, effective as of December 2009. We estimated the operation of Inner Mongolia Satellite Television would generate significant negative cashflow in the future due to the adoption of Rule 61, which strictly controls the scope of advertising and advertising time slots allowed for television in the PRC.

Sports Programming

We have also entered into an exclusive deal with CSI Sports to acquire the rights for their library and future Fight Sports channel in China. CSI Sports is a distributor of Fight Sports programming to sports networks around the globe, and reaches over 50 channels in over 100 countries. CSI Sports has rights to high profile fight programming such as HBO’s Championship Boxing, Ultimate Fighting Championship, World Extreme Cagefighting and both BodogFIGHT and K-1, which are mixed martial arts programs. CSI Sports is the owner of the largest and most prestigious fight library with the widest variety of fight programs worldwide, including mixed martial arts, championship boxing, kickboxing, martial arts and specialty fight programs. The library includes one of the largest and most prestigious mixed martial arts series in high definition (1080i) and some of the most well known championship boxing events featuring fighters such as Mike Tyson, Lennox Lewis, Oscar De La Hoya, George Foreman and many more.

We have also acquired the exclusive Chinese language rights across all platforms for the UEFA Europa Cup (formerly the UEFA Cup) for season 2009-2010, 2010-2011 and 2011-2012. The UEFA Cup is Europe’s oldest club soccer competition with teams from across Europe and the U.K. competing for the title.

Radio

During 2009, we had a strategic partnership with China Radio International’s exclusive advertising agent, under which we have the exclusive rights to sell advertising for and the right to provide content to China Radio International’s EasyFM 91.5 of Beijing. We also had the exclusive rights to sell advertising for and the rights to provide content to several radio channels of the Guangdong People’s Radio Station, including Channel FM103.6, serving Guangzhou and the northern and eastern parts of the Guangdong Province, Channel FM90.0, serving the western part of the Guangdong Province, and Channel FM107.7, serving the entire province with a focus on the Pearl River Delta region. Through our affiliated entity, Beijing Century Media Advertising Co., Ltd., or Century Media Advertising, we also obtained the exclusive rights to sell advertising for Sports Channel FM94.0 of Shanghai, Channel FM96.6 of Wuhan and 11 other radio channels throughout Hubei province. Through our agreements with EasyFM, the Guangdong People’s Radio Station, and other radio channels throughout China, we reached an audience of 125 million people. This partnership ended in late 2009.

Mobile interactive service

We operate our wireless mobile value-added new media service platforms nationwide through our affiliate entity Beijing Mobile Interactive Co., Ltd., or M-in. M-in’s wide range of mobile capabilities includes wireless application protocol, or WAP, short message service text messaging, or SMS, multimedia messaging service, or MMS, interactive voice response, or IVR, JAVA-based software applications including online gaming, and color ring back tone, which are supported by various major mobile telecommunication operators in China.

M-in enables us to add value to our other advertising resources by integrating mobile value-added services. For example, this integration allows mobile users to receive timely updates on their mobile phones regarding sports, entertainment and lifestyle events connected with our other media assets such as television shows and our events business. Our mobile value-added services also enable television and radio show viewers and listeners to participate in and interact with the shows through text messaging and other interactive means.

Film co–production

We became involved in structuring, financing and executing feature film production and film marketing deals in 2008 through our investment in Xinhua Media Entertainment. We have established a close partnership with China Film Group, the largest and the most influential film enterprise in China and the sole entity permitted to import foreign films into China. We work with premier Hollywood film producers on projects that have the potential to qualify as co-productions in China or films that can be licensed and marketed in China. Our current film slate includes The Spy Next Door starring Jackie Chan, More Than a Game starring Lebron James and Inseparable starring two time Academy Award winner Kevin Spacey. The Spy Next Door was released in China in March 2010 and Inseparable is currently in post-production and will likely be released in either the fourth quarter of 2010 or the first quarter of 2011.

Our close relationships with China Film Group and leading players in Hollywood as well as our resources in both industries enable us to uniquely bridge the Chinese and Hollywood film communities to create business opportunities.

Television channel packaging services

During 2009, our television channel packaging services consisted of providing brand management services for television channels. We have won several awards from Travel Satellite Television for producing the best branding and image products in categories such as bumpers, program trailers and slogans. Our television channel packaging services ceased operations in December 2009.

Pay TV

We consult on content and provide advisory services for four premium tier digital pay television channels to tap into the rapidly growing digital Chinese television market. We estimate that China has approximately 40 million digital cable subscribers, 10 million of whom subscribe to tiered pay TV services.

We currently provide consulting, advertising and advisory services to Power Sports, a fight sports channel that offers the very best in boxing, mixed martial arts and other fight sports both in live and delayed formats. We have plans to develop at least two more digital pay channels as the structure for this industry grows in China. We expect our Broadcast Group will expand to address growing demand in China for sports and entertainment media. Based upon our existing platforms and industry relationships, we believe that we are uniquely positioned to meet this demand.

Print

Newspaper

During 2009, we had the exclusive rights to sell advertising and provide consulting services to the newspaper the Economic Observer . We sold advertising for the Economic Observer through our own sales force as well as through third-party advertising agents who then sold to advertisers. We disposed of this exclusive right in 2010.

Advertising

We plan, create and place advertising for websites, television, radio, print media, campus billboards and outdoor media. We also provide below-the-line services, which help advertisers plan, manage and execute marketing events at sporting events, shopping malls, supermarkets, campuses, hotels, exhibition centers, public squares, clubs and other entertainment outlets. We also provide advertising advisory services. Our Advertising Group creates much of the advertising it places, including planning, design and production. We expect significant co-marketing opportunities with our advertising platforms and our Broadcast Group.

Until early 2010, we were an advertising agent for leading online real estate portals in China. Our affiliated entity, Shangtuo Zhiyang International Advertising (Beijing) Co., Ltd., or Shangtuo Zhiyang, was the exclusive agent of House.china.cn, the real estate portal of China.com.cn, and was one of the only two advertising agents for Sina.com’s real estate portal. Our wholly-owned subsidiary, Beijing Jinjiu Tianyi Tianjiu Lianhe Advertising Co., Ltd., was the largest advertising agent for the Sohu.com and Focus.cn real estate portals. We transferred our equity interest in JCBN China back to its original owner in June 2010 in order to settle a dispute over earnout payments. The agency for Sina.com’s real estate portal was terminated in December 2009 and our advertising right for Sohu.com and Focus.cn were transferred to our affiliated entity, Beijing Linghang Dongli Advertising Co., Ltd., or Linghang Dongli.

In 2008, through an agreement with Youth Media Hong Kong, or YMHK, and several other parties, we obtained the right to act as an exclusive advertising agent for China’s university intranet portal. China’s university intranet fiberoptically links nearly 2,000 university campuses throughout China with a local intranet platform, and serves an addressable student market of 30 million. We made a full provision for this investment in 2009.

We provide below-the-line services to advertisers, which helps them plan, manage and execute marketing events at shopping malls, supermarkets, campuses, hotels, exhibition centers, public squares, clubs and other entertainment outlets. Below-the-line marketing events can create person-to-person marketing experiences and enhance the effectiveness of related advertising campaigns. During 2008, we organized a number of promotional events, including a series of promotional events for spirit brands in clubs and bars, a Sony and FIFA co-branded event in Shenyang, consumer products road shows in different cities of China, marketing events for the China Sharks, a leading ice hockey team in China, and an event in Beijing for Mabelline. During 2009, we organized a number of promotional events, including a series of promotional events for spirit brands in clubs and bars, a Sony and FIFA co-branded event in shopping centers in different cities of China, a product exhibition for Sony in various Chinese cities and consumer products road shows throughout China.

In addition, we serve as a non-exclusive advertising agent for other newspapers, such as Beijing Evening News and Beijing Youth Daily . Our production work for print media includes creating advertising copy, design and layout, and coordination of printing or placement on billboards.

During 2008, we conducted market research for our own use and for our international and Chinese-based customers. We also partnered with international research companies to participate in global research projects. We studied market characteristics, consumer preferences and opinions with respect to advertising and media content, and business and technology issues as needed for each project. We sold our market research business in early 2009.

Arrangements with partners and suppliers

We rely on a number of arrangements with partners and suppliers to conduct our businesses.

Agreement regarding Shaanxi Television Station . In March 2009, through our subsidiary Beijing Han Tang Yue Yi Media Co., Ltd., we obtained the right to act as the sole advertising agent for Shaanxi Television Station, a free-to-air TV channel covering a population of approximately 600 million in China across all 35 provisional and tier-one cities. Shaanxi Television Station terminated its agreement with us on June 30, 2010.

Our affiliated entity, Linghang Dongli, entered into an advertising agent contract with Beijing Sohu New Media Information Technology Ltd., a sohu.com company. Pursuant to the contract, Linghang Dongli serves as the advertising agent for sohu.com and its affiliated websites. The contract initially covers the period from January 1, 2010 to December 31, 2010.

During 2009 we also relied on the following arrangements with partners and suppliers to conduct our business.

Agreement regarding China Youth League and associated websites. Pursuant to an agreement we entered into in 2008 with YMHK and several other parties, we obtained the right to act as an exclusive advertising agent for China’s university intranet portal. China’s university intranet fiberoptically links nearly 2,000 university campuses throughout China with a local intranet platform, and serves an addressable student market of 30 million. We have taken a full provision on this investment.

Agreements regarding Shanghai Camera. Beijing Pioneer Media Advertising Co., Ltd., or Beijing Pioneer, a subsidiary of our affiliated entity, entered into an advertising services agreement with Shanghai Camera, under which Beijing Pioneer made monthly payments to Shanghai Camera in exchange for the exclusive external advertising rights in connection with Inner Mongolia Satellite Television. This agreement was terminated at the end of 2009.

Jia Luo Business Consulting (Shanghai) Co., Ltd., or Jia Luo, our subsidiary, entered into an agreement with Shanghai Camera to provide consulting and advisory services to Shanghai Camera, in return for a service fee in 2006. This agreement was terminated at the end of 2009.

In December 2008, Jia Luo entered into a call option agreement with Shanghai Wai Gao Qiao (Group) Co., Ltd., or Wai Gao Qiao, the shareholder of Shanghai Camera, under which it has the right to purchase, directly or through its nominee, all or part of the equity interest in Shanghai Camera from Wai Gao Qiao, to the extent permissible under PRC law. The agreement terminates only when the entirety of the equity interest is transferred to Jia Luo or its nominee and has no other termination provisions.

Beijing Century Media Culture Co., Ltd., or Beijing Century Media, a subsidiary of our affiliated entity, entered into an agreement with Shanghai Camera, under which Beijing Century Media provided content to Shanghai Camera for broadcast on Inner Mongolia Satellite Television, in return for a service fee in 2006. This agreement was terminated at the end of 2009.

Jia Luo entered into a call option agreement with Shanghai Wai Gao Qiao Free Trade Zone Development Co., Ltd. in 2006, the shareholder of Shanghai Camera at that time, under which it has the right to purchase, directly or through its nominee, all or part of the equity of Shanghai Camera from Shanghai Wai Gao Qiao Free Trade Zone Development Co., Ltd., to the extent permissible under PRC law. The agreement terminates only when the entire equity interest is transferred to Jia Luo or its nominee and has no other termination provisions. The agreement was terminated in 2008 as Shanghai Wai Gao Qiao Free Trade Zone Development Co., Ltd. transferred the entirety of its equity interest in Shanghai Camera to Wai Gao Qiao.

Agreement regarding our radio broadcast business. Our affiliated entity, Century Media Advertising, entered into an agreement with Beijing Guoguang Guangrong Advertising Co., Ltd., or Guoguang Guangrong, the exclusive advertising agent for all the domestic stations of China Radio International. Under this agreement, Century Media Advertising was granted the exclusive rights to sell advertising for EasyFM 91.5 of Beijing, and the right to provide content to the stations at its own expense. We disposed of our rights under this agreement in December 2009.

Our affiliated entity, Guangzhou Singshine Communication Co., Ltd, or Singshine Communication, entered into an agreement with Guangdong People’s Radio that gives Singshine Communication the exclusive rights to sell advertising for and the rights to provide content to Channel FM107.6, which is now known as Channel FM107.7. We disposed of our rights under this agreement in December 2009.

Singshine Communication also entered into an agreement with Guangdong People’s Radio Station that gives Singshine Communication the exclusive rights to sell advertising for and the rights to provide content to Channel FM103.6, which serves Guangzhou and the northern and eastern parts of the Guangdong Province, and Channel FM90.0, which serves the western part of the Guangdong Province. We disposed of our rights under this agreement in December 2009.

Century Media Advertising also entered into another agreement with Shanghai Media & Entertainment Group, pursuant to which Century Media Advertising obtained the exclusive rights to sell advertising for Sports Channel FM94.0 of Shanghai during 2009. The content provision by our affiliated entities for our business partners is allowed under PRC laws and regulations and the content is subject to review and approval by the radio and television stations. There is a risk that the strategic partnerships we or our affiliated entities have entered into may be deemed to have the actual effect of operating radio or television stations under relevant PRC regulations. See “Item 3.D. Key information — Risk factors — Risks related to the regulation of our business and to our structure — If the PRC government finds that the agreements that establish the structure for operating our China businesses do not comply with PRC governmental restrictions on foreign investment in the media and telecommunications industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations” and “Item 3.D. Key information — Risk factors — Risks related to our business — We rely on key contracts and business relationships, and if our current or future business partners or contracting counterparties fail to perform, or terminate, any of their contractual arrangements with us for any reason or cease operations, or should we fail to adequately identify key business relationships, our business could be disrupted, our reputation may be harmed and we may have to resort to litigation to enforce our rights, which may be time-consuming and expensive.”

Agreement regarding Money Journal. Our affiliated entity, Guangzhou Jingshi Culture Intermediary Co., Ltd., or Guangzhou Jingshi, entered into a contract with Hunan Television & Broadcast and Money Journal Press Office, which is sponsored by Hunan Radio, Movie & Television Group. Hunan Television & Broadcast is a subsidiary of Hunan Radio, Movie & Television Group. Money Journal Press Office is the legal sponsor for Money Journal . Under the contract, Guangzhou Jingshi is to provide management consulting and information provision services on distribution to Money Journal Press Office and has the exclusive right to sell advertising for Money Journal Press Office. We sold this business unit to XFL in December 2009 for cash consideration of RMB60,000 (US$9,000).

Agreement regarding Chinese Venture. Our affiliated entity, Beijing Qiannuo Advertising Co., Ltd., or Beijing Qiannuo, entered into a contract with Zhoumo Wenhui Press Office, which is the legal sponsor for Zhoumo Wenhui, or the Weekly Journal . Under the contract, Beijing Qiannuo acted as the exclusive advertising agent for the magazines or journals published by Zhoumo Wenhui Press Office, and provided information consulting and management consulting services to Zhoumo Wenhui Press Office. Zhoumo Wenhui Press Office publishes Chinese Venture under the Weekly Journal’s unified publication number. We terminated this business unit in December 2009.

