Classmates.com 2003 Annual Report Download - page 14

Six Months Ended December 31, 2003 Compared to
the Six Months Ended December 31, 2002 (unaudited)
Revenues
Billable Services Revenues
Billable services revenues consist primarily of monthly fees charged to users for dial-up Internet access services and, to a lesser extent,
fees charged to users for live telephone technical support and premium email services. Our pay Internet access services have been offered under
a number of pricing plans, generally ranging from $1.95 to $29.95 per month. Currently, our most common pricing plan for our standard dial-
up Internet access service is $9.95 per month. We currently charge an additional $5.00 per month, or a total monthly charge of $14.95, for our
accelerated dial-
up services. We generally charge our users $1.95 per minute for live telephone technical support. We currently charge $0.89 or
$2.08 per month for our two premium email services, which are billed on an annual basis.
Our pay services revenues are primarily dependent on two factors: the average number of pay subscribers for a period and the average
monthly revenue per pay subscriber for a period. The average number of pay subscribers is a simple average calculated based on the number of
pay subscribers at the beginning and end of a period. Average monthly revenue per pay subscriber is calculated by dividing billable services
revenues for a period by the average number of pay subscribers for that period. Average monthly revenue per pay subscriber may fluctuate
from period to period as a result of a variety of factors including the introduction of new pay services, such as our accelerated dial-up and
premium email services, and the penetration of these types of add-
on services as a percentage of total subscribers; the timing of pay subscribers
joining and leaving our services during a period; the use of discounted pricing plans; the use of promotions such as a free month of service;
increases or decreases in the price of our services; and changes in the mix of pay subscribers and their related pricing plans.
Billable services revenues increased by $58.3 million, or 53%, to $167.6 million for the six months ended December 31, 2003, compared
to $109.3 million for the six months ended December 31, 2002. The increase was due to an increase in our average number of pay subscribers
and an increase in our average monthly revenue per pay subscriber. Our average number of pay subscribers was approximately 2,720,000
during the six months ended December 31, 2003, compared to approximately 1,942,000 for the six months ended December 31, 2002. The
increase in our average number of pay subscribers resulted from a number of factors including increased marketing and promotion of our pay
services, the acquisition of approximately 174,000 pay subscribers from BlueLight in November 2002 and a significant number of our free
users upgrading to our pay access services. Average monthly revenue per pay subscriber was $10.27 for the six months ended December 31,
2003, compared to $9.39 for the six months ended December 31, 2002. The increase in average monthly revenue per pay subscriber was due to
an increase in the number of access subscribers purchasing our accelerated dial-up services, which were introduced in March 2003 and are
currently offered for an additional $5.00 per month, or a total monthly charge of $14.95, compared to $9.95 per month for our standard dial-up
services. In addition, the average monthly revenue per pay subscriber for the six months ended December 31, 2002 was negatively impacted by
the acquisition of approximately 174,000 pay subscribers from BlueLight at the end of November 2002. At December 31, 2003, subscribers to
our accelerated dial-up services comprised approximately 22% of our total pay subscriber base. We anticipate that our average monthly
revenue per pay subscriber will increase in the near term due to an increased percentage of subscribers to our accelerated dial-up services.
However, sales of lower priced add-on services, such as our new premium email services, to non-access subscribers could cause our average
monthly revenue per pay subscriber to decrease.
Our total pay subscriber base increased by 345,000 subscribers during the six months ended December 31, 2003. We anticipate that our
pay subscriber base will continue to increase in the near term. However, future increases in our pay subscriber base will be dependent on a
number of factors
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including the number of free users upgrading to pay services, changes in our marketing and related distribution channels, the number of pay
subscribers who cancel their accounts or have their accounts terminated, increases or decreases in our marketing expenditures, the effectiveness
of our marketing activities, the introduction of new types of add-on pay services such as our recently launched premium email service, the
impact of competition and the impact of acquisitions, if any.
Advertising and Commerce Revenues
Our advertising and commerce revenues consist of fees from our Internet search partners that are generated as a result of our users
utilizing our partners' Internet search services, fees generated by our users viewing and clicking on third-
party Web site advertisements and fees
from referring our users to, and our users making purchases on, sponsors' Web sites. We also generate revenues from providing third parties
with data analysis capabilities and traditional market research services, such as surveys and questionnaires. Our advertising and commerce
revenues are generated from both our pay subscribers and free users. Factors impacting our advertising and commerce revenues include
changes in orders from significant customers, the state of the online search and advertising markets, increases or decreases in our active user
base, limitations on our free services and increases or decreases in advertising inventory available for sale. In the past, we have imposed
limitations on our free services that have adversely impacted our volume of advertising inventory.