Amazon buys LOVEFiLM for a reported £200m

Since launching in 2004, LOVEFiLM has grown to a user base of more than 1.4 million members, operating out of the UK, Norway, Sweden, Denmark and Germany. It reported revenues of more than £97m in 2009.

LOVEFiLM's canny core concept is delivering rental DVDs or games by post and allowing customers to pop them back by post, with no time limit on keeping the DVD, for £9.99 a month. This rather handily ensures the business a steady stream of revenue from month to month. Which is no doubt part of the reason it has attracted venture capital from tech investment heavyweights Index Ventures and Balderton Capital as well as Arts Alliance Media and DFJ Esprit over the past few years.

The symbiosis with Amazon is obvious: both LOVEFiLM and Amazon want to reach the greatest possible number of customers and offer the most extensive DVD and games library possible. Amazon has the contacts and buying power for all those discs, while LOVEFiLM has the foothold in the market and processes already in place to find all those people.

What's really exciting for both businesses though, and what many commentators are saying was the tipping point for the deal, was LOVEFiLM's growing focus on the film streaming market (which lets you download films online). LOVEFiLM lets you stream via your laptop, internet TV or PS3.

LOVEFiLM is the big player in streaming in Europe - and will certainly cement that position now it has Amazon's financial clout, reach and international expansion experience behind it. After all, consumers want convenience, and streaming is instant. Whereas waiting for snail mail to deliver a film you've bought on Amazon or rented on LOVEFiLM means at least a day or two delay.

But there's a big bad rival in the streaming wings. Netflix is the top streaming dog in the US and Canada, and is setting its sights on Europe. Amazon, it seems, is keen to grab as much online market share in this sector as it can before Netflix sucks up all LOVEFiLM's opportunities.

And the plot thickens: the FT alleges LOVEFiLM based its original business model on Netflix's, simply bringing it over to the UK. So, innocent bystanders, expect this battle to be bloody.

LOVEFiLM's existing management team, including CEO Simon Calder, will stay on to steer the business, and there will be no change in the business' name or to the service and account of members. The deal is expected to close in spring this year, subject to normal regulation.

Here's LOVEFiLM chief marketing officer Simon Morris explaining more about the deal to the BBC:

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