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Amazon to acquire remainder of Lovefilm International

Amazon already holds a 42% stake in the European online film rental service. The deal for the rest of its stock positions Amazon to compete more directly with Netflix.

January 21, 2011|By Ben Fritz, Los Angeles Times

The world's biggest online retailer is now competing more directly with the nation's biggest DVD rental service.

Amazon.com has agreed to acquire the shares it does not already own in Lovefilm International, a DVD and online film rental service similar to Netflix that operates in Europe. The Seattle company already holds a 42% stake in Lovefilm, which is headquartered in London and Luxembourg.

Financial details were not disclosed, although the Financial Times said the deal values Lovefilm at about $317 million. Lovefilm Chief Executive Simon Calver, in an interview, declined to comment on the price.

The acquisition marks a return to the DVD rental business for Amazon, which previously had such an operation in Britain and Germany before selling it to Lovefilm in 2008 for stock.

Like Netflix, Lovefilm ships DVDs through the mail and streams movies over the Internet to subscribers for a monthly fee. Unlike Netflix, it also ships games. Lovefilm has 1.6 million members and operates in Britain, Germany, Sweden, Denmark and Norway.

The deal comes as Amazon is preparing to launch an online movie subscription business in the United States that would compete with Netflix's popular streaming service, according to people familiar with the matter.

Amazon could use Lovefilm's technology and experience to help it launch that operation.

However, the immediate priority will be growing the new subsidiary on its home turf in Europe, where Lovefilm is used by 1% to 5% of households in the countries where it does business. Netflix, by contrast, is used by 14% of American households.

"There is still a huge runway for us to grow," Calver said. "And we think Amazon, with its size and scale, will be able to help us do that."

By helping Lovefilm to grow in Europe, Amazon could also make it more difficult for Netflix to launch there. Netflix recently began its international expansion in Canada and said it is seeking to move into other foreign countries soon.

Amazon is not the only company that has been eyeing the growth of Netflix, which has quickly become a dominant force in the DVD rental business. It had nearly 17 million subscribers as of Sept. 30. And its stock rose 219% in 2010.

The company's success had led some media executives, including Time Warner Inc. CEO Jeff Bewkes, to question whether Netflix is fairly compensating them for access to their movies and television shows.

Lovefilm will continue to operate under the same management after the deal closes by the end of March and is planning to add to its staff of 450, Calver said.

ben.fritz@latimes.com

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