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LoveFilm servicesAmazon today announced that it has acquired LoveFilm, Europe’s leading movie subscription service, for an undisclosed sum, but a figure of around $200 million is being bandied around. Amazon already owned 42 percent of Lovefilm. The LoveFilm service and website will remain live, but no other details of Amazon’s plans for the service have been released.

Lovefilm is the top DVD-rental subscription service in Europe. As with Netflix, users sign up for a subscription online and then request DVDs, which are sent by mail. A digital streaming service to PCs, Internet TVs and the Playstation 3 is also available. LoveFilm offers 70,000 titles and has nearly 1.6 million members across the UK, Germany, Sweden, Denmark and Norway.

I talked to Dharmash Mistry from Balderton Capital, one of the main investors in LoveFilm. He told me that one of the reasons Amazon decided to buy now is the success of Lovefilm’s nascent digital business (the digital streaming service launched in May 2010). 20 percent of Lovefilm’s movies are now consumed via streaming. The advent of smart, Internet-connected TVs, also represented a turning point.

I interviewed Lovefilm’s chief digital officer, Lesley MacKenzie, late last year. At that point, the company saw itself at the early stage of a transition from physical to digital delivery. The speed of that transition depends on the level of broadband access in various European countries as well as on whether users value the digital service as highly as a physical DVD.

Lovefilm supports Sony and Samsung smart TVs, but MacKenzie told me that Europe is 18 months to 2 years behind the US when it comes to TVs that support Internet connections and can display Web videos and other services. The company had noticed that smart TV users are 3 times as active as PC users. Mackenzie also said that, for more recent movies, if users are given the option of ordering a DVD or paying extra to stream the movie immediately, a large proportion of customers will pay.

Mistry pointed out that Amazon has a global distribution network and strong relationships with the studios. It also owns a plethora of assets, such as the IMDB movie database, that could be used to enhance LoveFilm’s services. Could this mean that Amazon plans to go head to head with Netflix?

Netflix is rumored to have plans to launch a European service soon. When I asked MacKenzie if Lovefilm felt threatened by those plans, she mentioned that Netflix pulled the plug on a previous UK rollout in 2004. In her opinion, Europe was not ready for a mainly digital service from a brand largely unknown in Europe. In the US, Netflix is charging ahead with providing a streaming-only movie service to compete with that of rival Hulu.

Lovefilm is based in London and was founded in 2003. Its backers include, Index Ventures, Arts Alliance Media, Balderton Capital and DFJ Esprit.

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