Amazon Buying Lovefilm To Build European Movie Rentals Business

Amazon (NSDQ: AMZN) has finally confirmed it’s buying the 58 percent of Lovefilm it doesn’t already own – its bid to become a major European online movie subscription business. There’s no price disclosed, but someone around the deal had been pumping The Sunday Times with a £200 ($320.31) million price tag for months.

That was likely a ploy to flush out rival bidders before signing papers with Amazon – and we understand it to have been about the eventual sale price.

An Amazon acquisition has been pre-destined since 2008, when Amazon gave Lovefilm its own UK and German DVD rental business, which it now supplies back to Amazon customers, in return for a stake in the company. It’s been a matter of when, not if.

Lovefilm’s pre-tax loss slimmed to £900,000 ($1441408.75) on a third better revenue in 2009, according to accounts, in which Lovefilm states online is now its “primary” business.

But that’s not yet true – though Lovefilm has 1.25 million subscribers, its biggest channel is still DVD, having grown up through the consolidation of a patchwork of smaller web-based DVD rental businesses.

The service operates in the UK, Germany, Sweden, Norway and Denmark, and now offers web streaming, but has been taking this online service to the new and coming wave of connected TVs and boxes, like Samsung Internet@TV, Sony (NYSE: SNE) Internet TV and Playstation 3.

Still, as we reported this month, Lovefilm’s online repertoire, like its counterpart Netflix’s, is just a tenth of its DVD catalogue, because rights are harder to secure. The company had to raise £10 ($16.02) million in debt to fund its online rights drive…

It’s an opportunity that could see Lovefilm’s fortunes catapult on these new TV platforms – but only if it can secure an A-grade movie line-up.

An Amazon acquisition is therefore mutually beneficial – Lovefilm gets the money it needs to continue buying rights, Amazon gets the most promising company in the European field, as it looks to become a major movie, not just book, seller on both sides of the Atlantic.

Balderton Capital, DFJ Esprit and Index Ventures had been Lovefilm shareholders, along with many of the founders of the companies on which Lovefilm itself was built over the years.