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Summary:

Amazon had long been rumored to want to buy Netflix. Instead, it bought the next best thing: Lovefilm. Regarded as the European version of Netflix, Lovefilm operates a DVD-by-mail and subscription streaming business. But will Amazon go head-to-head with Netflix in the U.S.?

lovefilm

What do you do when you miss your shot at purchasing the top video subscription service in the U.S.? If you’re Amazon, you buy the next best thing: Lovefilm. The retailing giant said Thursday it has bought out all remaining shares in the UK-based DVD-by-mail and streaming video company, which currently has operations in the UK, Germany, Sweden, Norway and Denmark.

Lovefilm operates a business very similar to Netflix in Europe, offering subscriptions to a DVD-by-mail service and a streaming video service for a low monthly fee. The company has about 70,000 DVD and Blu-ray titles available by mail and about 7,500 films for streaming, compared to about 100,000 discs and 20,000 streaming titles available on Netflix. Like Netflix, Lovefilm is also expanding the availability of its streaming offering to be viewable on TVs, Blu-ray players, and other connected devices like the PlayStation 3. And last month, Lovefilm rolled out its streaming service to Germany, a new market for its over-the-top offering.

The acquisition shouldn’t come as a complete surprise; after all, Amazon already had a significant stake in Lovefilm prior to today’s announcement, and had reportedly been interested in buying out the remainder for quite some time. Amazon got that stake after Lovefilm acquired Amazon’s DVD rental business in 2008. Amazon also bought out one of Lovefilm’s venture backers to give it a 42-percent stake in the subscription video firm.

Amazon had long been rumored to have an interest in acquiring Netflix, as a way to supplement its online video-on-demand service with a subscription rental offering. But despite years of rumors, Amazon missed an opportunity to buy Netflix on the cheap, since Netflix stock has shot up over the last year, rising more than 250 percent in that time and giving it a market cap of almost $10 billion.

Speaking of Netflix, Amazon’s acquisition of Lovefilm comes not long after Netflix introduced its streaming service in Canada: its first international market. And after what it sees as a successful rollout there, Netflix has been making noise lately about accelerating its international push and entering new markets this year. That could mean that Netflix might soon launch in the UK, facing off against Lovefilm head-to-head.

At the same time, there’s the possibility that Amazon could bring Lovefilm’s offerings stateside. While the firm’s content seems to focus on the European market, Amazon has been looking to compete with Netflix directly, and reportedly had been pitching studios to operate its own subscription streaming business in the U.S. Using Lovefilm’s existing studio relationships and Amazon’s own cloud-based infrastructure, Amazon could possibly accelerate its subscription video plans and introduce a Netflix-like service here.

All that said, the two also have a somewhat symbiotic relationship, as Netflix is a huge Amazon Web Services (AWS) customer. Since announcing that it was moving to the cloud last year, Netflix has increasingly relied on AWS to power the backend infrastructure behind its streaming business, and may be one reason why Amazon recently increased file object size for its Simple Storage Service.

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