NE film and DVD service LoveFilm posted a loss of £21.2m in 2012, falling into the red due to an increase in costs.
The company, which was acquired by US online retail giant Amazon in 2010, made a profit of £14m in 2011.
But last year its earnings were hit by the cost of interest payments on loans and investment in new technology to move the business online, away from its original model based on DVD rentals.
The firm posted a net decrease in cash of £32m, compared to an increase of £31.8m in 2011.
LoveFilm has 2m members and operates its business both in Germany and the UK.
The firm has established partnerships with major companies, such as Guardian Newspapers, Odeon and Vue Cinemas in the UK.
In Germany, LoveFilm has partnered with firms including South Korean conglomerate Samsung.
LoveFilm has regular competition from Netflix and will face further rivalry from this week as Tesco launches an ad campaign trumpeting its Blinkbox service.
Amazon was not immediately available for comment.