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.

Churn was 4.3% as of December 31, 2007 and remained relatively flat as compared to 2006 and 2005.

The increase in cost of subscription revenues in absolute dollars for 2007 as compared to 2006 was primarily attributable to the following factors:

 

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The number of DVDs mailed to paying subscribers increased 20%. This was driven by a 32% increase in the number of average paying subscribers, partially offset by a decline in monthly movie rentals per average paying subscriber attributed to the continued growth of our lower priced plans.



 

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Postage and packaging expenses increased by 24%. This was primarily attributable to the increase in the number of DVDs mailed to paying subscribers, as well as an increase in the rate of first class postage of 2 cents in May 2007.



 

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Content amortization increased by 39% primarily due to increased acquisitions of our content library, while revenue sharing expenses remained flat. In addition, costs related to our instant-watching feature have been included in cost of subscription revenues since its introduction in January 2007.

The increase in cost of subscription revenues 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%. This was driven by a 60% 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.

 

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Postage and packaging expenses increased by 48%. This was primarily attributable to the increase in the number of DVDs mailed to paying subscribers, as well as the first class postage rate increase of 2 cents that was effective January 8, 2006.

 

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DVD amortization increased by 47% primarily due to increased acquisitions for our DVD library.

 

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Revenue sharing expenses increased by 10%. This increase was primarily attributable to the increase in the number of average paying subscribers offset by a decrease in the percentage of DVDs subject to revenue sharing agreements mailed to paying subscribers.



Fulfillment Expenses

 

The increase in fulfillment expenses in absolute dollars in 2007 as compared to 2006 was primarily attributable to an increase in personnel-related costs resulting from the higher volume of activities in our customer service and shipping centers, coupled with higher credit card fees as a result of 32% growth in the average number of paying subscribers. In addition, the increase in fulfillment expenses was attributable to an increase in facility-related costs resulting from the expansion of our customer service center, the expansion of certain of our shipping centers and the addition of new ones.

The increase in fulfillment expenses in