European service expands its foothold

As Netflix continues its expansion in the U.S. and readies an international rollout, European outfit Lovefilm is also beefing up its presence.

With nearly 1.6 million members in Blighty, Germany, Sweden, Denmark and Norway, it is one of Europe’s leading subscription entertainment services. Like Netflix, it offers DVD and videogame rental by mail and is fast expanding into streaming pics and TV shows over the Internet that can be viewed on TV, home computer or PlayStation 3 via its Lovefilm player, which bowed last year.

And now after seven years of operation, the company has more muscle than ever.

Amazon, which already held a 42% stake in Lovefilm after selling its DVD rental biz in Blighty and Germany to the company in 2008, agreed to buy the film rental service in January. The rise of Netflix in the U.S. is thought to be one of the chief reasons for the buyout, and while no price was announced for the Amazon acquisition, analysts expected the deal to value Lovefilm at around £200 million ($325 million).

In 2005, Lovefilm launched as a U.K. video rental service. In 2006, it merged with Video Island, and in 2008, it bought Amazon’s European subscriber base. Now, it offers more than 70,000 titles to its subscribers, who pay up to $31.53 per month for the service.

Lovefilm CEO Simon Calver says there are a number of reasons why it formalized the deal with Amazon.

“Amazon brings a lot of experience from e-commerce and tech that we see as very important,” he says. “Plus, they bring more cash to invest in the business, and we see this as an opportunity to get much more aggressive.”

Calver says Lovefilm will try to compete on a broader platform over the next few years. “We want to give all the incumbents in the other markets a run for their money,” he says.

By incumbents, Calver means anyone that has a subscription entertainment service, including the likes of Sky, which monopolizes the Brit pay-TV market, boasting more than 10 million subscribers.

Momentum Pictures inked a film distribution pact with Lovefilm for titles including “The Girl With the Dragon Tattoo” and its two sequels and titles from its back catalogue offered exclusively to the site for a year. “We’re hoping that they (become) the U.K. equivalent of Netflix and start competing with Sky for TV deals,” says Momentum topper Xavier Marchand, who adds that because Sky already has deals locked in with the six majors, it pays top dollar to the studios and not much to the indies.

“For us, it would be great if (Lovefilm) could be a big competitor to Sky. They’re only going to grow if they have prime content on the pay TV window timeline.”

Ian Dawson, managing director of Icon U.K. Group, agrees, saying that Sky pays premiums only to the studios, but tends to lowball indies since, as the only game in town, it has the leverage to do so.

“But what Lovefilm has done is effectively taken the pay TV window for some of the indies,” Dawson says. “They’ve bought the window in which Sky would normally operate.”

In January, Icon also inked an exclusive distribution pact with Lovefilm, offering a slate of films including “Precious,” Viggo Mortensen starrer “The Road,” Mel Gibson starrer “Edge of Darkness” and Tom Ford’s “A Single Man” plus back catalog titles exclusively to subscription service for a year.

Among Lovefilm’s assets, says Dawson, is a pre-existing subscription base for its website. He calls the company dynamic and proactive, and says it appears to be putting together a lineup that targets its core audience.”They’ve been more creative in their programming and more diverse in the sort of films that they’re (buying),” Dawson says. “They’re taking more (chances).”

Major outfits such as Lionsgate U.K.; Optimum Releasing, a subsid of StudioCanal; and Vertigo Films, which released last year’s Blighty box office hit “Streetdance 3D,” are also in talks to ink deals with Lovefilm after Sky bids failed to meet the mark.

But while Blighty’s independent distribs are showering love on Lovefilm, the company insists its strategy is not competing directly with Sky.

“We believe that we are here to distribute content owners’ product, whether it be through DVDs or digital ownership,” Lovefilm chief marketing officer Simon Morris says. “Where we differ is that we champion theatrical distribution. A lot of our editorial content is about films that are out in cinemas.”

Morris says Lovefilm is open to exclusives, but says the company doesn’t demand them.

He adds that Lovefilm’s increasing customer base allows it to build demand for a film. “We can help establish demand in digital behavior,” he says.

Calver points to Lovefilm’s partnership with Amazon in putting the rental service in postition to realize its goals.

“There are huge opportunities in terms of what I see in front of us,” Calver says. “With continued marketing investment and getting on more and more digital devices and more digital content, we’re going to put our foot faster to the floor.”

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