Classmates.com 2006 Annual Report Download - page 5

PART I
ITEM 1. BUSINESS
OVERVIEW
We are a leading provider of consumer Internet and media services through a number of brands including NetZero, Juno, Classmates and
MyPoints. We report our business in two segments: Communications and Content & Media. Our primary Communications services are Internet
access and email. Our primary Content & Media services are social networking and online loyalty marketing. On a combined basis, our Web
properties attract a significant number of Internet users each month and we offer marketers a broad array of Internet advertising products and
services as well as online market research and measurement services.
Historically, our operations were focused on providing value-priced dial-up Internet access services in the U.S. and Canada. Beginning in
2004, our dial-up subscriber base started to decline and we began diversifying our business to other Internet consumer offerings. In
November 2004, we acquired Classmates Online, Inc., a provider of online social
-networking services. In April 2006, we acquired
MyPoints.com, Inc., a provider of online loyalty marketing services. Our strategy is to continue to leverage our resources and core competencies
to expand our businesses, through internal development and acquisitions, beyond dial-up Internet access while managing our declining dial-up
access services for profitability.
United Online, Inc., a Delaware corporation headquartered in Woodland Hills, California, commenced operations in 2001 following the
merger of dial-up Internet access providers NetZero, Inc. and Juno Online Services, Inc. (the “Merger”).
Content & Media revenues were $14.1 million in 2004, $93.1 million in 2005 and $146.7 million in 2006. Content & Media segment
income from operations was $4.4 million in 2004, $16.5 million in 2005 and $17.9 million in 2006. Communications revenues were $434.5
million in 2004, $431.9 million in 2005 and $375.9 million in 2006. Communications segment income from operations was $126.6 million in
2004, $135.3 million in 2005 and $132.8 million in 2006. At least in the near term, we expect our Content & Media revenues and segment
income from operations to continue to grow and for our Communications revenues and segment income from operations to continue to decrease.
We generate revenues primarily from selling subscriptions to our consumer services, which we call billable services revenues, and from
selling advertising on our services to advertisers. As part of our diversification strategy, we have increased our focus on advertising. Our
advertising revenues have increased from $37.8 million, or 8.4% of total revenues in 2004, to $59.1 million, or 11.3% of total revenues in 2005,
to $99.1 million, or 19.0% of total revenues in 2006. Substantially all of our billable services revenues in our Communications segment come
from subscriptions to our dial-up Internet access services and substantially all of our billable services revenues in our Content & Media segment
come from subscriptions to our social-networking services.
Segment Services
Communications
Our primary Communications pay services are consumer Internet access and email under the NetZero and Juno brands. We offer several
additional Communications pay services, such as Internet security services, but these additional services and brands do not generate significant
revenues. For additional information regarding our Communications segment, see Note 10—“Segment Information” of the Notes to the
Consolidated Financial Statements, which appears in Part II, Item 8 of this Annual Report on Form 10-K.
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