Amazon Buys Lovefilm for Rumoured £200 million - European Expansion Ahead?

written by: Richard Kastelein

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The BBC is reporting that Amazon has agreed to buy UK online movie rental service Lovefilm for a rumoured £200m (a far cry from USA's Netflix which is now valued at about $10 billion), which has more than 1.4 million members around the UK as well as operationsin Germany and Scandinavia.

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

"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," Lovefilm chief executive Simon Calver told BBC News.

According to the UK Daily Mail, Calver is a cool £2 million richer with a 1pc stake in the company.

Investors in Lovefilm include European venture capital firms Arts Alliance Media, Balderton Capital, DFJ Esprit and Index Ventures. Some are believed to have pushed for an exit, says the UK Telegraph.

LoveFilm is now officially a British subsidiary of Amazon.com which has provided, for a number of years, online video rental (rental-by-mail) and resale of DVD-Video, Blu-ray, and video game console Discs, as well as on-demand video streaming over the internet of movies in the UK, Germany and Scandinavia. In January 2011, LoveFilm claimed to have over 1,500,000 members, over 67,000 titles, and over 4 million rentals per month across five countries. Through a series of mergers and acquisitions, LoveFilm has, in a few years, become the leading online DVD rental outlet in the UK and across Europe.

The Guardian quotes:

"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 Amazon's vice-president of European retail, Greg Greeley. "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."

...Lovefilm customers can now also stream films over a number of internet-connected living room devices, including Sony and Samsung TV sets, and the PS3 games console.

...Saul Klein, a partner at Index Ventures and the co-founder of Video Island, said the deal opens the door to a range of "mouthwatering" integration opportunities with Amazon's existing assets, including the movie database IMDB. "When you get to the scale of business of Lovefilm – doing £100m in revenue, being profitable and growing, not just in the UK – you end up having a lot of [future business] choices," Klein said.

Lovefilm is one of the most impressive new media businesses to have come out of the UK in the last ten years, and British reaction is tepid and some in the UK tech scene will be disappointed that Lovefilm could not carry on growing as an independent business. This left the BBC wondering:

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

But, 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.

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."

Ben Rooney at the Wall Street Journal is looking at the acquisition as perhaps a revival of the European tech scene:

Over the last three years, 13 companies in the online/software market have exited with valuations of over $250 million. Of those, only four were to IPO (Betfair with a valuation of $2.0 billion, Ocado at $1.604 billion, QlikTech at $750 million and YOOX at $548 million.)

Dharmash Mistry, partner at Balderton Capital, which was an investor in five of the 13 exits, said the LoveFilm exit gave the lie to the oft-repeated claim that Europe could not create international players. “Just looking at the Internet sector, so not including cleantech or hardware, that is 13 global companies that have been created from scratch and then achieved huge exits.”

...The technology market here in Europe is getting hotter. It is still a shadow of the U.S., but there are players who can really make a success of it. That Europe is attractive to buyers is without doubt. But this sale does not solve the problem that everyone is asking about, that the politicians want, that the V.C.s are asking: Where is the $1 billion exit? We want more players like ARM and Autonomy who are huge players in their own right.”

 

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