Amazon In Talks to Buy Out UK’s Lovefilm

Amazon (s AMZN) is reportedly looking to buy U.K.-based video rental firm Lovefilm in a deal that would value it at £200 million ($312 million), according to a report in the Sunday Times (cited by Reuters). Buying Lovefilm could give Amazon a stronger position in the U.K. and also give it some expertise to go up against Netflix’s (s NFLX) subscription DVD-by-mail and video rental business.

Amazon already owns a sizable stake in Lovefilm, partly through a deal in which Lovefilm firm acquired the online retail giant’s DVD rental business in the U.K. and Germany in 2008. Amazon also bought out one of Lovefilm’s venture backers, giving it a 42 percent stake in Lovefilm altogether.

Acquiring the rest of Lovefilm would give Amazon deeper penetration in the U.K. rental market. Lovefilm, which is known as the “Netflix of Europe,” provides a service that offers DVD-by-mail and streaming videos by subscription in six countries throughout Europe. It also has an online pay-per-view service that would fit in well with Amazon’s existing video-on-demand offering.

While Amazon is unlikely to begin a DVD-by-mail service in the U.S., acquiring Lovefilm could give it the domain expertise necessary to do so, and it already has the warehouse and shipping infrastructure needed if it chose to launch an assault against Netflix here. The availability of a subscription streaming service could also give Amazon help against Netflix, which currently rules the market with a $9 a month service that gives users access to more than 20,000 video titles. Amazon is reportedly looking to launch its own subscription service soon, and has been in talks with media companies like NBC (s GE), Time Warner (s TWX) and Viacom (s VIA) about doing so.

Of course, a Lovefilm acquisition could just be Amazon’s way of countering Netflix before it expands into other markets with its streaming service. Netflix announced earlier this year that it is offering its streaming service to Canada by the end of the year. Launching in the U.K. or other markets may come soon after.

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