Classmates.com 2009 Annual Report Download - page 67

Table of Contents
increased use of discounted pricing plans offered to certain U.S. online social networking pay accounts on a promotional basis and, to a lesser
extent, a greater percentage of total pay accounts being represented by international online social networking pay accounts which have, on
average, lower-priced subscription plans compared to U.S. online social networking pay accounts. Although we experienced a net increase in
Classmates Media pay accounts in the year ended December 31, 2009, this increase was largely due to an increase in our offerings of discounted
pricing plans, with a significant number of the new pay accounts generated during the period under this promotional pricing, resulting in a
decrease in the churn rate. The increase in Classmates Media services revenues was partially offset by a $6.7 million decrease in advertising
revenues due to a decrease in revenues generated by our online loyalty marketing service, partially offset by an increase in advertising revenues
generated by our online social networking services, primarily from post-transaction sales. Due to economic and other factors, we engaged in
significant discounting of our pricing plans during the latter half of 2009 which adversely impacted ARPU and resulted in declining services
revenues at the end of 2009. While we anticipate continued use of discounted pricing plans, we do not expect selling the volume of discounted
pricing plans that we did in the latter half of 2009. However, we expect our use of discounted pricing plans to cause our services revenues to
continue to decline, at least in the near term. In addition, as a result of the termination of the post-transaction sales agreements, we expect
decreased advertising revenues in 2010 as compared to 2009.
Classmates Media Cost of Revenues.
Classmates Media cost of revenues decreased by $6.1 million, or 15%, to $35.0 million, for the year
ended December 31, 2009, compared to $41.1 million for the year ended December 31, 2008. Classmates Media cost of revenues as a percentage
of Classmates Media revenues decreased to 14.8% for the year ended December 31, 2009, compared to 17.9% for the prior-year period. The
decrease of $6.1 million was largely related to a $3.8 million decrease in the cost of points earned by members of our online loyalty marketing
service as a result of a decrease in revenues generated by our online loyalty marketing service. The decrease was also due to a $1.4 million
decrease in personnel-related expenses associated with our online social networking services and a $0.7 million decrease in overhead-related
costs. The decrease in cost of revenues as a percentage of Classmates Media revenues was mainly due to a greater percentage of revenues having
been generated from higher-margin online social networking services.
Classmates Media Sales and Marketing Expenses. Classmates Media sales and marketing expenses decreased by $7.0 million, or 9%, to
$74.9 million, for the year ended December 31, 2009, compared to $81.9 million for the year ended December 31, 2008. Classmates Media sales
and marketing expenses as a percentage of Classmates Media revenues decreased to 31.7% for the year ended December 31, 2009, compared to
35.6% for the prior-year period. The decrease of $7.0 million was largely the result of a $5.8 million decrease in marketing costs related to
acquiring new online social networking and online loyalty marketing members. The decrease was also due to a $1.2 million decrease in
personnel- and overhead-related expenses. The decrease in sales and marketing expenses as a percentage of Classmates Media revenues was
mainly due to a reduction in sales commissions as a result of a decline in revenues from our online loyalty marketing service and an increase in
revenues from our international online social networking operations without a corresponding increase in related sales and marketing costs.
Classmates Media Technology and Development Expenses. Classmates Media technology and development expenses increased by
$3.6 million, or 16%, to $25.5 million, for the year ended December 31, 2009, compared to $22.0 million for the year ended December 31, 2008.
Classmates Media technology and development expenses as a percentage of Classmates Media revenues increased to 10.8% for the year ended
December 31, 2009, compared to 9.5% for the prior-year period. The increase in expenses was primarily due to a $1.8 million increase in
overhead-related expenses and a $1.6 million increase in personnel-related expenses.
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