Agreements by our Advertising Group securing advertising agency arrangements. Our Advertising Group has entered into various agreements granting us the advertising agency, and at times the exclusive agency, for advertising on various media platforms. Much of the revenue from this business has been derived under the following contracts:

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an advertising agent contract between Shangtuo Zhiyang, a subsidiary of our affiliated entity, Beijing Taide Advertising Co., Ltd., or Beijing Taide, and Beijing Yi Sheng Le Ju Information Service Ltd., a sina.com company. Pursuant to the contract, Shangtuo Zhiyang served as the advertising agent for sina.com with respect to the real estate advertisements in Beijing and Tianjin. The contract initially covered the period from January 1, 2008 and December 31, 2008, and it was amended and restated to cover the period from January 1, 2009 and December 31, 2009. The contract was terminated as of December 31, 2009.

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an advertising agent contract between Shangtuo Zhiyang and Beijing Sohu New Media Information Technology Ltd., a sohu.com company. Pursuant to the contract, Shangtuo Zhiyang served as the advertising agent for sohu.com and its affiliated websites. The contract initially covered the period from January 1, 2008 and December 31, 2008, and it was amended and restated to cover the period from January 1, 2009 and December 31, 2009. The contract was terminated as of December 31, 2009.

Our customers

Our services attract a variety of international and domestic customers. The data we give for our customers below includes data from our subsidiaries for the full periods given regardless of the date we acquired them, for both continuing and discontinued operations.

Broadcast

The quality and coverage of our integrated platform have attracted a broad range of customers. For the years ended December 31, 2007, 2008 and 2009, 488, 459 and 336 customers, respectively, used the services of our Broadcast Group for advertising, sponsorship, television production, animation and channel packaging services.

Our broadcast customers include advertisers such as China Mobile, Beijing Chinanoon Advertising, China Unicom, Guangdong New Media Co. Ltd., Shandong HaiNa Culture Intermediary Co. Ltd., Chengdu Entertainment and Music Technology Co. Ltd., Chengdu TianTi Movie and Television Production Co Ltd. and Beijing Zhong Tian Yong Dao Advertising Co. Ltd.

Our top five broadcast customers accounted for 45.1%, 44.7% and 64.5% of our Broadcast Group’s revenues in 2007, 2008 and 2009, respectively. Our top ten broadcast customers accounted for 57.3%, 54.8% and 72.1% of our Broadcast Group’s revenues in 2007, 2008 and 2009, respectively. One, two and two customers accounted for more than 10% of our Broadcast Group’s revenues, in 2007, 2008 and 2009, respectively.

Advertisers purchased advertising time or sponsorship on Shaanxi Satellite Television or Inner Mongolia Television programs either directly from us or through advertising agencies that purchase these services on behalf of their domestic and international customers. In 2007, 2008 and 2009, direct sales to advertisers accounted for 43.8%, 72.0% and 49.4%, respectively, of the revenues of our Broadcast Group.

Advertising

The quality and placement access of our Advertising Group has attracted a broad range of international and domestic customers. For the years ended December 31, 2007, 2008 and 2009, approximately 1,830, 1,450 and 931 customers, respectively, used the advertising services of our Advertising Group. Our top customers include international customers such as Diageo, Sony, Allied Domecq, Pernod Ricard, Nokia, Dell and Philips. Apart from international customers, our Advertising Group also attracts a broad range of domestic customers such as Beijing Dauphin Science, Beijing Yazhong Wuxian Media Ltd., MCC Real Estate Ltd. and Beijing Ocean JiaYe Real Estate Co., Ltd.

Our top five advertising customers accounted for 16.6%, 17.9% and 27.5% of our Advertising Group’s revenues in 2007, 2008 and 2009, respectively. Our top ten advertising customers accounted for 64.8%, 86.8% and 36.3% of our Advertising Group’s revenues in 2007, 2008 and 2009, respectively. No single customer accounted for more than 10% of our Advertising Group’s revenues in 2007. One single customer accounted for more than 10% of our Advertising Group’s revenues in both 2008 and 2009.

Customers purchase advertising placements and advertising creation services either directly from us or through their advertising agents which purchase these services on behalf of their domestic and international customers. In 2007, 2008 and 2009, direct sales to advertisers accounted for 64.8%, 86.8% and 90.2%, respectively, of our Advertising Group’s revenues.

Print

During 2009 we operated a print business, which covered, among others, our exclusive right to sell advertising for and provide management and information consulting services to the newspaper the Economic Observer . We disposed of our print business in early 2010, and our print business is now categorized as a discontinued operation for the years ended December 31, 2007, 2008 and 2009. For the years ended December 31, 2007, 2008 and 2009, approximately 350, 538 and 1,108 customers, respectively, used the services of our print business for advertising. Our print customers include international advertisers such as Mindshare Media, Optimum Media Direction and Saatchi & Saatchi and domestic advertisers such as ICBC, Guangdong Advertising Co. Ltd., China Everbright Ltd., Beijing Dentsue Media Palette Ltd. and SPD Bank. Our top five print customers accounted for 34.2%, 41.5% and 30.9% of our print business revenues in 2007, 2008 and 2009, respectively. Our top ten customers accounted for 50.8%, 53.6% and 41.5% of our print business revenues in 2007, 2008 and 2009, respectively. One single customer accounted for more than 10% of our print revenues in 2007, 2008 and 2009.

Distribution

Shaanxi Satellite Television’s programs are broadcast via satellite to cities where it has landing rights. A typical landing rights contract has a term of one year. Certain other cities in China, with which Shaanxi Satellite Television does not have landing rights, have by contract arranged to carry the station. Shaanxi Satellite Television terminated its agreement with us on June 30, 2010.

Inner Mongolia Satellite Television’s programs are broadcast via satellite to cities where they have landing rights. A typical landing rights contract has a term of one year. Some other cities where no landing rights are established by contract also carry Inner Mongolia Satellite Television. We terminated the cooperation agreement with Inner Mongolia Satellite Television, effective in December 2009.

Our sales and marketing team

Our sales and marketing team comprises 378 employees across our operational groups as of December 31, 2009. The sales and marketing team allocated to each group focuses on the specific services of that group and the needs of customers of that group, while being held together through common strategies and broader service to our company as a whole. We strengthen relationships with advertisers by cross-selling our integrated platforms to our existing advertisers, offering attractive and flexible packages to suit their needs. We promote our brand to advertisers as synonymous with the affluent demographic. We use the ratings of our programs, the circulation numbers of the magazine and newspaper and the research conducted by our Advertising Group to evidence our ability to reach this demographic effectively.

Seasonality

Our revenues may fluctuate significantly based on the seasonality of consumer spending and the corresponding advertising trends. Revenues for our business are driven largely by advertising and sponsorship across all our operating groups and media platforms, which subject us to the seasonal effects of China’s advertising industry. The advertising cycle in China typically peaks towards the end of the calendar year. Advertising spending tends to decrease during January and February due to the Chinese Lunar New Year holiday. In addition, there is a decrease in advertising during the May 1 Labor Day holiday, and the October 1 National Day holiday.

Competition

Each of our business groups is subject to significant competition, mainly from state-owned competitors. We believe we distinguish ourselves from our competitors by being the only company that can provide a full range of services including animation, broadcast design and post-production for television commercials, while having a partnership with distribution channels through various types of media outlets.

Broadcast

We and our strategic partners face many competitors in the Chinese broadcast market. We also compete against a strong field of competitors in television and film production, including large state-owned production companies, which have been in existence for several decades.

Advertising

Our primary competition in advertising comes from the American Association of Advertising Agencies, or 4A advertising companies, which are the dominant international advertising companies. Although we have relationships with them in which they act as advertising agents, the 4A companies have much of the market share both globally and in China and are our competitors. Our competitors in the below-the-line advertising market consist of international players that have strong ties to the China market and domestic marketing agencies that render services on a local level. Our competitors in the online real estate advertising business in China are key online advertising agents, including JiaHuaHengShun, and website owners who operate advertising sales directly.

Print

During 2009 we operated our print business. The Economic Observer and the Investor Journal , both weekly newspapers, faced competition from several financial newspapers in China, including 21st Century Business Herald, First Financial Daily and China Business Journal . We disposed of the exclusive rights to sell advertising for and provide management and information consulting services to the Economic Observer in 2010.

Money Journal and Chinese Venture competed against several financial magazines, both international and domestic, such as Caijing Magazine, New Fortune, Chinese Entrepreneur , and the Chinese versions of Business Week, Fortune and Forbes . We ceased production of Funds Observer and Chinese Venture in December 2009 and sold Money Journal in December 2009.

Intellectual property

We have developed strong brand awareness for our services. We consider our trademarks, copyrights and similar intellectual property critical to our success and rely on trademark and copyright laws, as well as licensing and confidentiality agreements, to protect our intellectual property rights. The intellectual property rights, including copyrights, trademarks and Internet domains held by us and our strategic partners are described in “— Regulation — Regulations on intellectual property protection.”

Xinhua Financial Network and China Economic Information Service entered into a Content License Agreement Supplement to the Exclusive Broadcasting Agreement dated December 15, 2001, pursuant to which China Economic Information Service granted Xinhua Financial Network and its affiliates an exclusive license (worldwide excluding China) to be the only party other than China Economic Information Service to distribute its real time newsfeeds and a non-exclusive license (in China) to distribute its real time newsfeeds, as well as the right to use the word “Xinhua” in the corporate name by Xinhua Financial Network and its affiliates worldwide. The agreement is effective for 20 years from May 18, 2000 and renewable for an additional term of ten years on terms to be agreed between the parties. Xinhua Financial Network is a subsidiary of XFL and our company is considered an affiliate of Xinhua Financial Network. We have in turn entered into an agreement with Xinhua Financial Network to use the word “Xinhua.” Although XFL or Xinhua Financial Network has registered the trademark for the name “Xinhua,” it is not clear whether the registration will be accepted in the PRC or whether we, XFL or affiliates could continue to use the name “Xinhua” if the agreement were to terminate. See “Item 3.D. Key information — Risk factors — Risks related to our business.”

Regulation

The PRC government imposes extensive regulations and censorship over the media industry, including television, radio, newspapers, magazines, advertising, media content production, and telecommunications industries. This section summarizes the principal PRC regulations that are relevant to our lines of business.

Regulatory authorities

The legal regime in China consists of the National People’s Congress, the State Council, which is the highest authority of the executive branch of the PRC central government, various ministries and agencies under the State Council’s authority and their respective authorized local branches. Our businesses in China in the media and telecommunications industries are subject to a number of existing laws, regulations, circulars, decisions, and opinions issued by various authorities, including:

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the National People’s Congress;

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the State Council;

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the National Development & Reform Commission (formerly the State Development and Planning Commission);

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the Ministry of Commerce, a combination of the former Ministry of Foreign Trade and Economic Co-operation, the State Economy and Trade Commission, and the State Development and Planning Commission;

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the State Administration for Industry and Commerce;

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the Ministry of Culture;

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the State Administration of Radio, Film & Television;

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the General Administration for Press and Publication (formerly the State Press and Publications Administration);

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the National Bureau of Statistics; and

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the Ministry of Industry & Information Technology (formerly the Ministry of Information Industry).

Regulatory framework

The PRC laws and regulations that are relevant to our business generally fall into five categories:

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laws and regulations restricting and governing investments of private capital in general and foreign capital in particular. For purposes of these restrictions under PRC laws, “foreign” investment includes investment from Hong Kong, Taiwan and Macau. As a result of these restrictions on investments of foreign and private capital, we conduct our businesses in China substantially through contractual arrangements with our affiliated PRC entities. To further comply with these restrictions, our affiliated PRC entities in our Broadcasting Group operate through contractual arrangements with our business partners, including a television station, radio stations, a newspaper press office and a magazine press office;

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industry specific laws and regulations that govern the entities and business activities within the specified industry;

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copyright and trademark protection and domain name registration regulations, which we and our affiliated entities use to protect our and their intellectual property;

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regulations on foreign currency exchange; and

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regulations on tax.

We believe the ownership structures, businesses and operations of our subsidiaries and affiliated entities in China comply in all material respects with all existing PRC laws and regulations.

Regulations on investment of foreign and private capital in the media, advertising and telecommunications industries

Four principal regulations govern the investment of foreign and private capital in the media, advertising and telecommunications industries:

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the Foreign Investment Industrial Guidance Catalog, or the Catalog, jointly promulgated by the National Development & Reform Commission and the Ministry of Commerce on October 31, 2007 and which became effective as of December 1, 2007;

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the Several Decisions on the Entry of Private Capital into the Culture Industry, or the Decisions, issued by the State Council on April 13, 2005;

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the Several Opinions on Foreign Investment in the Culture Sector, or the Opinions, jointly issued by the State Administration of Radio, Film and Television, the Ministry of Culture, the General Administration for Press and Publication, the National Development & Reform Commission and the Ministry of Commerce on July 6, 2005; and

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the Regulations for the Administration of Foreign-Invested Telecommunications Enterprises, or the Regulations, issued by the State Council on December 11, 2001 and revised on September 10, 2008.

Under the Catalog and the Opinions, the investment of foreign capital is prohibited or restricted in companies that conduct various aspects of the television, radio, publishing and telecommunications businesses, as described below, but is permitted in the advertising business.

The Decisions affect the investment of private capital in companies that engage in the business of television, radio, publishing, advertising and media content production. Under the Decisions, investment of private capital is prohibited or restricted in many aspects of the television, radio and publishing business areas, as described below, but is allowed in other business areas such as advertising and the production of movies and drama series.

PRC laws relating to foreign investments in the media and advertising industries are relatively new compared with those in more mature markets, and the PRC government continues to promulgate and implement new laws and regulations. We believe our current ownership structure, the ownership structure of our subsidiaries, including our affiliated PRC entities, the contractual arrangements among us, our subsidiaries, including affiliated PRC entities, and their shareholders, and our business operations are in compliance with all existing PRC laws, rules and regulations in all material respects. However, there are substantial uncertainties regarding the interpretation, application and administration of current PRC laws and regulations, and the impacts of any new laws and regulations are unknown. See “Item 3.D. Key information — Risk factors — Risks related to the regulation of our business and to our structure — Certain of our PRC operating companies or strategic partners have previously engaged or may currently engage in activities without appropriate licenses or approvals or outside the authorized scope of their business licenses or permitted activities. This could subject those companies to fines and other penalties, which could have a material adverse effect on our business” and “Item 3.D. Key information — Risk factors — Risks related to the regulation of our business and to our structure — If the PRC government finds that the agreements that establish the structure for operating our China businesses do not comply with PRC governmental restrictions on foreign investment in the media and telecommunications industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.” Accordingly, if the PRC government authorities ultimately take a view contrary to our position, our business may suffer substantial interruptions and our operating results may be negatively affected.

The following discussion summarizes the relevant regulations, including the three principal ones discussed above, governing the investment of foreign and private capital in each of our lines of business.

