Classmates.com 2009 Annual Report Download - page 37

Table of Contents
and may result in our having to reduce our standard pricing, which would adversely impact our financial results.
ADDITIONAL RISKS RELATING TO OUR COMMUNICATIONS SEGMENT
Our business will suffer if we are unable to compete successfully.
We compete with numerous other dial-up Internet access providers as well as providers of broadband services. Our key dial-up Internet
access competitors include established online service and content providers, such as AOL and MSN, and independent national Internet service
providers, such as EarthLink and its PeoplePC subsidiary. Dial-up Internet access services do not compete favorably with broadband services
with respect to connection speed and do not have a significant, if any, price advantage over certain broadband services. Many broadband
providers, including cable companies and local exchange carriers, bundle their offerings with telephone, entertainment or other services, which
may result in lower prices than standalone services. In addition to competition from broadband providers, competition among dial-up Internet
access service providers is intense and neither our pricing nor our features provides us with a significant competitive advantage, if any, over
certain of our dial-up Internet access competitors. We expect that competition, particularly with respect to price, both for broadband as well as
dial-up Internet access services, will continue. We also expect that our dial-up Internet access subscriber base will continue to decrease,
potentially at an increasing rate, and that our broadband services will not experience significant growth.
In order to compete effectively, we may have to make significant revisions to our services, pricing and marketing strategies, and business
model. For example, we may have to lower our introductory rates, offer additional free periods of service, offer additional features at little or no
additional cost to the consumer, or reduce the standard pricing of our services. Measures such as these could decrease our revenues and our
average revenue per dial-up Internet access pay account. We may also have to allocate more marketing resources toward our dial-up Internet
access services than we anticipate. All of the foregoing could adversely affect the profitability of our dial-
up Internet access services which could
materially and adversely impact our business, financial condition, results of operations, and cash flows.
Revenues and profitability of our Communications segment are expected to decrease.
Most of our Communications revenues and profits come from our dial-up Internet access services. Our dial-up Internet access pay accounts
and revenues have been declining and are expected to continue to decline due to the continued maturation of the market for dial-up Internet
access. Consumers continue to migrate to broadband access, primarily due to the faster connection and download speeds provided by broadband
access. Advanced applications such as online gaming, music downloads and videos require greater bandwidth for optimal performance, which
adds to the demand for broadband access. The pricing for basic broadband services has been declining as well, making it a more viable option
for consumers. We expect our dial-up Internet access pay accounts to continue to decline. 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 services
revenues, advertising revenues, and the profitability of this segment will continue to decline over time. The number of dial-up Internet access
pay accounts has been adversely impacted by both a decrease in the number of new pay accounts signing up for our services as well as the
impact of subscribers canceling their accounts, which we refer to as "churn." Churn has increased from time to time and may increase in the
future. The rate of decline in Communications services revenues has accelerated in some periods and may continue to accelerate. Continued
declines, particularly if such declines accelerate, in Communications revenues will materially and adversely impact the profitability of this
segment.
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