Netflix’s Red Pill, Lovefilm’s Blue: DVDs Dowsing Amazon’s Fire?

In the movie The Matrix, the main character Neo is offered a choice between a blue pill (“the story ends, you wake up in your bed and believe whatever you want to believe”) and a red pill (“you stay in Wonderland and I show you how deep the rabbit-hole goes”).

For physical-to-digital transition, the metaphor is apt. By consigning its DVD business to a past called “Qwikster”, Netflix has swallowed the red pill and is making a digital moonshot (the same route Guardian News & Media is following with its new “digital-first” strategy). But its European counterpart Lovefilm, which mocked Reed Hastings, appears less certain. Could that hurt its owner Amazon’s global content ambitions?

Slowly, slowly, catchy monkey

Lovefilm, too, wants to reach online Wonderland. It even wants to launch streaming-only services in new countries it enters. That makes total sense (why invest in new DVD warehouses?).

But, in its current countries of the UK, Germany, Sweden, Denmark, and Norway, its strategy is about more softly migrating its core DVD consumers, all 1.7 million of whom still get unified streaming access, to the new platforms.

The company’s app is gaining carriage on connected TVs and just launched its iPad player, but its online catalogue on the devices is poor compared with its plastic rights roster, and that’s unlikely to change until either Lovefilm wins Competition Commission concessions from Sky Movies’ rights stranglehold or Lovefilm flips to a PPV model, where rights are easier to come by than in subscription.

So here’s the biggest differentiator – where Netflix is now trying to reduce its reliance on plastic, Lovefilm privately acknowledges it must safeguard its DVD model.

That’s a big difference from Netflix (NSDQ: NFLX). Where the majority of Netflix’s subscriptions are now for streaming only, Lovefilm won’t actually disclose what proportion of its dual-method subscribers actually stream. All in all, Lovefilm’s migration appears far more conservative than Netflix’s.

Blocking the Amazon?

Could this conservatism now hold back its owner Amazon’s European content ambitions?

Amazon has a history of lame globalisation strategy. It took it two years to ship the original Kindle outside the U.S. and there are no international plans for a Kindle Fire launch.

Even if it manages to take the hardware overseas, a couple of pieces of the Fire will still be missing for Amazon (NSDQ: AMZN). That’s because Kindle Fire is a gadget for deploying Amazon’s MP3, Instant Video, Appstore, Kindle, Prime and Web Services lineup. But neither Instant Video nor Appstore are yet available outside the U.S.

Internationalising Appstore should be easy enough. For video, the obvious step is for Lovefilm to become Amazon Instant Video. That would help Amazon to launch Kindle Fire on the back of a proper content suite, and to take its movie and TV rentals to connected TVs as it does in the States.

Neither Lovefilm nor Amazon will talk about this prospect. But the time does appear to be approaching for its inevitability. There now seems to be diminishing value for Amazon in Lovefilm, which was formed over years through an M&A amalgam of disparate DVD rental businesses, continuing to operate under its own brand. First, Lovefilm must prove to Amazon that it can make an accelerated digital switch.

Thursday night’s BBC Watchdog programme skewered Lovefilm for mis-selling by its BSkyB-style shopping mall hawkers. When it bought Lovefilm, Amazon probably hadn’t imagined a future in which the customer acquisition strategy involved employing people to deploy their sales patter whilst hanging around shopping malls.

*Time* to swallow the red pill?