Regulations on television, radio and movie industry

Television and radio stations

According to the Regulations on the Administration of Radio and Television, promulgated by the State Council on August 11, 1997, Detailed Procedures for the Financing of Radio Film and Television Conglomerates, promulgated by the State Administration of Radio, Film and Television on December 20, 2001, and the Measures for the Administration of Examination and Approval of Radio Stations and Television Stations, promulgated by the State Administration of Radio, Film and Television on August 18, 2004, radio stations, television stations, radio frequencies or television channels may only be established and operated by the government. Pursuant to the Opinions and the Decisions, foreign or private capital may not be invested to establish or operate radio stations, television stations or transmission networks, broadcast radio or television programs, or operate radio frequencies or television channels for radio or television stations. Under the Opinions and the Circular on the Further Strengthening of the Supervision of Radio and Television Channels, or the Supervision Circular, promulgated by the State Administration of Radio, Film and Television on August 4, 2005, foreign investors are prohibited from operating radio frequencies or television channels by means of providing advertising, printing or distribution services.

We and our affiliated entities do not own or operate television or radio stations. Neither do we nor our affiliated entities operate television channels or radio frequencies. Through our agreements with Beijing Hantang, through June 30, 2010 we held the exclusive right to provide advertising and consulting services to Shaanxi Satellite Television, a television channel in Shaanxi province. While operating our radio business, our affiliated entities had the exclusive rights to sell advertising for and the rights to provide content to radio stations.

The content provision by our affiliated entities for our business partners is allowed under PRC laws and regulations and the content is subject to review and approval by the radio and television stations. There is a risk that the strategic partnerships we or our affiliated entities have entered into may be deemed to have the actual effect of operating radio or television stations under the Opinions or Supervision Circular. See “Item 3.D. Key information — Risk factors — Risks related to the regulation of our business and to our structure — If the PRC government finds that the agreements that establish the structure for operating our China businesses do not comply with PRC governmental restrictions on foreign investment in the media and telecommunications industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations” and “Item 3.D. Key information — Risk factors — Risks related to our business — We rely on key contracts and business relationships, and if our current or future business partners or contracting counterparties fail to perform, or terminate, any of their contractual arrangements with us for any reason or cease operations, or should we fail to adequately identify key business relationships, our business could be disrupted, our reputation may be harmed and we may have to resort to litigation to enforce our rights, which may be time-consuming and expensive.”

Radio and television program production

According to the Regulations on the Administration of Radio and Television and the Provisions on the Administration of Radio and Television Program Production promulgated by the State Administration of Radio, Film and Television on July 19, 2004, entities engaging in the production of radio and television programs, such as feature programs, general programs, drama series and animations, and the trading activities and agency services on the copyrights of such programs must first obtain preliminary approval from the State Administration of Radio, Film and Television or its provincial branches for the appropriate license. Then the entity must register with the State Administration for Industry and Commerce to obtain or update its business license.

According to the Administration of Radio and Television Program Production, wholly foreign owned enterprises, as well as Sino-foreign joint ventures, are not encouraged to produce radio and television programs or drama series. The establishment of a production company for drama series must be approved by the State Administration of Radio, Film and Television. Such company must also obtain the appropriate licenses from the provincial branches of the State Administration of Radio, Film and Television. There are two types of drama series production licenses. The first type is a general license applicable to all drama series produced by the license holder during the two-year term. The second type is a specific license applicable to the specific drama series identified on the license.

In our media production group, a subset of our Broadcast Group, all of our affiliated PRC entities engaging in media content production have obtained the requisite business licenses and appropriate licenses for television program production or have contracted with an entity that has the required licenses. For our drama series production, our affiliated entity cooperates with third parties who to our knowledge hold drama series production licenses to produce our drama series. For details, see “— Arrangements with partners and suppliers” and “Item 4.C. Information on the Company — Organizational Structure.”

We do not directly engage in the production of radio and television programs or drama series, nor have we set up any joint ventures for that purpose. Our affiliated PRC entities engage in the production of television programs.

Movie industry

According to the Regulations on the Administration of Movies promulgated by the State Council on December 25, 2001, the PRC applies a licensing system to the production, import, export, distribution, and projection of movies and public projection of films. No entity or individual may, without permission, be engaged in the production, importation, distribution or projection of films, nor may it import, export, distribute or project a film for which the relevant license has not been obtained.

The establishment of a film production entity must be approved by the State Administration of Radio, Film & Television. After being approved, the film production entity will be issued a License for Producing Movies for movie production related activities provided by the Regulations on the Administration of Movies. The PRC also maintains a movie examination system. Films which have not been examined and adopted by the movie examination institution of the State Administration of Radio, Film & Television shall not be distributed, projected, imported or exported.

According to the Regulations on the Administration of Movies and the Provisions on the Administration of Chinese-foreign Cooperative Production of Films promulgated by the State Administration of Radio, Film & Television on July 6, 2004, only film production entities that are established with the approval of the State Administration of Radio, Film & Television and hold a License for Producing Movies can cooperate with an overseas film producer to produce films. Cooperation with an overseas film producer can be through joint production, associated production or commissioned production. Joint production refers to a cooperative agreement by which the Chinese and foreign parties jointly contribute capital (including funds, labor or in-kind contributions), produce films and share interests and risks. Associated production refers to a cooperative agreement under which the foreign party contributes capital, while the Chinese party provides assistance, such as equipment, sites and labor, and filming is done in China. Commissioned production refers to a cooperative arrangement under which the foreign party entrusts the Chinese party to produce films on its behalf. For the cooperative agreement to be valid, the film production entity must apply to the State Administration of Radio, Film & Television for approval and obtain a one-off License for Producing Films through Chinese-foreign Cooperation which will remain valid for two years. No overseas organization or individual may be independently engaged in producing films inside the territory of the PRC. We do not directly engage in movie production. We cooperate with third parties who to our knowledge hold movie production licenses to produce movies and we believe that we are in compliance with the approval requirement for our movie co-production transactions.

Import and Broadcasting of Overseas TV Programs

According to the Provisions on the Administration of Import and Broadcasting of Overseas TV Programs promulgated by the State Administration of Radio, Film and Television on September 23, 2004, the import of overseas TV programs, which include overseas films, TV plays, TV cartoons and other TV programs, such as educational, scientific and cultural TV programs to be broadcast in China shall be subject to the approval of the State Administration of Radio, Film and Television. The import process is divided into two categories, which include the import of overseas films and TV plays, and the import of other overseas TV programs through satellite transmission. For the former, if the State Administration of Radio, Film and Television approves the import, it shall issue the applicant a TV Play (TV Cartoon) Distribution License, while for the latter it shall approve the import of an overseas TV program after which the applicant shall go through the legal formalities for obtaining a License of Receiving TV Programs through Satellite Transmission.

When a TV station broadcasts an overseas film or TV play, it shall give a clear indication of the serial number of the distribution license of the film or TV play. The time for broadcasting overseas films and TV plays per day by a television channel may not exceed 25% of its total time within the current day for broadcasting films and TV plays. The time for broadcasting other overseas TV programs per day by a television channel may not exceed 15% of the total time for broadcasting within the current day by the television channel. Without approval of the State Administration of Radio, Film and Television, no one may broadcast any overseas film or TV play during the prime time slot (7:00pm to 10:00pm).

An overseas TV program (other than a film or TV play) imported upon approval shall be re-packed and re-edited. It may not be directly broadcast as a set program at a fixed time slot. The logo of the overseas channel or picture with relevant words may not be shown in the program, nor may the program contain any advertisement publicizing the overseas media or channel and other similar content.

According to the Regulations on the Administration of Movies, the business of importing movies is to be operated by the movie import entities designated by the State Administration of Radio, Film & Television. Without being designated, no entity or individual may operate the business of importing movies. Before importing a movie, the movie import entity must submit a sample of the film to the movie examination institution for examination.

We do not possess the necessary approvals to directly engage in the production, import, export, distribution and projection of movies and public projection of films. We partner with entities that have the required license to participate in such businesses on a contractual basis. See “Item 3.D. Key information — Risk factors — Risks related to the regulation of our business and to our structure — Certain of our PRC operating companies or strategic partners have previously engaged or may currently engage in activities without appropriate licenses or approvals or outside the authorized scope of their business licenses or permitted activities. This could subject those companies to fines and other penalties, which could have a material adverse effect on our business.”

Publication of Audio-Visual Programs through the Internet

According to the Measures for the Administration of the Publication of Audio-Visual Programs through the Internet or Other Information Network promulgated by the State Administration of Radio, Movie and Television on July 6, 2004 and the Measures for the Administration of the Service of Internet Audio-Visual Programs jointly promulgated by the State Administration of Radio, Movie and Television and the Ministry of Information Industry on December 20, 2007, the state applies a licensing system to businesses which publish audio-visual programs through information networks and requires entities engaged in such a business to obtain the License for Publication of Audio-Visual Programs. No wholly foreign-owned, Sino-foreign joint venture or Sino-foreign cooperative institution may engage in the business of publishing audio-visual programs through information networks.

Audio-visual programs published to the public through information networks are highly regulated under the above two measures. News programs are limited to programs produced and broadcast by radio or television stations and approved news websites within China while movie and TV programs must first obtain the TV Play Distribution License or the Permit for Public Projection of Movies. When relaying audio-visual programs by making use of information networks, only radio and TV programs already broadcast by the radio and TV stations may be relayed. No radio or TV program illegally opened, nor any overseas radio and TV programs, may be relayed. When using information networks to link or integrate audio-visual programs, only the audio-visual programs opened by the institution that has obtained the License for Publication of Audio-Visual Programs through Information Network may be linked or integrated and no audio-visual programs from overseas internet websites may be linked or integrated.

Our affiliated entity has obtained the License for Publication of Audio-Visual Programs through Information Network.

Regulations on the publication industry

Newspapers and magazines

Publication of newspapers or magazines. Under the Catalog and the Decisions, investment of foreign or private capital is not permitted in the establishment or operation of newspapers, publishing institutions or news agencies or in the operation of newspaper or magazine sections. However, the investment of foreign or private capital is permitted in companies engaging in the printing and wholesale or retail distribution of newspapers or magazines. Under the Opinions, foreign investors are prohibited from providing wholesale or retail distribution, printing or advertising services to the publishing institutions if the actual effect is to operate newspaper or magazine sections or to engage in the editorial work for or to publish newspapers or magazines.

The publication industry in China is governed by the Regulations on the Administration of Publication, promulgated by the State Council on December 25, 2001, and the Provisions on the Administration of the Publications Market, promulgated and amended by the General Administration for Press and Publication on June 16, 2004. These regulations govern publication activities including the publishing, printing, reproduction, importing and distribution of publications, including newspapers, magazines, books, audio and video products and electronic publications published by lawfully established press offices with the proper government approval. Such institutions may include, among others, newspaper agencies and periodical publication agencies. The establishment of a publishing institution requires approval from the General Administration for Press and Publication. The publishing institution must be sponsored by a sponsoring entity and supervised by a supervising entity, both duly authorized by the General Administration for Press and Publication on a case by case basis. The sponsoring entity and the supervising entity may be the same entity. After establishment, a newspaper or magazine press office must apply for a license for newspaper publication or a license for periodical publication and obtain a domestic unified serial number for the newspaper or the magazine. No newspaper or magazine press office may sell, lease, or transfer its own name or the domestic unified serial number, name or section of the publication, nor shall it lend, transfer, lease or sell its license(s).

A press office shall implement a system of editorial accountability to ensure that its published content complies with applicable laws. No publication shall, among other things, contain content that may violate, or may be deemed to violate the basic principles of the PRC Constitution, jeopardize state unification, harm sovereign and territorial integrity, divulge state secrets or jeopardize state security.

We and our affiliated entities do not engage in the business of publishing newspapers or magazines. We and our affiliated entities have, in the past, provided management and information consulting services to or have made contractual arrangements with various publishing institutions in relation to the Economic Observer and Investor Journal newspapers and Money Journal and Chinese Venture magazines. Our contractual arrangements pertaining to Investor Journal terminated at the end of 2008. Our contractual arrangements pertaining to Money Journal and Chinese Venture terminated at the end of 2009. For details in relation to the magazines and newspapers, see “— Arrangements with partners and suppliers” and “Item 4.C. Information on the Company — Organizational Structure.” To our best knowledge, these publishing institutions held the requisite approvals and licenses to publish newspapers or magazines during the term of our agreement. There is a risk that the strategic partnerships we or our affiliated entities have with these publishing institutions may be deemed to have the actual effect of operating newspaper or magazine sections. See “Item 3.D. Key information — Risk factors — Risks related to the regulation of our business and to our structure — If the PRC government finds that the agreements that establish the structure for operating our China businesses do not comply with PRC governmental restrictions on foreign investment in the media and telecommunications industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.”

Distribution. Under the Catalog and the Decisions, the investment of foreign capital is prohibited in companies engaging in the general distribution of newspapers or magazines. According to the Measures for the Administration of Foreign-invested Enterprises in Distribution of the Books, Newspapers and Periodicals, or the Measures, promulgated by the General Administration for Press and Publication and the Ministry of Commerce on March 17, 2003 and its supplementary provisions, investment of foreign capital is permitted in companies that engage in wholesale and retail distribution of newspapers or magazines. Wholesale distribution, for which foreign investment was permitted starting December 1, 2004, is the non-exclusive distribution of publications to other entities in the publication related businesses, such as newsstands and bookstores. Retail distribution, for which foreign investment was permitted starting on May 1, 2003, is the nonexclusive distribution of publications to readers.

We and our affiliated entities do not currently engage in the general, wholesale or retail distribution of newspapers or magazines. Our affiliated PRC entities have, in the past, provided management and information consulting services to, or have made contractual arrangements with, the respective press offices on outsourcing the wholesale and retail distribution of Money Journal , Chinese Venture and the Economic Observer to third-party service providers and through the end of 2008 had contractual arrangements with the respective press office on the distribution of Investor Journal .

Printing of publications

According to the Regulations on the Administration of Publication, entities engaged in the business of printing publications shall first obtain approval from the provincial branch of the General Administration for Press and Publication and then register with the public security bureau and the local branch of the State Administration for Industry and Commerce. A press office shall not commission an entity that has not obtained the requisite approval to provide printing services.

According to the Provisional Regulation on Establishment of Foreign Invested Printing Enterprises promulgated by the General Administration for Press and Publication and the Ministry of Commerce on January 29, 2002, the Opinions and the Decisions, investment of foreign and private capital is permitted in the business of printing newspapers or magazines in China. Foreign investment must take the form of joint ventures in which a PRC investor must hold the controlling interest, but private investment is not subject to the same restriction.

In our print business, which ceased operations in early 2010, our affiliated entities provided management and information consulting services to a press office on the printing of Money Journal and Chinese Venture , and assisted a press office in the management of the printing of the Economic Observer , including outsourcing the printing of these publications to third-party service providers. To the best of our knowledge, these printing service providers held the requisite approvals during the term of our agreement. Our affiliated entities advised the press offices to periodically monitor these service providers to ensure that they have obtained all required approvals, although it is possible that one or more of these printing service providers may not have been in compliance with all PRC regulations at all times.

