the increase in the number of paying subscribers was driven primarily by increased consumer awareness of the benefits of online DVD rentals and continuing improvements in our service. The decline in the average monthly revenue per paying subscriber was a result of the continued popularity of our lower cost subscription plans. We expect the average revenue per paying subscriber to continue to decline as we promote our lower priced subscription plans.

The increase in our revenues in 2005 as compared to 2004 was primarily attributable to substantial growth in the average number of paying subscribers offset in part by a decline in average monthly subscription revenue per paying subscriber. We believe the increase in the number of paying subscribers was driven primarily by increased consumer awareness of the benefits of online DVD rentals and continuing improvements in our service. The decline in the average monthly subscription revenue per paying subscriber was a result of the price decrease of our most popular subscription plan coupled with the increased promotion of our lower cost subscription plans. In June 2004, we increased the monthly subscription price of our most popular subscription plan from $19.95 to $21.99. However, effective November 2004, we lowered the price of the most popular subscription plan to $17.99. In addition, we introduced new lower priced subscription plans in the second quarter of 2005.

Churn declined to 3.9 percent in the fourth quarter of 2006 from 4.0 percent in the same period of 2005 and from 4.4 percent in the same period of 2004. We believe the decline was primarily due to the following factors:

	•	 	

Aging subscriber base. As we grow, the ratio of new subscribers to total subscribers declines, leading to an increase in the average duration, or age, of the subscriber base. New subscribers are more likely to cancel their subscriptions than older subscribers, and therefore, an increase in subscriber age helps overall reductions in churn.

	•	 	

The continued popularity of our lower cost subscription plans and the price parity of our subscription plans with those offered by competitors.

	•	 	

Service improvements. We continued to make improvements in a number of key areas, including increasing the selection of titles as we expanded our DVD library and enhancing our Web site and recommendation service. We believe these improvements to our service increased subscriber satisfaction, which resulted in lower churn.



The following table presents our ending subscriber information:

 

The increase in cost of subscription in absolute dollars for 2006 as compared to 2005 was primarily attributable to the following factors:

 	•	 	

The number of DVDs mailed to paying subscribers increased 42 percent, which was driven by a 60 percent increase in the number of average paying subscribers offset by a slight decline in monthly movie rentals per average paying subscriber attributed to the increased popularity of our lower priced plans.

 	•	 	

Postage and packaging expenses increased by 48 percent. This increase was primarily attributable to the increase in the number of average paying subscribers and the number of DVDs