Classmates.com 2009 Annual Report Download - page 36

Table of Contents
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 online 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, as well as the degree of credit card failures. 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 and practices.
We also experienced an increase in the percentage of credit card failures in 2009. Any change in our renewal policies or practices, or in the
degree of credit card failures, 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 online social networking and online loyalty marketing services or the
activity level of these members could cause our business and financial results to suffer.
The success of our online social networking and online 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 online loyalty marketing service 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.
In addition, our online social networking services have expended, and may in the future expend, significant resources in developing and
implementing new products and services. The development of new products and services involves a number of uncertainties, including
unanticipated delays and expenses and technological problems. They also may not be accepted by our members. We cannot assure you that we
will be successful in developing or implementing new or enhanced products or services, or that any new products or services will be
commercially successful.
Failure to maintain our standard pricing could have adverse effects on our financial results.
Due to the economic conditions in the U.S. and for competitive and other reasons, we recently have been offering a greater percentage of
discounted plans on a promotional basis than we typically have offered in the past. In general, these discounted plans offer a one-year
subscription term for $9.95, which is a significant discount compared to the current standard pricing for a one-year subscription term of $39.00.
We anticipate that the increase in the percentage of pay accounts under a discounted plan will likely result in a decrease in subscription revenues
and ARPU, at least in the near term. Although these discounted plans will renew at the then-current standard pricing for such subscription term
upon the expiration of the initial term, there are no assurances as to the number of pay accounts that will renew at the standard pricing. We
intend to continue offering discounted plans in the future, and there are no assurances that the percentage of discounted plans offered during a
period will not be higher than anticipated. Our continued use of discounted plans may result in our becoming dependent on offering such plans in
order to obtain new pay accounts and retain existing pay accounts
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