We and our affiliated entities do not print newspapers or magazines. Rather, our affiliated entities provided management and information consulting services to the publishing institutions on outsourcing the printing of Money Journal , Chinese Venture and the Economic Observer to third-party service providers, and through the end of 2008 had contractual arrangements with the publishing institution regarding printing the Investor Journal .

Distribution of publications

According to the Regulations on the Administration of Publication, entities engaging in the general distribution of newspapers or magazines must obtain approval from the General Administration for Press and Publication. Entities engaging in the wholesale distribution or retail distribution of newspapers or magazines must obtain approval from GAAP branches at the provincial and county level. The distribution of newspapers or magazines by post shall comply with the postal law.

In our print business, which ceased operations in early 2010, our affiliated entities provided management and information consulting services to the press offices for Money Journal , Chinese Venture and the Economic Observer in relation to engaging local distribution service providers to carry out the wholesale and retail distribution of the magazine or newspaper. To our knowledge, these press offices and the wholesale and retail distributors held the requisite approvals and licenses to distribute magazines or newspapers during the term of our agreement, except for Guangzhou Jingyu Culture Development Co., Ltd., a distribution service provider that is the primary general distributor engaged in the retail and wholesale distribution of Money Journal . Our affiliated entities advised the press offices to periodically monitor these wholesale and retail service providers to ensure that they have obtained all required licenses, although it is possible that one or more of these distributors may not have been in compliance with all PRC regulations at all times.

Regulations on the advertising industry

Establishment of advertising entities

The principal regulations governing the PRC advertising industry include:

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the Advertising Law promulgated by the National People’s Congress on October 27, 1994;

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the Administration Regulations of Advertising Industry, promulgated by the State Council on October 26, 1987;

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the Implementation Rule of Advertising Industry Administration, or the Implementation Rule, promulgated by the State Administration for Industry and Commence on January 9, 1988, amended in 1998, 2000 and 2004, and effective as of January 1, 2005; and

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the Measures on Administration of Advertising Operation Licenses, promulgated by the State Administration for Industry and Commence on November 30, 2004.

Under these regulations, advertising companies may only engage in the advertising business if they have obtained from the State Administration for Industry and Commence or its local branches a business license which specifically includes operating an advertising business within its business scope. A company conducting advertising activities without such a license may be subject to penalties, including fines, confiscation of advertising income and orders to cease advertising operations. Subject to annual examination, the business license of an advertising company is valid for the duration of its existence, unless the license is suspended or revoked due to a violation of any relevant law or regulation. Furthermore, pursuant to the Implementation Rule, certain entities, including, but not limited to, radio and television stations and publishing institutions, must also obtain an advertising operating license from a branch of the State Administration for Industry and Commence at the county level or above before they can engage in the advertising business. These licenses will set forth the permitted advertising activities.

We conduct our advertising business in China through certain of our affiliated PRC entities. Each of them has obtained the licenses to operate an advertising business from the State Administration for Industry and Commence or its local branches as required by PRC regulations.

We and our affiliated entities work with various advertising agents in our broadcasting business. To the best of our knowledge, these advertising agents also have the requisite business licenses and advertising operating licenses, where applicable. We and our affiliated entities periodically monitor these advertising agents to ensure that they have obtained all required licenses, although it is possible that one or more of them may not be in compliance with all PRC regulations at all times. If we or our affiliated entities learn that any of them is not in compliance with applicable regulations, we or our affiliated entities will notify the entity of the need to complete any necessary steps to receive the required licenses. Under the contracts between our affiliated entities and the advertising agents, our affiliated entities have the rights to claim compensation for any direct or indirect losses caused by the non-compliance of the advertising agents. We and our affiliated entities will take steps to terminate the contract with such advertising agents if necessary.

In addition, to our best knowledge, the publishing institutions and radio stations we and our affiliated entities work with, as well as Inner Mongolia Television Station and Shaanxi Television Station, have the requisite business licenses and advertising operating licenses.

Under the Catalog and the Administrative Provision on Foreign Investment in the Advertising Industry, jointly promulgated by the State Administration for Industry and Commerce and the Ministry of Commerce on March 2, 2004 and revised on August 22, 2008, foreign investors can invest in PRC advertising companies through either wholly-owned enterprises or joint ventures with Chinese parties. Since December 10, 2005, foreign investment in PRC advertising companies has been allowed up to a 100% equity interest. However, the foreign investors are required to have at least three years of direct operations in the advertising industry as their core businesses outside of the PRC. This requirement is reduced to two years if foreign investment in the advertising company is in the form of a joint venture. Advertising enterprises with foreign capital investment can engage in advertising design, production, publishing and agency, provided that certain conditions are met and necessary approvals are obtained. Under the Decisions, private capital is allowed to conduct outdoor advertising activities and production of advertising programs.

We primarily operate our advertising businesses in Beijing, Shanghai and Shenzhen through our affiliated PRC advertising companies. For details, see “Item 4.C. Information on the Company — Organizational structure.”

Advertising content

PRC advertising laws and regulations set forth certain content requirements for advertisements in China, which include prohibitions on, among other things, false or misleading content, superlative wording, socially destabilizing content or content involving obscenities, superstition, violence, discrimination or infringement of the public interest. Advertisements for anesthetic, psychotropic, toxic or radioactive drugs are prohibited. It is prohibited to disseminate tobacco advertisements via radio, film, television, newspapers or magazines. It is also prohibited to display tobacco advertisements in any waiting lounge, theater, cinema, conference hall, stadium or other public area. There are also specific restrictions and requirements regarding advertisements that relate to matters such as patented products or processes, pharmaceuticals, medical instruments, agrochemicals, foodstuff, alcohol and cosmetics. In addition, all advertisements relating to pharmaceuticals, medical instruments, agrochemicals and veterinary pharmaceuticals advertised through radio, film, television, newspapers, magazines, out-of-home and other forms of media, together with any other advertisements which are subject to censorship by administrative authorities according to relevant laws and administrative regulations, must be submitted to the relevant administrative authorities for content approval prior to dissemination.

Advertisers, advertising agencies, and advertising distributors are required by PRC advertising laws and regulations to ensure that the content of the advertisements they prepare or distribute is true and in full compliance with applicable law. In providing advertising services, advertising operators and advertising distributors must review the prescribed supporting documents provided by advertisers for advertisements and verify that the content of the advertisements complies with applicable PRC laws and regulations. Prior to distributing advertisements that are subject to government censorship and approval, advertising distributors are obligated to ensure that such censorship has been performed and approval has been obtained. Violation of these regulations may result in penalties, including fines, confiscation of advertising income, orders to cease dissemination of the advertisements and orders to publish an advertisement correcting the misleading information. In circumstances involving serious violations, the State Administration for Industry and Commerce or its local branches may revoke violators’ licenses or permits for advertising business operations. Furthermore, advertisers, advertising agencies or advertising distributors may be subject to civil liability if they infringe on the legal rights and interests of third parties in the course of their advertising business.

As we and our affiliated entities conduct our business in the advertising industry, we each take steps to make sure that all of our and their advertisements comply with relevant laws and regulations. The advertisements placed by our Advertising Group typically are subject to the review and final approval of the partners through whom we place the advertisement. Our business partners employ qualified advertising inspectors who are trained to review advertising content for compliance with relevant laws and regulations. We do not believe that advertisements containing content subject to restriction or censorship comprise a material portion of the advertisements created or placed by our Advertising Group. In the event that some of the advertisements our advertising customers or agencies provide to us or our affiliated entities and which we or our affiliated entities include in advertising are not in compliance with relevant PRC advertising laws and regulations, or when these advertisements that we or our customers or agencies place have not received required approval from the relevant local supervisory bodies, such as the local branches of the State Administration for Industry and Commerce, or do not comply with content requirements, we will remove the advertisements or advise our business partners to remove the advertisements as soon as we notice such violations.

Operational matters of the advertising business

Under the Advertising Law, registration, review and filing systems need to be established and maintained for the operation of entities engaged in the advertising business. Advertising fees must be reasonable, and rates and fee collection methods must be filed with the PRC Commodity Price Administration and the State Administration for Industry and Commerce for their records. Under the Implementation Rule, the advertising agent fee must be 15% of the advertising cost. The advertising customer must provide relevant documents, including certificates rendered by the relevant supervisory administrations before it can broadcast or place its advertisements.

As we and our affiliated entities conduct our business in the advertising industry, we and they take steps to make sure that all of our and their operations are in compliance with relevant laws and regulations.

Radio and television advertisements

The State Administration of Radio, Film and Television promulgated the Administrative Measures for Broadcasting Radio and Television Advertisements on September 8, 2009 to further regulate the advertisements broadcast by radio and television stations. Advertisements broadcast on radio and television stations are prohibited from containing certain content deemed to:

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be against the basic principles stipulated by the constitution;

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harm the national unity, sovereignty and territorial integrity, national security or harm national honor and interests;

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incite ethnic hatred or ethnic discrimination, be against ethnic customs and habits, undermine national unity or violate religious policy;

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disrupt the social order or undermine social stability;

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promote a cult, obscenity, gambling, violence, superstition, damage social morality or national cultural traditions;

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insult, discriminate or slander others, infringe the legal rights of others;

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induce minors to act poorly or with bad values or endanger the physical and mental health of minors;

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use absolute language to deceive and mislead the public, deliberately using the wrong spelling or tampered idioms;

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use the national flag, national emblem, national anthem, the name, image, voice, sayings, handwritings of national leaders, or the name or image of the state agencies or officers of the same effect in commercial advertising;

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promote drugs, medical devices, medical and health information advertisements promoting cure rates, efficiency, or using doctors, specialists, patients or public figures to prove a curative effect; and

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other content prohibited by laws, regulations and administrative rules.

In addition, certain advertisements are prohibited from being broadcast on radio and television station, which include:

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advertisements published in the form of a news report;

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tobacco advertisements;

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prescription drugs advertisements;

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medical advertisements for drugs, food, medical equipment used for the treatment of malignant tumors, liver disease, sexually transmitted diseases or drugs to improve sexual functions;

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voice service advertisements such as those for name or fortune analysis, affinity tests, or chat dating services;

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dairy products advertisements using the term “breast-milk substitutes;” and

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other advertisements prohibited by laws, regulations and administrative rules.

The Administrative Measures for Broadcasting Radio and Television Advertisements also stipulates the total permitted amount and arrangements for commercial advertising. The commercial advertising broadcast each hour during each set of programs shall not exceed 12 minutes, among which, the commercial advertising broadcast between 11:00 to 13:00 on radio stations and 19:00 to 21:00 on television station shall not exceed 18 minutes. Commercial advertising may be inserted during the broadcasting of TV dramas, but shall be limited to twice an episode and each shall not be longer than one minute and 30 seconds, among which, for TV dramas broadcast during 19:00 to 21:00, commercial advertising shall only be inserted once an episode for no more than one minute.

We do not operate any radio or television broadcasting institutions. We entered into cooperation agreements with and provide advertising to radio and television stations. We estimate that our revenues and the number of advertisers placing advertisements through these mediums will decrease due to these regulations.

Outdoor advertising

Laws and regulations generally applicable to advertisements in the PRC are all applicable to outdoor advertisements. In addition, outdoor advertising is subject to regulation under the Measure for the Administration of Registration of Outdoor Advertisements, promulgated by the State Administration for Industry and Commerce on December 8, 1995, amended on December 3, 1998 and May 22, 2006, which became effective on July 1, 2006.

Under the Advertising Law, the exhibition and display of outdoor advertisements may not:

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utilize traffic safety facilities and traffic signs;

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impede the use of public facilities, traffic safety facilities and traffic signs;

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obstruct commercial and public activities or damage the urban area landscape;

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be placed in restricted areas near government offices, cultural landmarks or historical or scenic sites; or

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be placed in areas prohibited by the local governments from having outdoor advertisements.

Under the Measure for the Administration of Registration of Outdoor Advertisements, all outdoor advertisements must be registered with the local branch of the State Administration for Industry and Commerce above county level before dissemination. The advertising distributors are required to submit a registration application form and other supporting documents for registration. After review and examination, if an application complies with the requirements, the local branch of the State Administration for Industry and Commerce will issue an Outdoor Advertising Registration Certificate for the advertisement. Outdoor advertisements shall be published in accordance with the contents stipulated in the register such as venue, format, specification and time period, which cannot be altered without prior approval. The content of the outdoor advertisement must be submitted for filing with the local branch of the State Administration for Industry and Commerce.

Local governments also have regulations relating to outdoor advertising, such as the Measures for the Administration of the Installation of Outdoor Advertisements in Shanghai Municipality, promulgated on December 15, 2004 and effective as of February 1, 2005 in Shanghai, and the Measures for the Administration of the Installation of Outdoor Advertisements in Beijing Municipality, passed on June 22, 2004 and promulgated on August 5, 2004, amended on November 23, 2007, and effective as of October 1, 2004 in Beijing.

Our outdoor advertising operation is currently in Shanghai and Beijing only. We operate our campus billboard advertising business in Shanghai via our affiliated PRC entity. We have received a verbal interpretation from the relevant Shanghai authorities that our affiliated entity does not need a license for outdoor advertising as billboards on a university campus are not considered “outdoor” advertising. We and our affiliated entity take steps to make sure that all of our affiliated PRC entity’s campus billboard advertisements are in compliance with relevant laws and regulations.

Marketing services

The laws and regulations generally applicable to the advertising industry are also applicable to the marketing services business. In our marketing services business, our affiliated PRC entity places advertising posters at various event venues. These posters are defined as “normal print advertisements” under the Print Advertisements Administrative Regulations, promulgated by the State Administration for Industry and Commerce on January 13, 2000, as amended on November 30, 2004. Under these regulations, print advertisements must not be placed in areas prohibited by laws or regulations, such as controlled areas around governmental buildings. Such print advertisement must not include non-advertisement content such as news but must contain the names and addresses of the advertiser and the advertising agents or distributors.

We and our affiliated entities take steps to make sure that all of our and their advertisements in marketing services are in compliance with relevant laws and regulations.

Regulations on the telecommunications industry

The principal regulations governing telecommunications businesses in China include:

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the Regulation on Telecommunications promulgated by the State Council on September 25, 2000;

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the Administrative Measures for Telecommunications Business Operating License promulgated by the Ministry of Industry and Information on March 1, 2009; and

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The Catalogue of Classes of Telecommunications Businesses promulgated by the Ministry of Information Industry on February 21, 2003.

Under these regulations, all telecommunications businesses in China are categorized as either infrastructure telecommunications businesses or value-added telecommunications businesses. The latter category includes SMS and other wireless value-added services. Certain services are classified as being of a value-added nature and require the commercial operator of such services to obtain an operating license, including telecommunications information services, online data processing and translation processing, call centers and Internet access.

