Amazon plans LoveFilm buy for £200m

AMAZON is planning a buy-out of the online DVD rental company LoveFilm, which would value the firm at £200m.

The online retail giant already owns 42 per cent of LoveFilm after a deal in 2008 when it sold its DVD rental arm to the company. The cost of a buyout would therefore be around £116m.

With reports suggesting that LoveFilm chief executive Simon Calver has begun planning an initial public offering, a deal with Amazon could pre-empt the float.

LoveFilm generates revenues by allowing users to rent several DVDs per month for a subscription fee: the films requested are sent by post. It also allows its customers to download some films and recently struck a deal with MGM to make the Hollywood studio’s movies available to subscribers.

Its revenues soared by a third to £97m in 2009 and it boasts over 1.25m users across Europe.

Aside from Amazon, its current major shareholders include Balderton Capital, Arts Alliance Media, DFJ Esprit and Index Ventures and it is partnered with several other entertainment services such as Odeon Direct and Tesco DVD.

Calver claims that the company’s strategy is to expand its “hybrid model” of renting out both physical DVDs through the mail and via download.

Despite its success, LoveFilm’s revenues will still be a drop in the ocean for Amazon, which generated global revenues of $7.6bn in the third quarter of last year.

Amazon declined to comment.

● Merged with Video Island in 2006.

● Has a presence in UK, Germany, Sweden, Norway and Denmark and rents out over 1m DVDs per week.

● Based in Peterborough, UK.