Amazon announced this morning that it has bought the remaining 58% of European DVD-by-mail and online subscription service LOVEFiLM. Amazon gained its stake in 2008 when LOVEFiLM acquired Amazon's European DVD rental business (Amazon also invested in LOVEFiLM as part of the deal). Given Amazon's position, the new deal, said to be worth around $320 million, was widely rumored.
Though the companies offered no insight in the press release as to what prompted the move, I think it can be interpreted as a bid by Amazon to make Netflix's expansion into the European market much harder. Netflix expanded into Canada last September with a streaming-only service and has continued to beef up the content selection offered there, even as stories have emerged that Canadian broadband ISPs' consumption caps can generate incremental fees for heavy Netflix users. Nonetheless, Netflix has been bullish about its near-term profitability expectations in Canada and executives have made no secret of the company's intention to expand further internationally, with Europe certainly in the bullseye.
It looks like Netflix is set to launch its streaming-only service in Canada this Wednesday, according to a report in The Hollywood Reporter, which says CEO Reed Hastings will do the unveiling in Toronto. Netflix announced on July 19th that it would launch in Canada, its first non-U.S. market.
There are pros and cons to Netflix entering the Canada without offering DVDs-by-mail. The main pros are that Netflix avoids the expense associated with both building out the DVD warehouses/delivery centers and the postage expense to send discs. The cons are that the content selection will be drastically lower than what's available in the U.S., which could disappoint Canadians eager to have the same American service. Even though Netflix has been aggressively adding to its streaming catalog, it's still a fraction of what's on DVD. And it's not clear yet whether all the streaming deals Netflix has recently cut include Canadian distribution rights.
Hastings has been candid in the past that Netflix will proceed cautiously with international expansion. There are a lot of new variables outside the U.S., including competition. Over the weekend there was a report that Amazon may be looking to acquire the remaining part of U.K.'s LoveFilm that it doesn't already own.
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