Depending on whether the business is carried out in one province or more, one of the two different kinds of licenses are required before engaging in value-added telecommunications businesses. These include the Business License for Cross-region Value-added Telecommunications Business or the Business License for Value-added Telecommunications Business. The period of validity of the above licenses is five years. Applicants of the former license also need to have a registered capital of not less than RMB10.0 million ($1.5 million) and be approved by the MIIT, and applicants of the latter license need to have a registered capital of not less than RMB1.0 million ($147,000) and be approved by the communication administrative bureau in the relevant provinces, autonomous regions or cities under the direct control of the Central Government. A Cross-region Value-added Telecommunications Business License holder needs to register with local communication administrative bureaus before conducting its business in relevant provinces. An approved value-added telecommunications service provider must conduct its business in accordance with the specifications recorded on its Telecom Business Operating License.

Regarding the content transmitted through telecommunications service, strict censorship is required. The service provider needs to ensure that the transmitted messages will not:

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oppose the fundamental principles determined in the PRC Constitution;

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compromise state security, divulges state secrets, subvert state power or damage national unity;

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harm the dignity or interests of the state;

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incite ethnic hatred or racial discrimination or damage inter-ethnic unity;

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sabotage China’s religious policy or propagate heretical teachings or feudal superstitions;

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deliver rumors, disturb social order or disrupt social stability;

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propagate obscenity, pornography, gambling, violence, murder or fear or incite the commission of crimes;

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insult or slander a third party or infringe upon the lawful rights and interests of a third party; or

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include other content prohibited by laws or administrative regulations.

Under the Catalogue and the Regulations, a foreign entity is prohibited from owning more than 50% of the total equity in any Chinese enterprise providing value-added telecommunications services, subject to certain geographic limitations, and the foreign investors in a foreign invested value-added telecommunications enterprise is required to be in good standing and have the relevant experience in operating a value-added telecommunications businesses.

We do not operate our wireless business directly, rather, we operate our wireless business through our Chinese affiliated entity, M-in, which holds the requisite Cross-region Value-added Telecommunications Business License to provide wireless services in China. See “Item 3.D. Key information — Risk factors — Risks related to the regulation of our business and to our structure — If the PRC government finds that the agreements that establish the structure for operating our China businesses do not comply with PRC governmental restrictions on foreign investment in the media and telecommunications industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.” We do not operate a value-added telecommunications business directly. We enter into contractual arrangements with our affiliated entity, M-in, which engages in value-added telecommunications business and has obtained an effective value-added telecommunications business operation license. For details, see “Item 4.C. Information on the Company — Organizational structure.”

Regulations on intellectual property protection

China has adopted legislation governing intellectual property rights, including copyrights, registered trademarks, exclusive rights and patent rights. China is a signatory to the main international conventions on intellectual property rights and became a member of the Agreement on Trade Related Aspects of Intellectual Property Rights upon its accession to the World Trade Organization in December 2001.

Copyright

The National People’s Congress amended the Copyright Law on October 27, 2001 to widen the scope of works and rights that are eligible for copyright protection. The amended Copyright Law extends copyright protection to Internet activities, products disseminated over the Internet and software products. In addition, there is a voluntary registration system administered by the China Copyright Protection Center.

To address the problem of copyright infringement related to content posted or transmitted over the Internet, the National Copyright Administration and the Ministry of Information Industry jointly promulgated the Administrative Measures for Copyright Protection Related to the Internet on April 30, 2005, which became effective on May 30, 2005.

We or our business partners either own copyrights to our broadcast, print and other content, or hold licenses to distribute this content on our media platforms. Our affiliated entity Beijing Century Media also shares the copyrights to certain drama series that were produced in cooperation with third parties who hold drama series production licenses. We own the copyrights of the content provided by us to Money Journal . We and our affiliated entities rely on the protection of relevant copyright laws.

Trademark

The PRC Trademark Law, adopted on August 23, 1982 and revised on October 27, 2001, protects the proprietary rights to registered trademarks. The Trademark Office under the State Administration for Industry and Commerce handles trademark registrations and grants a term of ten years to registered trademarks. Upon its expiration, a second term of ten years may be granted. Trademark license agreements must be filed with the records of the Trademark Office. In addition, if a registered trademark is recognized as a well-known trademark in a specific case, the proprietary right of the trademark holder may be extended beyond the registered sphere of services of the trademark.

We have filed to register the name and trademark of “XSEL & Device” in the PRC. Our business partner has registered “IMTV” with the Trademark Office. Beijing Perspective Orient Movie and Television Intermediary Co., Ltd., or Beijing Perspective Orient, and Money Journal Publication Limited have registered a symbol resembling an “F” and the Chinese name for “Money Journal” with the Trademark Office, respectively. M-in has filed to register “M-in” and other trademarks in China.

Moreover, Xinhua Financial Network entered into an agreement with China Economic Information Service, under which Xinhua Financial Network and its affiliates were granted the right to use the word “Xinhua” as the first name worldwide. Either XFL or Xinhua Financial Network has also registered the name “Xinhua” in the U.S., Hong Kong, Japan and South Korea. We have in turn entered into a trademark license agreement with XFL, under which we and our subsidiaries were granted a non-exclusive worldwide license to use the trademark “Xinhua.” We rely on the trademark laws to protect our rights under the agreements to use the word.

Domain names

On November 5, 2004, the Ministry of Information Industry amended the Measures for Administration of Domain Names for the Chinese Internet, or the Domain Name Measures. The Domain Name Measures regulate the registration of domain names with the suffix “.cn.” Domain name disputes are governed by the Measures on Domain Name Dispute Resolution promulgated by the Chinese Internet Network Infrastructure Center on September 25, 2002, which was revised on March 17, 2006. Under the Measures on Domain Name Dispute Resolution, the Chinese Internet Network Infrastructure Center can authorize domain name dispute resolution institutions to decide disputes. We, our affiliated entities and strategic partners have registered many domain names. There are some domain names that one of our affiliated entities uses for which it is unclear if the registrations rest with our affiliated entity or with its management.

Some of the domain names we and our affiliated entities use have been registered by third parties, and some have not been registered.

Regulations on foreign currency exchange

Foreign currency exchange

Pursuant to the Foreign Currency Administration Rules promulgated on January 29, 1996 and amended on August 1, 2008 and various regulations issued by the State Administration of Foreign Exchange and other relevant PRC government authorities, RMB are freely convertible only to the extent of current account items, such as trade-related receipts and payments, interest and dividends. Capital account items, such as direct equity investments, loans and repatriation of investment, require the prior approval from the State Administration of Foreign Exchange or its local branch for conversion of RMB into a foreign currency, such as U.S. dollars, and remittance of the foreign currency outside the PRC. Payments for transactions that take place within the PRC must be made in RMB. Unless otherwise approved, PRC companies must repatriate foreign currency payments received from abroad. Foreign-invested enterprises may retain foreign exchange in accounts with designated foreign exchange banks subject to a cap set by the State Administration of Foreign Exchange or its local branch. Unless otherwise approved, domestic enterprises must convert all of their foreign currency receipts into RMB.

The business operations of our PRC subsidiaries and affiliated entities, which are subject to the foreign currency exchange regulations, have all been in accordance with these regulations. We will take steps to ensure that the future operations of these PRC entities are in compliance with these regulations.

Foreign exchange registration of offshore investment by PRC residents

Pursuant to the State Administration of Foreign Exchange’s Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents to Engage in Financing and Inbound Investment via Overseas Special Purpose Vehicles, or Circular No. 75, issued on October 21, 2005: (i) a PRC resident, including a PRC resident natural person or a PRC company, shall register with the local branch of the State Administration of Foreign Exchange before it establishes or controls an overseas special purpose vehicle, or SPV, for the purpose of overseas equity financing (including convertible debt financing); (ii) when a PRC resident contributes the assets of or its equity interests in a domestic enterprise into a special purpose vehicle, or engages in overseas financing after contributing assets or equity interests into a special purpose vehicle, such PRC resident shall register his or her interest in the special purpose vehicle and the change thereof with the local branch of the State Administration of Foreign Exchange; and (iii) when the special purpose vehicle undergoes a material event outside of China, such as change in share capital or merger and acquisition, the PRC resident shall, within 30 days from the occurrence of such event, register such change with the local branch of the State Administration of Foreign Exchange. PRC residents who are shareholders of special purpose vehicles established before November 1, 2005 were required to register with the local State Administration of Foreign Exchange branch before March 31, 2006.

Under Circular No. 75, failure to comply with the registration procedures set forth above may result in penalties, including restrictions on a PRC subsidiary’s foreign exchange activities and its ability to distribute dividends to the special purpose vehicle.

On December 25, 2006, the People’s Bank of China promulgated the “Measures for the Administration of Individual Foreign Exchange,” and on January 5, 2007 the State Administration of Foreign Exchange further promulgated the implementation rules on those measures. Both became effective on February 1, 2007. According to the implementation rules, if individuals in the PRC participate in any employee stock ownership plan or stock option plan of an overseas listed company, those individuals must apply as a group through the company or a domestic agency to the State Administration of Foreign Exchange or the appropriate local branch for approval for any foreign exchange-related transactions concerning that plan.

Dividend distribution

The principal regulations governing dividend distributions by foreign owned enterprises include:

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The Wholly Foreign Owned Enterprise Law, promulgated by the National People’s Congress on April 12, 1986 and amended on October 31, 2000;

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The Wholly Foreign Owned Enterprise Law Implementing Rules, promulgated by the National People’s Congress on December 12, 1990 and amended on April 12, 2001;

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The Enterprise Income Tax Law, promulgated by the National People’s Congress on March 16, 2007; and

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The Implementation Rules on Enterprise Income Tax Law, promulgated by the State Council on December 6, 2007.

Under these regulations, wholly or partially foreign owned enterprises in the PRC may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. The distribution of dividends by a wholly foreign-owned enterprise out of China is subject to examination by banks designated by the State Administration of Foreign Exchange. In addition, based on PRC accounting standards, these wholly foreign-owned companies are required to set aside at least 10% of their after-tax profits each year, if any, to fund certain statutory reserve funds. A company is not required to set aside its profits to fund the reserve until its cumulative total reserve fund is equal to at least 50% of the company’s registered capital.

Under the new Enterprise Income Tax Law and its Implementation Rules, or the New EIT Law, dividends, interests, rent, royalties and gains on transfers of property payable by a foreign-invested enterprise in the PRC to its foreign investor who is a non-resident enterprise will be subject to a 10% withholding tax, unless such non-resident enterprise’s jurisdiction of incorporation has a tax treaty with the PRC that provides for a reduced rate of withholding tax.

Under the New EIT Law, an enterprise established outside the PRC with its “de facto management body” within the PRC is considered a resident enterprise and will be subject to the enterprise income tax at the rate of 25% on its worldwide income. A “de facto management body” is defined as an organizational body that effectively exercises overall management and control over production and business operations, personnel, finance and accounting, and properties of the enterprise. It remains unclear how the PRC tax authorities will interpret this definition. Notwithstanding the foregoing provision, the New EIT Law also provides that, if a resident enterprise directly invests in another resident enterprise, the dividends received by the investing resident enterprise from the invested enterprise are exempted from income tax, subject to certain conditions. However, it remains unclear how the PRC tax authorities will interpret the PRC tax resident treatment of an offshore company, like us, having indirect ownership interests in PRC enterprises through intermediary holding vehicles.

Moreover, under the New EIT Law, foreign holders of ADSs or common shares may be subject to a 10% withholding tax upon dividends payable by us and gains realized on the sale or other disposition of ADSs or common shares, if such income is sourced from within the PRC and we are classified as a PRC resident enterprise.

C. Organizational Structure

Our corporate structure and contractual arrangements

We conduct a substantial portion of our operations in China through our contractual arrangements with certain of our affiliated entities and their shareholders, as well as certain of our direct subsidiaries in China. The material affiliated entities, along with their subsidiaries, on which we rely to carry out our operations in China are:

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Broadcast

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Beijing Mobile Interactive Co., Ltd, or M-in, an affiliated entity with mobile service provider licenses to operate wireless Mobile Value-Added Service (MVAS) platforms nationwide in China; and

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Beijing Hantang Yueyi Culture & Media Co., Ltd, or Beijing Hangtang, an affiliated entity that, through June 30, 2010 held the exclusive rights to sell advertising for and the right to provide content to Shaanxi Satellite Television.

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Advertising

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Shenzhen Active Trinity Advertising Co., Ltd., or Shenzhen Trinity, an affiliated entity that carries out advertising services;

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Beijing Taide Advertising Co., Ltd., or Beijing Taide, an affiliated entity whose subsidiaries include Chinese advertising agencies that also produce advertising;

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Beijing Xintai Huade Advertising Co., Ltd., or Xintai Huade, an affiliated entity that carries out advertising services;

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Shanghai Singshine Marketing Service Co., Ltd., or Shanghai Singshine Marketing, an affiliated entity that principally engages in below-the-line marketing;

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Beijing Jinjiu Tianyi Tianjiu Lianhe Advertising Co., Ltd., an affiliated entity that primarily engages in online advertising;

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Shanghai IF Advertisement Design and Production Co., Ltd., an affiliated entity that primarily engages in below-the-line marketing; and

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Shanghai Yifu Advertisement Design and Production Co., Ltd., or Shanghai Yifu, an affiliated entity that primarily engages in below-the-line advertising;

The material subsidiaries on which we rely to carry out our operations in China are:

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Broadcast

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New China Media (Shanghai) Co., Ltd., or New China, which primarily engages in providing services to Century Media Advertising; and

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Xinhua Media Entertainment, which engages in the development, production and pre-production of film entertainment content.

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Advertising

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Active Advertising (Guangzhou) Co., Ltd., or Active Guangzhou, which primarily operates as advertising agent for PRC customers.

We conduct a portion of our operations in Hong Kong through the following entities:

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Advertising

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XSEL (Hong Kong) Limited, or Active Advertising Hong Kong, which primarily operates as an advertising agent to place advertising on media in Hong Kong; and

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JTT Advertising Limited, or JTT, which primarily engages in below-the-line marketing in Hong Kong.

The following diagram illustrates our consolidated corporate structure and the place of incorporation for each of our continuing operations as of the date of this annual report.

PRC laws and regulations currently impose different levels of restrictions or prohibitions on investment of foreign and private capital in the media industry, including television, radio, newspapers, magazines, advertising and media content production, and the telecommunications industry. See “Item 4.B. Information on the Company — Business overview — Regulation — Regulations on investment of foreign and private capital in the media, advertising and telecommunications industries.” Our subsidiaries in China, which are considered foreign-invested entities, are limited in their abilities to engage in operations in the media, advertising and telecommunications industries. Accordingly, we operate our businesses in China primarily through our affiliated entities and their contractual arrangements with our strategic partners.

In our production and advertising businesses, our affiliated entities and their subsidiaries hold the requisite licenses and permits. In our broadcast and print businesses, our affiliated entities and their subsidiaries maintain some of the requisite licenses and permits to conduct the business, and enter into agreements with press offices, radio stations or television stations to provide them with various services and act as their advertising business party. See “Item 4.B. Information on the Company — Arrangements with partners and suppliers” for a description of those contractual relationships. See also “Item 3.D. Key information — Risk factors — Risks related to the regulation of our business and to our structure — Certain of our PRC operating companies or strategic partners have previously engaged or may currently engage in activities without appropriate licenses or approvals or outside the authorized scope of their business licenses or permitted activities. This could subject those companies to fines and other penalties, which could have a material adverse effect on our business.” We depend on these affiliated entities and their subsidiaries to operate a substantial portion of our businesses. We have entered into contractual arrangements with these affiliated entities and their shareholders, all PRC citizens, which enable us to:

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exercise effective control over these affiliated entities and their respective subsidiaries;

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receive a substantial portion of the economic benefits from the affiliated entity and its subsidiaries in consideration for the services provided us; and

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have an exclusive option to purchase all or part of the equity interests in the various affiliated entities and certain of their subsidiaries in each case when and to the extent permitted by PRC law.

