Classmates.com 2011 Annual Report Download - page 37

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Table of Contents
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 have been adversely affected.
Continued declines in the number of pay accounts for our online nostalgia services could cause our business and financial results, including
cash flows, to suffer.
Pay accounts are critical to our business model. Only a small percentage of users visiting our websites or 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 revenues 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.
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. To maintain or reduce the level of churn,
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.
Pay accounts and free active accounts have been decreasing, and we believe such trend will 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 and related
advertising revenues will continue to decline and the financial results of the Content & Media segment will be adversely affected. In addition,
even if the financial results for our FTD segment were to increase, and there are no assurances that they will, we do not believe that any such
increases will be sufficient to fully offset the anticipated declines in our other segments, including the Content & Media segment, and as a result,
we expect that our consolidated financial results, including cash flows, will be adversely affected by such anticipated declines.
Failure to increase or maintain the number of visitors to our websites and members for our online nostalgia and online loyalty marketing
services or the activity level of these visitors and members could cause our business and financial results to suffer.
The success of our online nostalgia and online loyalty marketing services depends upon our ability to increase or maintain the number of
visitors to our websites, our base of free members and the level of activity of those visitors and members. A decline in the number of visitors,
registered or active free online nostalgia members, or a decline in the activity of those members, could result in decreased pay accounts,
decreased content on our websites and decreased advertising revenues. A decline in the number of registered or active online loyalty marketing
service members could also result in decreased advertising revenues. We have been experiencing a decline in the number of active members, and
we believe this trend will continue. The failure to increase or maintain the number of visitors to our
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