Classmates.com 2010 Annual Report Download - page 36

Table of Contents
offering games, and websites offering other forms of social media, such as Twitter. Many of our competitors offer their content and services free
of charge.
The market for online loyalty marketing services is highly competitive, and we expect competition to significantly increase in the future as
loyalty marketing programs continue to grow in popularity. Our MyPoints online loyalty marketing service faces competition for members from
other online loyalty marketing programs as well as offline loyalty marketing programs that have a significant online presence, such as those
operated by credit card, airline and hotel companies.
Some of our competitors have longer operating histories, greater name and brand recognition, larger user bases, significantly greater
financial, technical, sales, and marketing resources, and engage in more extensive research and development than we do. Some of our
competitors also have lower customer acquisition costs than we do, offer a wider variety of services, have more compelling websites with more
extensive user-generated or third-party content or offer their services or content free to their users. Some of our competitors have been more
successful than we have been in attracting and retaining visitors and members, and our ability to attract visitors to our websites and maintain a
large and growing member base has been adversely affected by such competition. If our competitors provide services similar to our online
nostalgia services for free, we may not be able to charge for our online nostalgia services. Competition could have a material adverse effect on
our subscription revenues from online nostalgia services, as well as on advertising revenues from our online nostalgia services and online loyalty
marketing services. More intense competition could also require us to increase our marketing or other expenditures. As a result of competition,
our key business metrics, revenues, cash flows, and profitability could be adversely affected.
Continued declines in the number of pay accounts for our online nostalgia 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 online nostalgia 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 visitors to our websites, register them as free members, encourage them to return to our websites, and convince them to become pay
accounts in order to access the pay features of our websites. The number of pay accounts has been decreasing, and there are no assurances that
such trend will not continue. If we are not able to attract visitors to our websites and convert a significant portion to pay accounts, the number of
pay accounts for our online nostalgia services will continue to decline and our business and financial results would be adversely affected.
A number of our pay account subscriptions each month are not renewed or are canceled, which, for the Content & 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 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. As discussed in the risk factor
related to changes in laws and regulations, the laws being considered or recently enacted by certain states regarding automatic-renewal practices
will impact certain of our business practices. We also experience an increase in the percentage of credit card failures from time to time. 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.
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