We expect to continue to depend on these affiliated entities and their subsidiaries to operate a substantial portion of our businesses unless and until we are permitted under PRC laws and regulations to directly own and operate media-related businesses without constraints. Under certain agreements we have with the shareholders of these entities, we may exercise the option to acquire the affiliated entities, in part or in whole, to make them our direct subsidiaries.

Agreements that provide effective control over our affiliated entities

To obtain effective control over our affiliated entities, our subsidiaries loaned money to PRC citizens for the purpose of contributing the registered capital to or acquiring an equity interest in our affiliated entities, in each instance to become shareholders in their own names. With each contracting shareholder, our subsidiary entered into four agreements relating to each shareholder’s interest in the affiliated entity. The contracting shareholders have effective control over our affiliated entities as a result of their shareholding. Consequently, we have effective control over our affiliated entities.

Loan agreement. Each contracting shareholder has entered into a loan agreement, as amended and restated, with our subsidiary, evidencing a zero interest loan granted to such shareholder. The contracting shareholder used the loan solely for the purpose of contributing or acquiring the registered capital of the affiliated entity. Each contracting shareholder also pledged all the equity interest in the affiliated entity as from time-to-time owned by him or her as security for the contracting shareholder’s obligations under the loan agreement. During the term or extended term of the loan, the contracting shareholder may not repay all or part of the outstanding principal without our subsidiary’s prior written consent. Our subsidiary may accelerate the loan repayment upon certain events, including if the contracting shareholder quits or is dismissed or if our subsidiary purchases the shares in accordance with the exclusive conditional equity purchase agreement.

Each loan is payable in cash or otherwise as agreed in writing by our subsidiary and as permitted under PRC laws including but not limited to, by way of transferring to our subsidiary or a designated third party all or part of the equity interest in the affiliated equity held by the contracting shareholder, at a purchase price in accordance with the exclusive conditional equity purchase option agreement between our subsidiary and the contracting shareholder described below. Set forth below is a list of all loan agreements entered into in connection with our consolidated VIEs:

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a loan agreement in the amount of RMB 100,000 ($15,000), entered into between Wan Jun, the 51 % shareholder of Yuan Zhi and Li Guang Jie, the 49% shareholder of Yuan Zhi, as borrowers, and Jia Luo, as lender;

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a loan agreement in the amount of RMB0.5 million ($73,000), entered into between Fang Quan, the 50% shareholder of Guangzhou Jingshi, as borrower, and EconWorld (Shanghai) Co., Ltd., or EconWorld Shanghai, as lender;

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a loan agreement in the amount of RMB0.5 million ($73,000), entered into between Wang Yong Hong, the 50% shareholder of Guangzhou Jingshi, as borrower, and EconWorld Shanghai as lender;

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a loan agreement in the amount of RMB0.3 million ($44,000), entered into between Zhang Wen Jin and Eric An, each a 50% shareholder of Shenzhen Trinity, as borrowers, and Active Guangzhou, as lender;

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a loan agreement in the amount of RMB10.0 million ($1.5 million), entered into between Eric An and Wang Yong Hong, each a 50% shareholder of Beijing Taide, as borrowers, and Active Guangzhou, as lender;

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a loan agreement in the amount of RMB2.5 million ($0.4 million), entered into between Kuang Peiyue, the 50% shareholder of Xintai Huade, as borrower, and Active Guangzhou, as lender;

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a loan agreement in the amount of RMB2.5 million ($0.4 million), entered into between Wang Yue, the 50% shareholder of Xintai Huade, as borrower, and Active Guangzhou, as lender;

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a loan agreement in the amount of RMB5.0 million ($0.7 million), entered into between Gao Fei, the 50% shareholder of M-in, as borrower, and Wuxianshijie, as lender;

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a loan agreement in the amount of RMB5.0 million ($0.7 million), entered into between Xue Donghua, the 50% shareholder of M-in, as borrower, and Wuxianshijie, as lender;

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a loan agreement in the amount of RMB0.5 million ($73,000), entered into between Kuang Peiyue, the 50% shareholder of Shanghai Singshine Marketing, as borrower, and Guangzhou Excellent, as lender;

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a loan agreement in the amount of RMB0.5 million ($73,000), entered into between Guo Jingjing, the 50% shareholder of Shanghai Singshine Marketing, as borrower, and Guangzhou Excellent, as lender;

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a loan agreement in the amount of RMB1.5 million ($0.2 million), entered into between Xue Donghua, the 50% shareholder of Shanghai Renhe Movie and Television Intermediary Co., Ltd., or Shanghai Renhe, as borrower, and Beijing Century Media, as lender;

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a loan agreement in the amount of RMB1.5 million ($0.2 million), entered into between Wang Lingjun, the 50% shareholder of Shanghai Renhe, as borrower, and Beijing Century Media, as lender;

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a loan agreement in the amount of RMB0.5 million ($73,000), entered into between Wang Yue, the 100% shareholder of Shanghai Yifu, as borrower, and Shanghai IF, as lender;

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a loan agreement in the amount of RMB5.0 million ($0.7 million), entered into between Song Peng, the 50% shareholder of Beijing Hantang, as borrower, and Taihui, as lender;

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a loan agreement in the amount of RMB5.0 million ($0.7 million), entered into between Wu Chunming, the 50% shareholder of Beijing Hantang, as borrower, and Taihui, as lender;

•

a loan agreement in the amount of RMB5.0 million ($0.7 million), entered into between Yang Yu-Tao, the 25% shareholder of Xin Chuan Online (Beijing), as borrower, and Nucom Media, as lender;

•

a loan agreement in the amount of RMB5.0 million ($0.7 million), entered into between Luo Yan, the 20% shareholder of Beijing Shiji Xin Chuan Advertising, as borrower, and Nucom Media, as lender;

•

a loan agreement in the amount of RMB10.0 million ($1.5 million), entered into between Wang Hao, the 50% shareholder of Beijing Shiji Xin Chuan Advertising, as borrower, and Nucom Media, as lender;

•

a loan agreement in the amount of RMB0.1 million ($15,000), entered into between Yang Yu-Tao, the 50% shareholder of Beijing Shiji Xin Chuan Advertising, as borrower, and Nucom Media, as lender; and

•

a loan agreement in the amount of RMB0.1 million ($15,000), entered into between Luo Yan, the 50% shareholder of Beijing Shiji Xin Chuan Advertising, as borrower, and Nucom Media, as lender.

Equity pledge agreement. Pursuant to the equity pledge agreements among our subsidiary, such subsidiary’s affiliated entity, and each contracting shareholder of such affiliated entity, the contracting shareholder has pledged all of his or her equity interests in the affiliated entity, to our subsidiary to secure the performance of his or her obligations under the secured loan agreement and the exclusive equity purchase option agreement described below. Our subsidiary holds a capital contribution certificate signed by the affiliated entity’s legal representative and affixed with the company seal as evidence of the pledged equity held by that shareholder. According to the PRC Property Rights Law, effective as of October 1, 2007, and Measures for the Registration of Equity Pledge with the Administration for Industry and Commerce, effective as of October 1, 2008, however, such pledge will be effective upon registration with the relevant administration for industry and commerce. We are still in the process of applying for such registration. The refusal of the relevant administration for industry and commerce to register these pledges may allow the shareholders to dishonor their pledges to us and re-pledge the shares to another entity or person. See “Item 3.D. Key information — Risk factors — Risks related to the regulation of our business and to our structure — The shareholders of our PRC affiliated entities may breach our agreements with them or may have potential conflicts of interest with us, and we may not be able to enter further agreements to extract economic benefits from these entities, which may materially and adversely affect our business and financial condition.”

Subrogation agreement. Each of our relevant subsidiaries has entered into a subrogation agreement with its respective affiliated entity and the contracting shareholders of that affiliated entity. Each contracting shareholder has agreed to unconditionally and irrevocably appoint a person as designated in writing by our subsidiary from time-to-time with his or her shareholder’s voting rights and other shareholder’s rights for representing the shareholder at the shareholders’ meeting, including the shareholder’s rights to sell or transfer the shareholder’s equity interest, change the registered capital, or merge, change the form, wind up or liquidate the entity. The contracting shareholder will provide all the necessary assistance to the appointee. Each subrogation agreement will terminate upon the repayment in full of the indebtedness incurred under the secured loan agreement.

Agreements that provide the option to purchase the equity interest in the affiliated entity

Exclusive equity purchase option agreement . Each of our relevant subsidiaries has entered into an agreement with each contracting shareholder of such subsidiary’s affiliated entity, giving that subsidiary the right to purchase, directly or in the name of a nominee, from the respective contracting shareholder, in its sole discretion, part or all of the shareholder’s equity interests in the affiliated entity as and when permitted by PRC law. The purchase price to be paid by our subsidiary will be the same as the initial principal amount of the secured loan agreement between our subsidiary and the contracting shareholder, or any other amount as permitted by PRC law. Our subsidiary has the right to exercise the purchase right at any time by providing the shareholder with written notice 30 days in advance. The shareholder has agreed to execute with our subsidiary a binding equity transfer agreement upon the conclusion of the 30-day period or at such earlier time as agreed upon by the parties. The shareholder is required to use his or her best efforts to ensure timely finalization and government approval and registration of such equity transfer.

Agreements that transfer economic benefits to us

Service agreement. Beijing Hantang entered into a service agreement with Taihui on April 2, 2009. Under the service agreement, Taihui agreed to provide certain business advisory services to Beijing Hantang. In consideration for the services provided, Beijing Hantang will pay Taihui a service fee as the parties may agree from time-to-time. The service fee will be paid by Beijing Hantang within 14 business days after the issuance of an invoice. The agreement has an initial term of twenty years starting from April 2, 2009, and will be automatically renewed for subsequent ten-year terms. Moreover, during the term of the agreement, Taihui has the right to terminate the agreement at any time without compensation by serving a written notice to Beijing Hantang. In the event that either party materially breaches the agreement and fails to remedy such breach within 10 business days from the date it receives written notice of such breach, the other party has the right to terminate the agreement immediately by a written notice to the breaching party.

We have not yet entered into further service agreements with other affiliated entities. See “Item 3.D. Key information — Risk factors — Risks related to the regulation of our business and to our structure — The shareholders of our PRC affiliated entities may breach our agreements with them or may have potential conflicts of interest with us, and we may not be able to enter further agreements to extract economic benefits from these entities, which may materially and adversely affect our business and financial condition.”

As of the date of this annual report, we believe:

•

the ownership structures of our variable interest entities, Beijing Hangtang, Jiaseng, Yuan Zhi, Beijing Taide, Shenzhen Trinity, Xintai Huade, Guangzhou Jingshi, M-in, Shanghai Singshine Marketing, Shanghai Renhe, and Shang Yifu, and our subsidiaries in China comply in all material respects with all existing PRC laws and regulations;

•

the contractual arrangements among our PRC subsidiaries, affiliated entities and their shareholders governed by PRC law are valid, binding and enforceable, and will not result in any violation of PRC laws or regulations currently in effect; and

•

the business operations of our subsidiaries in China and our affiliated entities and their respective subsidiaries comply in all material respects with existing PRC laws and regulations.

We have been advised by our PRC legal counsel, however, that there are substantial uncertainties regarding the interpretation and application of current and future PRC laws and regulations. Accordingly, the PRC regulatory authorities may in the future take a view that is contrary to the above opinion of our PRC legal counsel. We have been further advised by our PRC counsel that if the PRC government finds that the agreements that establish the structure for operating our PRC media related businesses do not comply with PRC government restrictions on foreign investment in the media industry, we could be subject to severe penalties including being prohibited from continuing our operations. See “Item 3.D. Key information — Risk factors — Risks related to the regulation of our business and to our structure.”

As of the date of this annual report, XFL, a public company incorporated in the Cayman Islands and listed on the Mothers Board of the Tokyo Stock Exchange, has approximately an 18.7% ownership interests in us. See “Item 7.B. Major shareholders and related party transactions — Related party transactions — Transactions with XFL or its subsidiaries — Loan agreements and foreign currency agreement between us and XFL or its subsidiaries.”

D. Property, Plants and Equipment

Our principal executive offices are located on premises comprising approximately 36,300 square feet in Beijing, China. We lease a total of approximately 97,600 square feet of office space, which includes approximately 75,200 square feet in Beijing, 12,900 square feet in Shanghai, 1,000 square feet in Guangzhou, 5,900 square feet in Hong Kong, 1,700 square feet in Shenzhen and 900 square feet in other cities in China.

Item 4A. Unresolved Staff Comments

Not applicable.

Item 5. Operating and Financial Review and Prospects

The following discussion of our financial condition and results of operations is based upon and should be read in conjunction with our consolidated financial statements and their related notes included in this annual report on Form 20-F. This report contains forward-looking statements. See “Forward-Looking Information.” In evaluating our business, you should carefully consider the information provided under the caption “Item 3.D. Key Information — Risk Factors” in this annual report on Form 20-F. We caution you that our businesses and financial performance are subject to substantial risks and uncertainties.

A. Operating Results

Our consolidated financial statements for the year ended December 31, 2007, which also are included in this annual report, reflect the operating results of five operating groups, namely Broadcast, Print, Advertising, Research and Production. As of the first quarter of 2008, our business groups have been integrated from five to three, with Production integrated into Broadcast and Research integrated into Advertising. In late 2009 we ceased operations of our print business and most of our advertising business. These revenues are categorized as discontinued operations for the years ended December 31, 2007, 2008 and 2009.

As we continue to evolve, we expect to face a number of challenges. In late 2009, in connection with our ongoing corporate repositioning and due to the performance of certain of our businesses, we sold or discontinued our print operations and much of our advertising business. We made this decision, in consultation with an outside financial advisor, so as to maximize operational efficiencies and better allocate our resources to focus on sports and entertainment media.

We have made acquisitions in rapid succession to build our integrated platform of services. We must integrate all these acquisitions successfully, as well as any future acquisitions. Certain of our businesses have incurred net losses in the past and we must position ourselves, through acquisitions and divestment of non-performing businesses, to be profitable in the future. In addition, we must adapt to continuing technological innovations and changes in the regulatory environment.

Acquisitions

We were established on November 7, 2005 by XFL. Our predecessor entity is EconWorld Media. We established and developed our operating groups through acquisitions and other transactions. See “Item 7.B. Major shareholders and related party transactions — Related party transactions — Transactions with XFL or its subsidiaries — Loan agreements and foreign currency agreement between us and XFL or its subsidiaries.”

