Classmates.com 2007 Annual Report Download - page 24

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Revenues and profitability of our Communications segment are expected to decrease.
Substantially all of our Communications revenues and profits come from our dial-up Internet access services. As a result of expected
continued decreases in our dial-up Internet access pay accounts and, potentially, the average monthly revenue per pay account, we expect that
our Communications billable services revenues and the profitability of this segment will continue to decline over time. The rate of decline in
billable services revenues has accelerated in some periods and may continue to accelerate. We also expect that our Communications advertising
revenues will decline. Continued declines, particularly if such declines accelerate, in Communications revenues may materially and adversely
impact the profitability of this segment and the Company as a whole.
If we are unable to retain users, our business and financial results will suffer.
A number of our Communications pay account subscriptions each month are not renewed or cancelled, which we refer to as churn. We have
experienced, and will likely continue to experience, a higher percentage of churn with respect to our accelerated dial-up Internet access services
than is indicated by our overall Communications churn rate. Our churn, which may be higher in future periods, makes it more difficult to
minimize decreases in the number of pay accounts for our Communications services, which adversely impacts our revenues. Each month, a
significant number of free dial-up Internet access accounts become inactive and it is likely that we will continue to experience declines in the
number of active free accounts.
Our Internet access business is dependent on our ability to effectively manage our telecommunications and network capacities.
Our Internet access business substantially depends on the capacity, affordability, reliability, and security of our telecommunications
networks. Our failure to accurately anticipate our future telecommunications capacity needs within lead-time requirements could result in
unnecessary capacity or inadequate service. Only a small number of telecommunications providers offer the network and data services we
currently require, and we purchase most of our telecommunications services from a few providers. Some of our telecommunications services are
provided pursuant to short-term agreements that the providers can terminate or elect not to renew. Vendors may experience significant financial
difficulties and be unable to perform satisfactorily or to continue to offer their services. The loss of vendors has resulted, and may result, in
increased costs, decreased service quality and the loss of users. If we are unable to maintain, renew or obtain new agreements with the third-
party providers of our telecommunications services, or to secure new or alternative arrangements with other providers, to provide the scope,
quantity, quality, type, and pricing of services to meet our current and future needs, our business, financial position, results of operations, and
cash flows could be materially and adversely affected.
RISKS RELATING TO OUR BUSINESS GENERALLY
We may be unable to maintain or grow our advertising revenues. Reduced advertising revenues may reduce our profits.
Advertising revenues are a critical component of our revenues and profitability. Our revenues from advertising have in the past fluctuated,
and may in the future fluctuate, due to a variety of factors including, without limitation, the effect of key advertising relationships, competition,
changes in our business models, changes in the online advertising market, changes in our advertising inventory, and changes in usage. In
particular, we derive significant revenues from search on our Communications services, from post-transaction sales on our Classmates service
and from certain other advertising initiatives or partners across our services, and any termination, change or decrease in revenues from these
sources could have a material impact on our advertising revenues. The Internet advertising field continues to evolve with many different
advertising networks, Web publishers, and other providers
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