Market Insight

Lovefilm introduces streaming-only package

December 14, 2011

Irina Kornilova Irina Kornilova Manager – Research & Analysis, Broadband Media, IHS Markit

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UK DVD-by-post and online video provider Lovefilm has launched a new streaming-only package. The offer is currently available to UK users for £4.99 a month for unlimited access. It allows users to stream movie and TV content (5,000 titles available within the present offering) to PCs, Sony, Samsung and Cello connected TVs, as well as to PS3s, Xbox consoles, and iPads.

Lovefilm continues to offer bundled subscriptions combining its DVD-by-post service with online streaming. The number of streaming hours in the combined packages depends on the subscription plan;  the unlimited streaming offer starts at £9.99 a month with which users are able to order two DVDs simultaneously. The new £4.99 offer excludes the DVD component, but lowers the price at which users can gain unlimited access to the Lovefilm catalogue.

Lovefilm's move towards separating its streaming proposition from its traditional subscription is in line with its overall development strategy and took place just prior to Netflix's launch in the UK. Netflix announced that it is arriving in the UK with a streaming-only proposition in early 2012, although the price range and content availability is still unknown.

Lovefilm's defence has been to develop its offer in several directions: its online offer is available on an increasing range of connected devices (its most recent launch was on the Xbox 360), it has been striking new content deals where possible (including a new multi-year content deal with Warner Bros) and it has been actively promoting itself through a sizeable pre-Christmas marketing campaign.

Arguably, Lovefilm only has to match Netflix's offering in order to ensure that churn to its encroaching rival is minimized. It is Netflix which has the uphill battle to fight in persuading consumers to sign up. Although Netflix's launch pricing is currently unknown, £4.99 is a reasonable assumption for entry-level - its basic streaming-only package in the US is $7.99. However, the big question remains around content, since Lovefilm offers just under 5,000 titles for online streaming within its digital package proposition (with 1100 titles available on a PPV basis) - Netflix must match this offer to stand a chance in the UK market.

Lovefilm's move does not directly reflect the process Netflix went through in July 2011. Netflix completely separated streaming from DVD-by-post by introducing a new pricing strategy - unlimited streaming and unlimited DVDs became available for $7.99 a month each. In previous offerings, DVDs by mail were treated as a $2 a month add on to an unlimited streaming plan. So what used to cost $9.99 a month became $15.98, because for both streaming and DVDs customers now have to buy two separate subscriptions. As a result, the number of digital-only subscribers grew by 90 per cent, the number of users taking both the DVD and streaming options decreased by 24 per cent and the number of DVD-only subscribers decreased by 26 per cent. IHS Screen Digest forecasts that there will be more digital-only subscribers than traditional or bundled subscribers in 2012. 

Unlike Netflix, Lovefilm has not separated its streaming and DVD businesses, instead it has introduced the streaming-only package as an additional service. IHS Screen Digest forecasts that by the time Netflix launches in UK in early 2012 fewer than ten per cent of all Lovefilm's subscribers will be employing the digital-only version. The digital-only package is expected to show steady growth together with bundled subscriptions. 

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