Broadcast. Our Broadcast Group was formed through the following transactions:

•

Everfame. We acquired 100% of Everfame Development’s ordinary shares for cash consideration of $22.6 million on April 2, 2009. Everfame Development was incorporated under the laws of the British Virgin Islands on August 7, 2008. Everfame Development, its subsidiaries and VIEs, collectively, Everfame, are principally engaged in organizing cultural communication activities, designing and producing advertisements and acting as an advertising agent and publishing advertisements. Everfame had, through June 30, 2010 a long-term advertising agreement with Shaanxi Television Station through which Everfame held exclusive rights to provide advertising services to Shaanxi Satellite Television. The purpose of the acquisition was to expand our geographic reach and operating scope.

•

M-in Group. We acquired 100% of the ordinary shares of East Alliance Limited on June 4, 2007 at an initial price of approximately $9.5 million. East Alliance Limited is an investment holding company for its wholly-owned subsidiaries and VIEs, collectively M-in Group. In addition to the initial consideration, the equity owners of M-in Group are entitled to additional consideration, 60% payable in cash and 40% in our common shares, based on a predetermined earnout formula applied to aggregate audited operating results through December 31, 2007 and 2008. M-in Group is a mobile service provider that provides mobile value added services such as wireless application protocol, or WAP, text messaging, multimedia messaging service, or MMS, and color ring back tone variously supported by major mobile telecommunication operators in China. M-in Group also has marketing and distribution channels including television, print, Internet and other media, and creates and manages a wide range of mobile and online interactive products. Based on M-in Group’s audited operating results through December 31, 2008, we recorded additional consideration totaling $7.4 million for the year ended December 31, 2009, which resulted in additional goodwill of $6.9 million. The additional consideration consisted of a cash payment of $6.2 million and consideration payable of 1.2 million as of December 31, 2009.

•

Xinhua Media Entertainment. We established Xinhua Media Entertainment Limited, or Xinhua Media Entertainment, in April of 2008 and hold 75% of its equity interest. Xinhua Media Entertainment structures, finances and executes co-production film deals in China.

•

Beijing Perspective. Through Beijing Century Media, an affiliated entity, we acquired 51.0% of the equity of Beijing Perspective Orient Movie and Television Intermediary Co., Ltd., or Beijing Perspective Orient, on July 28, 2006. Xinhua Financial Network financed the purchase price for this acquisition. On November 13, 2007, we acquired the remaining 49% of the equity of Beijing Perspective Orient for approximately $10.5 million, of which approximately $8.3 million was settled by the issuance of 2,043,347 of our common shares valued at $4.06 per share. Beijing Perspective Orient and its subsidiaries, collectively Beijing Perspective. Beijing Perspective engages in the production, distribution and syndication of Fortune China . Beijing Perspective ceased operations on December 31, 2009.

•

Beijing Century Media. XFL, through a subsidiary, lent funds to two PRC citizens, who used the funds to buy a combined 100% equity interest in Beijing Century Media on September 9, 2005. On the same day, the subsidiary of XFL entered into a set of agreements with these two PRC citizens to give XFL effective control over Beijing Century Media. XFL transferred its control of Beijing Century Media to us through one of our affiliated entities on March 16, 2006 at a price of $11.4 million. This amount was included in our promissory notes to XFL and Xinhua Financial Network. Beijing Century Media ceased operations on December 31, 2009.

Advertising. Our Advertising Group was formed through the following transactions:

•

JCBN China. We acquired 100% of the ordinary shares of Shanghai Paxi Advertising Co., Ltd. and its subsidiaries, collectively JCBN China, on November 27, 2007 for an initial price of approximately $40.8 million. In addition, the equity owners of JCBN China are entitled to additional consideration, 60% payable in cash and 40% in our common shares based on a predetermined earnout formula applied to aggregate audited operating results through December 31, 2008 and 2009. For the year ended December 31, 2009, based on JCBN China’s audited operating results through December 31, 2008, we recorded additional consideration totaling $23.0 million, which resulted in additional goodwill of $23.0 million for the year ended December 31, 2009. The additional consideration consisted of $9.1 million paid by cash, $9.2 million settled by the issuance of 11,357,473 of our common shares and consideration payable of $4.7 million as of December 31, 2009. JCBN China is a leading advertising agency in China’s online property and imported spirits sectors. We entered into an agreement with the original selling shareholder of JCBN China in June 2010 to transfer our interest in JCBN China back to it.

•

Profitown Group. We acquired 100% of the ordinary shares of Profitown Development Ltd. and its subsidiaries, collectively Profitown Group, on November 27, 2007 for an initial price of approximately $2.2 million. In addition to the initial consideration, the equity owners of Profitown Group are entitled to additional consideration, 60% payable in cash and 40% in our common shares, based on a predetermined earnout formula applied to aggregate audited operating results through December 31, 2008 and 2009. For the year ended December 31, 2009, based on Profitown Group’s audited operating results through December 31, 2008, we recorded additional consideration totaling $1.7 million, which resulted in additional goodwill of $0.3 million for the year ended December 31, 2009. The additional consideration consisted of $0.7 million settled by the issuance of 560,500 of our common shares and consideration payable of $1.0 million as of December 31, 2009. Profitown Group is principally engaged in below-the-line marketing. We entered into an agreement with the original selling shareholder of Profitown Group in June 2010 to transfer our interest in Profitown Group back to it.

•

Singshine Marketing. We acquired 100% of Singshine (Holdings) Hongkong Ltd.’s ordinary shares, and its subsidiaries and VIEs, collectively Singshine Marketing, on June 11, 2007 for an initial price of approximately $6.4 million. In addition, the shareholders of Singshine Marketing are entitled to additional cash consideration based on a predetermined earnout formula applied to aggregate audited operating results through December 31, 2007, 2008 and 2009. Singshine Marketing is engaged in below-the-line marketing services. For the year ended December 31, 2009, based on Singshine Marketing’s audited operating results through December 31, 2008, we recorded additional consideration totaling $7.4 million, which resulted in additional goodwill of $7.4 million for the year ended December 31, 2009. The additional consideration consisted of a cash payment of $5.4 million and consideration payable of $2.0 million as of December 31, 2009.

General factors affecting our results of operations

We have benefited significantly from China’s overall economic and population growth. The overall economic and population growth and the increase in the gross domestic product per capita in China have led to a significant increase in spending on advertising in China. Adverse changes in the economic or political conditions in China may have a material adverse effect on the media industry in China and advertising spending, which in turn may harm our business and results of operations.

Specific factors affecting our results of operations

While our business is affected by factors relating to the media industry in China generally, we believe that our results of operations are also affected by company-specific factors. We believe that the results of operations of our broadcast and advertising operations are affected by, among other factors, the following:

•

the quality of the content and ratings of our strategic partners’ broadcast programs;

•

the reach and timing of our strategic partners’ broadcasts;

•

the quality of the advertising we produce for advertisers;

•

the pricing of our advertising;

•

the pricing and quality of our marketing services, including events organization;

•

the quality of the programming we create;

•

the popularity of the programs; and

•

the pricing of our television programs and production services.

Results of Operations for Continuing Operations

Revenues

Net revenues from continuing operation. For the years ended December 31, 2007, 2008 and 2009, we generated total net revenues from continuing operations of $83.5 million, $121.5 million and $99.2 million, respectively. Our revenues are net of PRC business taxes, advertising rate adjustments and rebates.

We currently derive revenues from the following sources:

•

advertising services, including our below-the-line services, which accounted for 90.2%, 82.0% and 78.6% of our total net revenues for the years ended December 31, 2007, 2008 and 2009, respectively; and

•

advertising sales, which accounted for 9.8%, 18.0% and 21.4% of our total net revenues for the years ended December 31, 2007, 2008 and 2009, respectively.

Advertising services revenues. We generate advertising services revenues for:

•

Advertising and user service fees for mobile value-added services (by the Broadcast Group). We generate revenues by providing mobile value-added services. We recognize these revenues when services are delivered to mobile users. In June 2007, we began recognizing revenues from advertising and user service fees for mobile value-added services. Our consolidated results of operations for the year ended December 31, 2007 increased as we acquired our mobile value-added services operations in June 2007.

•

Marketing services (by the Advertising Group) . We generate revenues primarily for online real estate, spirits and events organization. The fees we charge for marketing services vary, depending primarily on competition and our estimated costs of providing the services. We recognize these revenues when the services are provided.

•

Acting as advertising agent to place advertisements on certain programs aired by various television stations, on billboards on university campuses in Shanghai and in certain print and electronic media (by the Advertising Group). We categorize our revenues for providing consulting and advisory services as advertising services revenues. We recognize these revenues when the services are provided.

•

Designing and producing television, radio, print and billboard advertisements (by the Advertising Group). We generate revenues from advertising broadcast on various television stations during certain programs. We also generate revenues from advertising on billboards placed on some university campuses in Shanghai and from advertising in certain print and electronic media. We may also provide additional services in relation to the placement and sales of advertisements, including the creation of the advertising or research services as part of our service package. We recognize these revenues when the related advertisements are aired on television, placed on the billboards or published in the print or electronic media, respectively.

Pricing for our advertising services is primarily computed on a project basis, based upon a defined set of criteria from the client. We meet with our advertising services clients to put together a concrete project plan and description, and then estimate the total number of hours required for completion. Our pricing structure is computed by multiplying a base hourly fee by the number of hours required for project completion plus a premium fee based upon the difficulty of the project. Pricing for our below-the-line services is also computed on a project basis, based upon working costs required for project completion, including third party costs, plus a commission for third party costs and a premium fee based upon project difficulty. Pricing for our mobile value-added services is computed on a product download basis, per an agreed price with the mobile service provider based upon the number of products downloaded by mobile users.

Advertising sales revenues. We generate advertising sales revenues from the following media sources:

•

Shaanxi Satellite Television (by the Broadcast Group). Primarily through Everfame Development’s affiliated entity, through June 30, 2010 we held exclusive rights to sell advertising in and the right to provide content to Shaanxi Satellite Television. In April 2009, we began generating revenues from advertising sales, sponsorship and sponsored programming on Shaanxi Satellite Television. Our advertising agency agreement with Shaanxi Television Station was terminated by Shannxi Television Station on June 30, 2010 due to our failure to make required payments. As of December 31, 2009 there were approximately $68.8 million in long-term liabilities related to the agreement, which were recorded in our consolidated balance sheet. Due to the termination of this agreement, this balance was reduced by $64.2 million. As of December 31, 2009 the related intangible assets were the advertising agency agreement of $19.3 million and the television program and film rights of $4.4 million. We derived revenue of $20.8 million from this agreement for the year ended December 31, 2009, which represents 14.9% of our total revenue for that period. Everfame will be classified as a discontinued operation in the second quarter of 2010.

•

Outdoor advertising (by the Advertising Group). We generate revenues from selling advertising space on traditional outdoor billboards, large-scale visual displays on architectural surfaces and inflatable billboards. We have the exclusive right to sell advertisements on these surfaces, and typically other advertising agents engage us to place such advertisements. We receive payments through these agents or, when an advertiser directly advertises with us, from the advertiser directly. We recognize these revenues when the related advertisements are displayed. Our consolidated results of operations for the year ended December 31, 2006 did not include these revenues as we acquired Xinhua Finance Media (Convey) Ltd. (formerly “Good Speed Holdings Limited”) and its subsidiaries, collectively Convey, a major outdoor advertising operator in Hong Kong and across southern China, on July 2, 2007. Our consolidated results of operations for the years ended December 31, 2007 and 2008 included these revenues from this date of the acquisition. We disposed of Convey on December 31, 2008.

We price our advertising depending upon the type of advertising we are providing and the media outlet where the advertisement is placed. Even within one outlet, prices can vary greatly. For example, television advertisement prices are highly sensitive to the time of the day an advertisement is shown. Our pricing also varies according to factors that affect the demand for advertising, such as the ratings of our strategic partners’ broadcast programs, the reach and timing of our strategic partners’ broadcast and circulation numbers, and the composition and location of the readership of our strategic partners’ publications.

Operating costs and expenses

For our continuing operations, our operating costs and expenses consist of cost of revenues, selling and distribution expenses and general and administrative expenses. The following table sets forth the components of our operating costs and expenses, both in dollar amounts and as a percentage of total net revenues for the periods indicated, for our continuing operations.

		Year Ended December 31,
		2007								2008								2009
		$				%				$				%				$				%
		(In thousands, except percentages)
Total net revenues			83,478				100.0				121,487				100.0				99,231				100.0
Operating costs and expenses:
Cost of revenues
Advertising services			54,255				65.0				71,230				58.6				61,888				62.4
Advertising sales			3,805				4.6				9,483				7.8				23,554				23.7
Selling and distribution			5,662				6.8				10,683				8.8				7,708				7.8
General and administrative			17,890				21.4				45,604				37.5				27,762				28.0
Impairment charges			—				—				159,938				131.7				176,772				178.1
Loss on disposal of subsidiaries			—				—				4,721				3.9				25,640				25.8
Total operating costs and expenses			81,612				97.8				301,659				248.3				323,324				325.8

Cost of revenues. Our cost of revenues primarily consists of the following two components:

•

Advertising services. Advertising services costs primarily consist of our direct costs to secure advertising time or space with various broadcast and print media, costs to produce advertisements, mobile value-added services costs, marketing services costs and research costs. Mobile value-added services costs represent our direct costs of providing mobile value-added services. Marketing services costs represent our direct costs of providing marketing services, including events organization.

•

Advertising sales. Advertising sales costs primarily consist of (i) the fees we paid to Shaanxi Television Station and amortization of these fees, in return for advertising revenues generated from Shaanxi Satellite Television and (ii) costs to maintain and operate our outdoor advertising network.

We anticipate that our total cost of revenues will continue to increase as we continue to expand our operations. In particular, we expect our content production costs will increase as we leverage on our content production capabilities to produce content for the media platforms we use. Also, we expect the cost for acquiring media for our advertising services to increase as we expand our business in this area.

Selling and distribution expenses. Our selling and distribution expenses primarily consist of amortization of intangible assets, salaries and benefits for our sales and marketing personnel and promotional and marketing expenses. We expect that our selling and distribution expenses will increase significantly as we further expand our operations.

General and administrative expenses. Our general and administrative expenses primarily consist of compensation and benefits of administrative staff, marketing costs, fees, office rent and travel expenses. We expect that our general and administrative expenses will increase in the near term as we incur additional costs in connection with the re-positioning of our business. In addition, we incurred increased costs when we became a publicly listed company in the United States. In particular, compliance with the Sarbanes-Oxley Act, such as Section 404 thereof which requires public companies to include a report of management on the effectiveness of such company’s internal control over financial reporting, will increase our costs. We incur costs associated with public company reporting requirements, such as the requirements to file an annual report and other event-related reports with the Securities and Exchange Commission.

