Classmates.com 2008 Annual Report Download - page 35

Table of Contents
competition could also require us to increase our marketing expenditures. As a result of competition, our revenues and profitability could be
adversely affected.
Failure to increase or maintain the number of pay accounts for our social networking services could cause our business and financial
results to suffer.
Pay accounts are critical to our business model. Only a small percentage of users initially registering for our social networking services sign
up for a paid subscription at the time of registration. As a result, our ability to generate subscription revenue is highly dependent on our ability to
attract users to our Web sites and register them as free members, to encourage them to return to our Web sites, and to convince them to become
pay accounts in order to access the pay features of our Web sites. If we are not able to attract users to our Web sites and convert a significant
portion to pay accounts, we may not be able to increase or maintain the number of pay accounts for our social networking services and our
business and financial results would be adversely affected.
A number of our social networking pay account subscriptions each month are not renewed or are canceled, which, for the Classmates Media
segment, we refer to as "churn." The level of churn we experience fluctuates from quarter to quarter due to a variety of factors, including our mix
of subscription terms, which affects the timing of subscription expirations. We must continually add new social networking pay accounts both to
replace pay accounts who churn and to grow our business beyond our current pay account base. We expect that our churn rate will continue to
fluctuate from period to period. A significant majority of our pay accounts are on plans that automatically renew at the end of their subscription
period and we have received complaints with respect to our renewal policies. Any change in our renewal policies or practices could have a
material impact on our churn rate. If we experience a higher than expected level of churn, it will make it more difficult for us to increase or
maintain the number of pay accounts, which could reduce our revenues and adversely affect our financial results.
Failure to increase or maintain the number of members for our social networking and loyalty marketing services or the activity level of
these members could cause our business and financial results to suffer.
The success of our social networking and loyalty marketing services depends upon our ability to increase or maintain our base of free
members and the level of activity of those members. A decline in the number of registered or active free social networking members, or a decline
in the activity of those members, could result in decreased pay accounts, decreased content on our Web sites and decreased advertising revenues.
A decline in the number of registered or active loyalty marketing members could result in decreased advertising revenues. The failure to increase
or maintain our base of free members, or the failure to convince our free members to actively participate in our Web sites or services, could have
a material adverse effect on our business and our financial results.
Our social networking and loyalty marketing businesses rely heavily on email campaigns, and any disruptions or restrictions on the
sending of emails or increase in the associated costs could adversely affect our results of operations.
Our emails generate the majority of the traffic on our social networking Web sites and are the most important driver of member activity for
our loyalty marketing service. A significant number of our social networking and loyalty marketing members elect to opt-
out of receiving certain
types of emails. Without the ability to email these members, we have very limited means of inducing members to return to our Web sites and
utilize our services. An increase in the number of members who opt-
out of receiving our emails could adversely affect our business and results of
operations.
Each month, a significant number of email addresses for our social networking and loyalty marketing members become invalid. This
disrupts our ability to email these members and prevents
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