Classmates.com 2008 Annual Report Download - page 70

Table of Contents
compared to the year ended December 31, 2006 primarily due to the fact that no such sales and marketing expenses were included in our
consolidated financial statements in the first three months and nine days of 2006 (the period prior to our acquisition of MyPoints). In addition,
the increase was the result of a $5.8 million increase in marketing costs related to acquiring new free social networking members, a $2.6 million
increase in personnel- and overhead-related expenses associated with our social networking services as a result of growth in our business and a
$0.4 million increase in stock-based compensation.
Classmates Media Technology and Development Expenses. Classmates Media product development expenses increased by $5.5 million,
or 53%, to $16.0 million, or 8.3% of Classmates Media revenues, for the year ended December 31, 2007, compared to $10.5 million, or 7.5% of
Classmates Media revenues, for the year ended December 31, 2006. The increase in expenses was primarily due to a $2.7 million increase in
personnel-related expenses due to increased headcount to develop new product features related to our social networking services. In addition, a
portion of the increase was related to expenses associated with our loyalty marketing service, which we acquired in April 2006 and which was
included in our results of operations for the full year ended December 31, 2007 compared to only 266 days for the year ended December 31,
2006. Product development expenses associated with our loyalty marketing service increased by $2.3 million in the year ended December 31,
2007 compared to the year ended December 31, 2006 primarily due to the fact that no such product development expenses were included in our
consolidated financial statements in the first three months and nine days of 2006 (the period prior to our acquisition of MyPoints). The increase
in expenses was also due to a $0.4 million increase in overhead expenses and a $0.3 million increase in stock-based compensation.
Classmates Media General and Administrative Expenses. Classmates Media general and administrative expenses increased by
$9.4 million, or 44%, to $30.8 million, or 15.9% of Classmates Media revenues, for the year ended December 31, 2007, compared to
$21.3 million, or 15.3% of Classmates Media revenues, for the year ended December 31, 2006. The increase was primarily related to expenses
associated with our loyalty marketing service, which we acquired in April 2006 and which was included in our results of operations for the full
year ended December 31, 2007 compared to only 266 days for the year ended December 31, 2006. General and administrative expenses
associated with our loyalty marketing service increased by $3.6 million in the year ended December 31, 2007 when compared to the year ended
December 31, 2006, primarily due to the fact that no such general and administrative expenses were included in our consolidated financial
statements in the first three months and nine days of 2006 (the period prior to our acquisition of MyPoints). In addition, the increase was due to a
$2.5 million increase in fees largely related to audit and executive search fees incurred as a result of our CMC subsidiary IPO process, a
$1.4 million increase in personnel-related costs due to increased headcount, specifically certain members of senior management hired in
connection with our CMC subsidiary IPO process, a $1.2 million increase in stock-based compensation primarily related to guaranteed equity
awards to be issued to certain members of senior management, and a $0.7 million increase in overhead-related costs.
Communications Segment Results
Communications Revenues. Communications 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 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
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