Impairment charges. Our impairment charges for the year ended December 31, 2009 primarily consisted of impairment of goodwill of $71.5 million and intangible assets of $98.4 million, which was the result of the slowdown in the global economy and termination of business units resulting from our repositioning to the sports and entertainment arenas. Our impairment charges for the year ended December 31, 2008 primarily consisted of (i) impairment of goodwill of $137.3 million and intangible assets of $11.9 million, which was the result of a decrease in the fair value of the reporting unit affected by the slowdown in the global economy and our repositioning to sports and entertainment and (ii) impairment of a promissory note issued by Sino Investment Holdings Limited, or Sino Investment, with accrued interest in the aggregate of $8.5 million due to Sino Investment’s default with respect to interest payments on the promissory note.

Loss on disposal of subsidiaries. Our loss on disposal of subsidiaries for the year ended December 31, 2009 represented provision for consideration receivable of $25.6 million for disposal of our 85% equity interest in Convey driven by uncertain visibility for settlement of certain amounts receivable as determined during the fourth quarter of 2009. Our loss on disposal of subsidiaries for the year ended December 31, 2008 represented a loss on the disposal of our 85% equity interest in Convey.

Share-based compensation expenses

See “Item 6.B. Directors, senior management and employees — Compensation of Directors and Executive Officers — Share options.” Because our option plan covers all of our employees, the change in the amount of share-based compensation expenses will primarily affect our reported net income, earnings per share and our operating costs and expenses, which include general and administrative expenses.

We are required to recognize share-based compensation as compensation expense in our statement of operations based on the fair value of equity awards on the grant date, with the compensation expense recognized over the period in which the recipient is required to provide service in exchange for the award (usually the vesting period) using the graded attribution method.

We currently use the Binomial option pricing model to estimate the fair value of our share-based awards. The determination of the fair value of share-based payment awards utilizing the Binomial model is affected by our stock price and a number of assumptions, including expected volatility, risk-free interest rates, expected dividends and the trigger price multiple. The risk-free rate is based on the yield to maturity of the US Treasury Bond as of the grant date with maturity closest to the relevant award expiry date. Because we do not have sufficient history to estimate the volatility for our shares, the expected volatility was based on the historical volatilities of comparable publicly traded companies engaged in similar lines of business. The trigger price multiple represents the value of the underlying stock as a multiple of the exercise price of the option or warrant which, if achieved, results in exercise of the option or warrant. The trigger price multiple is estimated based on an empirical study on the exercise behavior of employee stock options. Employees who received our share-based awards are assumed to exhibit similar behavior. These assumptions are inherently uncertain. Changes in these assumptions could significantly affect the amount of employee share-based compensation expense we recognize in our consolidated financial statements.

Set forth below is a summary of our share-based awards granted in 2007, 2008 and 2009 and for the period through May 31, 2010:

•

We granted the following restricted common shares to our Chief Executive Officer:

Number of

Fair Value of

Common

Share Purchase

Non-vested

Type of

Grant Date

Shares Granted

Price

Shares

Valuation

April 2, 2010

6,000,000

Par value

$

0.33

Market approach

•

We granted the following restricted common shares to certain executives and employees:

Number of

Fair Value of

Common

Share Purchase

Restricted Class A

Type of

Grant Date

Shares Granted

Price

Common Shares

Valuation

January 23, 2008

5,536,000

Par value

$

2.24

Market approach

June 23, 2009

180,000

Par value

$

0.37

Market approach

July 11, 2009

250,000

Par value

$

0.42

Market approach

December 10, 2009

800,000

Par value

$

0.55

Market approach

•

We granted options to our employees and consultants as follows:

		Number of								Fair Value of
		Common								Underlying
		Shares				Option				Common				Fair Value of
		Underlying				Exercise				Shares at				Option at				Type of
Grant Date		Options Granted				Price				Grant Date				Grant Date				Valuation
April 25, 2007			90,000				6.50				5.20				1.85			Market Approach
September 26, 2007			120,000				4.39				4.39				1.85			Market Approach
April 1, 2008			400,000				1.325				1.62				0.97			Market Approach
April 30, 2008			60,000				1.64				2.075				1.39			Market Approach
June 13, 2008			120,000				1.265				1.265				0.77			Market Approach
January 8, 2009			1,000,000				0.305				0.325				0.18			Market Approach
December 31, 2009			160,000				0.425				0.425				0.24			Market Approach

Options representing 7,087,663 common shares were outstanding as of December 31, 2009.

Our total share-based compensation expenses accounted for $3.1 million, or 3.7% of our total net revenues, $12.5 million, or 10.3% of our total net revenues, and $2.4 million, or 2.4% of our total net revenues, for the years ended December 31, 2007, 2008 and 2009, respectively.

Results of Operations for Discontinued Operations

Revenues

Net revenues from discontinued operations. For the years ended December 31, 2007, 2008 and 2009, we generated total net revenues from discontinued operations of $51.3 million, $64.5 million and $41.4 million, respectively. Our revenues are net of PRC business taxes, advertising rate adjustments and rebates.

We derive revenues from discontinued operations from advertising services, advertising sales, content production sales and publishing services.

Advertising services revenues. We generated advertising services revenues from discontinued operations for:

•

Acting as advertising agent to place advertisements on certain programs aired by Inner Mongolia Satellite Television (by our Broadcast Group). In January 2007, we began recognizing revenues from advertising, sponsorship and sponsored programming directly rather than through Shanghai Camera, and at that point began to categorize our revenues for advertising, sponsorship and sponsored programming in relation to Inner Mongolia Satellite Television as advertising sales revenues. As we terminated this business in 2009, the revenue was reclassified as discontinued operations for the years ended December 31, 2007, 2008 and 2009.

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Research services (by the Advertising Group). We generated revenues for providing research services to companies relating to market characteristics, consumer preferences and opinions with respect to advertising and media content, as well as business and technology issues. The fees we charged for research projects varied, depending on competition and our estimated costs for providing the research services. We recognized these revenues when the reported data was accepted by the customer. As we terminated this business in 2009, the revenue was reclassified as discontinued operations for the years ended December 31, 2007, 2008 and 2009.

Pricing for our advertising services was primarily computed on a project basis, based upon a defined set of criteria from the client. We met with our advertising services clients to put together a concrete project plan and description, and then estimated the total number of hours required for completion. Our pricing structure was computed by multiplying a base hourly fee by the number of hours required for project completion plus a premium fee based upon the difficulty of the project.

Advertising sales revenues. We generated advertising sales revenues from the following media sources:

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Inner Mongolia Satellite Television (by the Broadcast Group). Primarily through Upper Step Holdings Limited, or Upper Step Holdings’ subsidiaries and affiliated entities, we had a strategic partnership with Shanghai Camera, the content and advertising provider to Inner Mongolia Satellite Television. In December 2006, we began recognizing revenues from advertising sales, sponsorship and sponsored programs directly, rather than through Shanghai Camera, as the services were performed, which revenues were categorized as advertising sales revenues. In the year ended December 31, 2008, we generated revenues from advertising sales, sponsorship and sponsored programming on Inner Mongolia Satellite Television through our strategic partnership with Shanghai Camera, which had the exclusive rights to sell advertising for Inner Mongolia Satellite Television. As we terminated this business in 2009, the revenue was reclassified as discontinued operations for the years ended December 31, 2007, 2008 and 2009.

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China Radio International’s EasyFM stations in Beijing and Shanghai (by the Broadcast Group) . We generated revenues from selling advertising time slots and sponsorship on China Radio International’s EasyFM stations in Beijing and Shanghai. We recognized these revenues when the related advertisements were broadcast. As we terminated this business in 2009, the revenue was reclassified as discontinued operations for the years ended December 31, 2007, 2008 and 2009.

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Channel FM107.7, FM103.6 and FM90.0 of the Guangdong People’s Radio Station (by the Broadcast Group). We generated revenues from selling advertising time slots and sponsorships on several radio channels of the Guangdong People’s Radio Station, including FM107.7, FM103.6 and FM90.0. We recognized these revenues when the related advertisements were broadcast. As we terminated this business in 2009, the revenue was reclassified as discontinued operations for the years ended December 31, 2007, 2008 and 2009.

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Economic Observer (by our print business). We generated revenues from selling advertising space in the Economic Observer . We previously held the exclusive rights to sell advertisements for the Economic Observer , and typically other advertising agents engaged us to place advertisements on its pages. We received payments through these agents or, when an advertiser directly advertised with us, from the advertiser. We recognized these revenues when the related advertisements were published. As we discontinued the operation of Economic Observer in 2009, the revenue was reclassified as discontinued operation for the years ended December 31, 2007, 2008 and 2009.

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Money Journal and Chinese Venture (by our print business). We generated revenues from selling advertising space in the Money Journal and Chinese Venture . Most advertisements placed in these magazines result in revenues to us, except for those advertisements placed in Money Journal by Dow Jones, most of which result in revenues to Dow Jones. See “Item 4.B. Information on the Company — Business overview — Arrangements with partners and suppliers — Our Print Group’s relationship with Dow Jones.” We generated some advertising sales revenues directly from advertisers, and some through agents. We recognized these revenues when the related advertisements were published. As we terminated this business in 2009, the revenue was reclassified as discontinued operations for the years ended December 31, 2007, 2008 and 2009.

We priced our advertising depending upon the type of advertising we provided and the media outlet where the advertisement was placed. Even within one outlet, prices can vary greatly. For example, television advertisement prices are highly sensitive to the time of the day an advertisement is shown. Our pricing also varied according to factors that affect the demand for advertising, such as the ratings of our strategic partners’ broadcast programs, the reach and timing of our strategic partners’ broadcast and the circulation numbers, and the composition and location of the readership of our strategic partners’ publications.

Content production revenues. Our content production revenues included revenues from sales of television programs, broadcast design, production of animation, visual effects for television commercials and films and post-production services. As we terminated this business in 2009, the revenue was reclassified as discontinued operations for the years ended December 31, 2007, 2008 and 2009.

We produced television programs, including drama series, and purchased the rights to distribute some drama series that were produced by other companies. We sold the rights to broadcast these programs to television stations and channels. We typically retained the distribution rights, and at the end of the contract we re-sold the broadcast rights to another buyer. We recognized revenues for television programs when the master tape of a television program became available for first airing under the terms of the relevant licensing agreement we entered into with a television station or channel. As we terminated this business in 2009, the revenue was reclassified as discontinued operations for the years ended December 31, 2007, 2008 and 2009.

We engaged in broadcast design for television channels. Broadcast design mainly includes design of television channel logos, production of trailers for advertising the television channels, and image consulting and branding for the television channels. We recognized revenues when products were delivered to and accepted by all customers or as our services were provided. As we terminated this business in 2009, the revenue was reclassified as discontinued operations for the years ended December 31, 2007, 2008 and 2009.

Our pricing for these services varied. Our average price for television programs, including drama series, varied substantially upon the quality and popularity of the programs. Our pricing for broadcast design, animation production and post-production services was usually determined through negotiations with our customers.

Publishing services revenues. Since September 20, 2006, publishing services revenues included revenues we generated in connection with our management and information consulting services relating to the subscriptions and sales of Money Journal . As we terminated this business in 2009, the revenue was reclassified as discontinued operations for the years ended December 31, 2007, 2008 and 2009.

Guangzhou Jingshi, our affiliated entity, provided management and information consulting services to the publisher of Money Journal . In return, Guangzhou Jingshi received a fee from Money Journal . As we terminated this business in 2009, the revenue was reclassified as discontinued operations for the years ended December 31, 2007, 2008 and 2009.

We also recognized publishing services revenues we generated in connection with our management and information consulting services relating to the revenues from subscriptions and sales of Chinese Venture . Our consolidated results of operations for the years ended December 31, 2007 and 2008 included these revenues as this magazine first began to generate revenues in January 2007. Although we no longer act as a book publishing agent, for the years ended December 31, 2006 and 2007, we engaged in this business and received revenues from this source. As we terminated this business in 2009, the revenue was reclassified as discontinued operations for the years ended December 31, 2007, 2008 and 2009.

We shared a portion of the revenue from subscriptions and sales of these magazines based on terms mutually agreed with the publisher. The subscription fees and the price of the magazines were determined by the publishers. As we terminated this business in 2009, the revenue was reclassified as discontinued operations for the years ended December 31, 2007, 2008 and 2009.

Operating costs and expenses

Our operating costs and expenses from discontinued operations consist of cost of revenues, selling and distribution expenses and general and administrative expenses. The following table sets forth the components of our operating costs and expenses, both in dollar amounts and as a percentage of total net revenues for the periods indicated, in all cases for our discontinued operations.

		Year Ended December 31,
		2007								2008								2009
		$				%				$				%				$				%
		(In thousands, except percentages)
Total net revenues			51,361				100.0				64,544				100.0				41,429				100.0
Operating costs and expenses:
Cost of revenues			24,039				46.8				33,779				52.3				26,108				63.0
Selling and distribution			9,215				17.9				12,263				19.0				7,247				17.5
General and administrative			6,459				12.6				6,464				10.0				13,119				31.7
Impairment charges			—								72,660				112.6				118,044				284.9
Loss on disposal of subsidiaries			—								—								1,940				4.7
Total operating costs and expenses			39,713				77.3				125,166				193.9				166,458				401.8

Cost of revenues. Our cost of revenues for the years ended December 31, 2007, 2008 and 2009 primarily consisted of (i) our direct costs to secure advertising space with various print media and research costs for our advertising services, (ii) fees we pay to our strategic partners, and amortization of these fees, in return for advertising revenues generated from Inner Mongolia Satellite Television, China Radio International’s EasyFM station in Beijing and Shanghai, channel FM107.7, FM103.6 and FM90.0 of the Guangdong People’s Radio Station, Money Journal , Chinese Venture and the Economic Observer , (iii) direct costs we incur in producing television programs, including production overhead, development costs and pre-production costs, the cost of purchasing distribution rights for programs produced by other production companies, salaries and the purchase of software and hardware for our content production and (iv) costs incurred relating to the publication and distribution of Money Journal and certain books as part of our publishing services.

Selling and distribution expenses. Our selling and distribution expenses for the years ended December 31, 2007, 2008 and 2009 primarily consisted of salaries and benefits for our sales and marketing personnel and promotional and other marketing expenses.

General and administrative expenses. Our general and administrative expenses for the years ended December 31, 2007, 2008 and 2009 primarily consisted of compensation and benefits of administrative staff, allowance for doubtful debts and office rental payments.

Impairment charges. Our impairment charges for the year ended December 31, 2009 primarily consisted of impairment of goodwill of $11.7 million and intangible assets of $86.2 million, which was the result of (i) the release of Rule 61 in October 2009 by the State Administration of Radio, Film and Television, which substantially cuts the time allowed for brand advertisements in each hour of programming and the amount of time allotted for infomercials and (ii) the loss of major customers to competitors in our advertising business. Our impairment charges for the year ended December 31, 2008 primarily consisted of (i) impairment of goodwill of $43.5 million and intangible assets of $13.7 million which was the result of a decrease in the fair value of the reporting units affected by the slowdown in the global economy and our repositioning to sports and entertainment.

Loss on disposal of subsidiaries. Our loss on disposal of subsidiaries for the year ended December 31, 2009 represented loss on the disposal of Beijing Century Media Advertising Co., Ltd.

Taxation