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Amazon Acquires All of LoveFilm

20 Jan, 2011 By: Chris Tribbey

Amazon.com has reached an agreement to acquire the remaining shares of LoveFilm International, the United Kingdom-based online disc rental and streaming service.

LoveFilm operates in the U.K., Germany, Sweden, Norway and Denmark. The deal is worth an estimated $320 million.

“LoveFilm has been innovating on behalf of movie rental customers across Europe for many years, and with the advent of the LoveFilm player, they are further delighting customers by streaming digital movies for their immediate enjoyment,” said Greg Greeley, Amazon’s VP of European retail. “LoveFilm and Amazon have enjoyed a strong working relationship since LoveFilm acquired Amazon Europe’s DVD rental business in 2008, and we look forward to a productive and innovative future.”

The acquisition is expected to close during the first quarter of the year.

LoveFilm acquired Amazon’s European DVD rental business two years ago, giving Amazon a 42% stake in the company.

Will Richmond, president and founder of consulting firm Broadband Directions, and publisher of VideoNuze, said Amazon’s push into Europe can be directly attributed to the company’s desire to compete with Netflix, which expanded into Canada in late 2010 with a streaming-only service.

“I think it can be interpreted as a bid by Amazon to make Netflix’s expansion into the European market much harder,” he wrote Jan. 20. “ … By absorbing LoveFilm fully, it will be able to provide the company with deeper financial and operational resources for the upcoming battle.”

He noted that while LoveFilm has only 1.4 million subscribers — a fraction of the 17 million Netflix reported at the end of the third quarter of 2010 — Amazon’s acquisition will give LoveFilm the ability to expand into other countries.

“With LoveFilm’s DVD and distribution infrastructure, Amazon is turning the tables on Netflix in Europe and altering the competitive dynamics,” he wrote. “If Netflix comes to market in Europe with a streaming-only service, it will be able to offer just a small fraction of the content selection that LoveFilm does.”

Mark Miller, analyst with William Blair & Co. in Chicago, said the acquisition affords Amazon easier access to the global disc market, which he said represents about 5 billion discs and $40 billion in revenue annually, in addition to about 2 billion VOD transactions.

“The home video market is large, even for a behemoth such as Amazon,” Miller wrote in a note.

More importantly, Miller believes Amazon will use LoveFilm to scale a broader digital movie offering in Europe and likely will begin competing with Netflix — either domestically, internationally or both.

“Although, how the two services will be differentiated from each other is not clear at this point,” Miller wrote in a note.

The analyst said Amazon could integrate its new iVOD movie service for “a la carte” rentals (i.e., transactional digital movie rentals within the 28-day restricted window imposed on Netflix and Redbox for physical DVDs) with a subscription for catalog of older content, which he said would be competitive to the Netflix.

“Given Amazon’s financial strength, it would likely look to be the low-cost digital leader, perhaps undercutting Netflix’s streaming price of $7.99 domestically,” Miller wrote.

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