Amazon buys remaining stake in Lovefilm DVD service

DVD post box Lovefilm, which began with postal subscriptions, has moved into online streaming

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Amazon has agreed to buy online movie rental service Lovefilm.

The American internet retailer, which already had a significant stake in the London company, said Lovefilm had a "productive and innovative" future.

The move is largely seen as a defensive ploy against a planned international expansion by US video-streaming giant Netflix.

Lovefilm chief executive Simon Calver said the deal would help the company improve its online services.

He told BBC News that it did not matter that it was an American firm that had bought the company:

"It's not about location. The big question is who is going to be the best partner to work with. There are few that offer the expertise that Amazon do, which is why it is perfect for Lovefilm."

Defensive move

The service, which began as a pure DVD rental company in 2002, has more than 1.4 million members around the UK as well as significant interests in Germany and Scandinavia.

Analysis

Is this a good or bad day for the UK tech scene?

Lovefilm is one of the most impressive new media businesses to have come out of the UK in the last ten years.

Starting with a very simple idea - send DVDs in the post to people who watch them and then send them back - it has attracted 1.25 million paying customers across Europe.

It is now transforming itself into a digital delivery service, following the example set by Netflix in the United States - and it will be better placed to do that as part of a giant business like Amazon.

But some in the UK tech scene will be disappointed that Lovefilm could not carry on growing as an independent business.

They will point to the rumoured price tag - £200m - and contrast that with Netflix which is now valued at about $10 billion.

And they will ask the old question - why can't we in Britain grow our own world-beating technology businesses?

For a monthly fee, subscribers can receive movies and TV shows through the post or watch them over a broadband internet connection.

Over the years the company has grown rapidly and increased its reach by acquiring rival services such as Screenselect and Video Island. In 2008, it bought Amazon's fledgling DVD service; in return, the US retailer gained a significant stake in Lovefilm's business.

The company has been adding more services, including games rental and, more recently, online streaming - but it has also run into trouble. A dispute with Universal Pictures blocked access to major films such as Bruno and Public Enemies.

In recent months insiders have made it known that senior executives and investors were agitating for a sale, with reports suggesting that negotiations between the two companies have been under way since last autumn.

The move could help guard against the possibility that US rival Netflix, which has more than 16 million subscribers, could invade the British market.

Last year Netflix - which has pioneered online video subscription - suggested that it was looking to expand internationally, and is believed to be targeting Europe.

"We're now talking about other regions in the world," a spokesman told the Canadian Broadcasting Corporation in December.

"Based on the early success of Netflix Canada, we're going to continue our international expansion next year and we're going to allocate significant dollars to it."

Investors in Lovefilm said the deal should be seen as a European success story.

"This is a great deal for Lovefilm and Amazon," said Dharmash Mistry, a partner at Balderton Capital, one of the company's backers.

"Lovefilm is the Netflix of Europe and it will be central to Amazon's European and global strategy."

It was a sentiment echoed by Mr Calver.

"It's an exciting day," he told BBC News. "We've demonstrated that you can take a business model, take an idea and grow a successful business and attract the attention of a truly global company like Amazon."

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