In 2008, Amazon acquired a 42 per cent majority stake in LoveFilm, in a deal whereby LoveFilm bought Amazon's UK and German online DVD rental services in exchange for a cash investment into the company. The deal between LoveFilm and Amazon has proven to be mutually beneficial allowing Amazon to focus on its core business -selling physical goods through the internet- and made LoveFilm the largest online subscription company in Europe overnight. Since then LoveFilm has continued to grow by broadly following the model set out by Netflix in the US; developing a hybrid physical/digital offer with the core being physical DVDs, Blu-ray Discs and Games rentals with additional digital streaming of movies. Moreover, like Netflix, LoveFilm has partnered hardware manufacturers including Samsung and Sony embedding streaming services on HDTVs, BD players and most recently Sony PlayStation3 games consoles.

LoveFilm has previously investigated financing options to facilitate further expansion, including the possibility of stock floatation, thus the acquisition by Amazon does not come as a great surprise. With the backing of Amazon, LoveFilm will now be able to further expand its digital streaming offer, and like Netflix in the US it will particularly want to partner as many hardware CE manufacturers as possible and generally strive to make its digital offer embedded on as many internet TVs and connected devises as possible. Such approach would help LoveFilm grow its incumbent position in European online video services, particularly were Netflix to decide to enter the Europe market.

But LoveFilm's digital offer is in direct competition with subscription services from major pay TV operators, such as BSkyB, that already have subscription VoD rights as part of their existing TV deals with the major studios. As for TV broadcasters, streaming of catch-up TV shows has significantly boosted Netflix, but European broadcasters have already developed initiatives such as YouView and HbbTV to enable online consumption of their programmes on the living room TV. Therefore, LoveFilm is likely to find it an uphill struggle to duplicate the digital right acquisition strategy that Netflix benefits from in the US.

For Amazon, the acquisition diversifies its portfolio further, from being a strong online retailer of physical goods to now also being the largest European provider of online physical video to consumers.