million primarily due to an 18.6% increase in the number of DVDs mailed to paying subscribers. The increase in the number of DVDs mailed was driven by a 26.6% increase in the average number of paying subscribers, partially offset by a 6.3% decline in monthly DVD rentals per average paying subscriber primarily attributed to the growing popularity of our lower priced plans.



 

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Content acquisition expenses increased by $46.6 million. This increase was primarily attributable to investments in streaming content.

The $96.7 million increase in cost of subscription revenues was due to the following factors:

 

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Content delivery expenses increased $72.7 million primarily due to a 19.0% increase in the number of DVDs mailed to paying subscribers. The increase in the number of DVDs mailed was driven by a 23.1% increase in the average number of paying subscribers, partially offset by a 3.2% decline in monthly DVD rentals per average paying subscriber primarily attributed to the growing popularity of our lower priced plans. The increase is also due to an increase in the rates of first class postage in May 2008.



 

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Content acquisition expenses increased by $24.0 million This increase was primarily attributable to the increased investments in streaming content, as well as an increase in DVD revenue sharing costs.

Fulfillment Expenses

Fulfillment expenses represent those expenses incurred in operating and staffing our shipping and customer service centers, including costs attributable to receiving, inspecting and warehousing our content library. Fulfillment expenses also include credit card fees.

 

The $20.7 million increase in fulfillment expenses was due to the following:

 

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Shipping and customer service centers expenses increased $10.5 million primarily due to a 14.0% increase in headcount to support the higher volume of content delivery and growth in subscribers.



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Credit card fees increased $10.2 million as a result of the 22.4% growth in revenues.

The $27.3 million increase in fulfillment expenses was due to the following:

 

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Shipping and customer service centers expenses increased $22.0 million primarily due to a 29.8% increase in headcount to support the higher volume of content delivery and the addition of new shipping centers.



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Credit card fees increased $5.3 million as a result of the 13.2% growth in revenues.



The 2.1% increase in gross margin was primarily due to lower DVD content acquisition expenses per DVD mailed and a 6.3% decline in monthly DVD rentals per average paying subscriber driven by the growing popularity of our lower priced plans. This decline was higher than the decline in average revenue per paying subscriber of 3.3%. This was offset partially by increased investments in our streaming content.

 

The 1.5% decrease in gross margin was primarily due to an increase in postage rates effective May 2008 and a reduction in the prices of our most popular subscription 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