LoveFilm cashes in its chips as Amazon completes buyout

LoveFilm has become a big European enterprise success story - and now it's made even more money for its various investors...

by James Taylor
Last Updated: 19 Aug 2013
A big day for LoveFilm, the DVD and online film rental business: Amazon has just agreed to buy the 58% of the company it doesn't already own, in a deal that allegedly values it at around £200m. For a company that was only started in 2004, to become a £100m revenue business with operations across Europe in just seven years is pretty impressive; it had got to the size where Amazon pretty much had to buy it out if it had any aspirations of taking on US rival Netflix on this side of the pond. Today's deal should prove a nice little earner for the investors and senior execs who have got the business where it is today…

This deal isn't a complete surprise: Amazon has owned a 42% stake in LoveFilm since 2008, when LoveFilm bought its European DVD rental business, and the two companies have apparently been in negotiations for several months about a complete buyout. Strategically, Amazon arguably didn't have much choice: US market leader Netflix is apparently targeting European expansion, so if Amazon hasn't done this deal, maybe Netflix would have done. Which probably wouldn't fit in well with Amazon's apparent global online retail dominance masterplan. Even if it does mean buying back a business it has (kind of) sold once already.

LoveFilm's corporate history is so complicated it makes our head hurt, but basically it emerged from a tie-up of three online DVD rental companies - Online Rentals, ScreenSelect and Video Island - and has since been growing across Europe, largely via other small acquisitions, backed by VC money. It now has the best part of 1.5m subscribers across the continent, and did about £100m in sales in 2009. It has also established a digital streaming service - significantly, since we imagine the idea of having DVDs delivered by post will sound ridiculously old-fashioned in a few years' time. So it's fair to say that LoveFilm has become quite a British success story.

So what next? The backing of Amazon, with its exceedingly deep pockets, presumably won't hurt. The big competitive threat is obviously the arrival of Netflix - but the combination of LoveFilm's European presence and Amazon's resources should make for a pretty formidable force (if nothing else, maybe it’ll give them a bit more clout so they can resolve this annoying dispute with Universal, which currently won’t let LoveFilm rent its movies).

But in the short term, the good news is that today's deal should equate to a nice windfall for all those people still with skin in the game - from the VCs, to the original entrepreneurs who decided that online DVD rental was the next big thing. Good for them.

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