Classmates.com 2007 Annual Report Download - page 50

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substantially all of such revenues generated from Internet access. Our billable services revenues are primarily dependent on two factors: the
average number of pay accounts for a period and the ARPU. The average number of pay accounts is a simple average calculated based on the
number of pay accounts at the beginning and end of a period.
Consolidated Billable Services Revenues. Consolidated billable services revenues decreased by $44.0 million, or 10%, to $379.5 million
for the year ended December 31, 2007, compared to $423.6 million for the year ended December 31, 2006. The decrease in billable services
revenues for the year ended December 31, 2007 was due to a decrease in revenues from our Communications segment, partially offset by an
increase in revenues from our Classmates Media segment. Billable services revenues related to our Classmates Media segment and our
Communications segment constituted 28.1% and 71.9%, respectively, of our consolidated billable services revenues for the year ended
December 31, 2007, compared to 19.2% and 80.8%, respectively, for the year ended December 31, 2006. We anticipate that our consolidated
billable services revenues will decline in 2008 as a result of an expected continued decline in Communications billable services revenues which
is expected to exceed the anticipated increase in Classmates Media billable services revenues, at least in the near term.
Classmates Media Billable Services Revenues. Classmates Media billable services revenues increased by $25.4 million, or 31%, to
$106.5 million for the year ended December 31, 2007, compared to $81.1 million for the year ended December 31, 2006. The increase in
Classmates Media billable services revenues was due to a 36% increase in our average number of pay accounts from 2.0 million for the year
ended December 31, 2006 to 2.7 million for the year ended December 31, 2007. This increase in the average number of pay accounts was
primarily attributable to a Classmates pay feature, our digital guestbook, which was introduced in the fourth quarter of 2006 and, to a lesser
extent, an increase in the number of international pay accounts. The increase in Classmates Media billable services revenues due to pay accounts
was partially offset by a 4% decrease in ARPU from $3.44 for the year ended December 31, 2006 to $3.31 for the year ended December 31,
2007. The decrease in ARPU was primarily attributable to a greater overall proportion of international pay accounts compared to U.S. pay
accounts and the fact that pricing for our international social networking services is lower than for our Classmates social networking services.
We anticipate our Classmates Media pay accounts and billable services revenues will continue to grow, at least in the near term.
Communications Billable Services Revenues. Communications billable services revenues decreased by $69.4 million, or 20%, to
$273.0 million for the year ended December 31, 2007, compared to $342.4 million for the year ended December 31, 2006. The decrease in
Communications billable services revenues was due to an 18% decrease in our average number of pay accounts from 3.0 million for the year
ended December 31, 2006 to 2.4 million for the year ended December 31, 2007. The decrease in the average number of pay accounts was
substantially attributable to a decrease in the number of dial-up Internet access pay accounts. In addition, the decrease in revenues was partially
due to a 2% decrease in ARPU from $9.63 for the year ended December 31, 2006 to $9.41 for the year ended December 31, 2007. The decrease
in ARPU was primarily attributable to an increased number of subscribers on lower-priced subscription plans. The decrease in dial-up billable
services revenues was partially offset by a $6.3 million increase in 2007 versus 2006 in revenues from our DSL Internet access service, which
was launched in the December 2006 quarter. We anticipate continued declines in our Communications pay accounts and, potentially, ARPU
which will result in continued declines in Communications billable services revenues.
Advertising Revenues
We provide advertising solutions to marketers with both brand and direct response objectives through a full suite of display, search, email,
and text-link opportunities across our various properties.
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