plans during the second half of 2007.

We expect to continue to make substantial investments in our content library and in particular may increase spending associated with streaming content. These investments would reduce our gross margin to the extent that increases outpace growth in our revenues.

Operating Expenses

Technology and Development

Technology and development expenses consist of payroll and related costs incurred in testing, maintaining and modifying our Web site, our recommendation and merchandising technology, developing solutions for streaming content to subscribers, telecommunications systems and infrastructure and other internal-use software systems. Technology and development expenses also include depreciation of the computer hardware and capitalized software we use to run our Web site and store our data.

The $24.7 million increase in technology and development expenses was primarily the result of a $17.4 million increase in personnel-related costs due to 26.6% growth in headcount to develop solutions for streaming content and continued improvements to our service. The increase is also partly due to a $6.7 million increase in facilities and equipment expenses to support the increased headcount and overall growth of operations.

The $18.9 million increase in technology and development expenses was primarily the result of a $10.4 million increase in personnel-related costs due to 28.0% growth in headcount and an $8.5 million increase in other expenses to develop solutions for streaming content and continued improvements to our service.

Marketing

Marketing expenses consist primarily of advertising expenses and payments made to our affiliates including consumer electronics partners. Advertising expenses include marketing program expenditures and other promotional activities, including allocated costs of revenues relating to free trial periods. Also included in marketing expense are payroll related expenses.

The $38.0 million increase in marketing expenses was primarily attributable to an increase of $21.4 million in spending related to affiliates including our consumer electronics partners. The increase is also due to an $11.5 million increase in marketing program spending, principally in TV and radio advertising and direct mail to promote our hybrid service of streaming content and DVDs by mail. Subscriber acquisition cost decreased primarily due to momentum associated with the launch of new consumer electronics partner devices and the broad appeal of streaming content.

The $18.5 million decrease in marketing expenses was primarily attributable to a $34.2 million decrease in marketing program spending, principally in direct mail and inserts, offset partially by an increase of $11.5 million in spending related to affiliates including our consumer electronics partners. In the second half of 2007, we lowered prices on our most popular subscription plans and decided to partially offset the cost of our investment in lower prices by reducing our spending on marketing programs. The decrease was partially offset by higher personnel-related costs due to higher headcount and an increase in the costs of free trial periods due to