Market Insight

Amazon to close LoveFilm rental service

August 15, 2017  | Subscribers Only

Max Signorelli Max Signorelli Research Analyst – Home Entertainment, IHS Markit

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Amazon will close its DVD and Blu-Ray by mail service LoveFilm in the UK and Germany - its last remaining regions on 31st October this year. The termination comes 15 years after LoveFilm original founding in 2002 as ‘DVDsOnTap’ and 6 years after Amazon’s acquisition of the brand in 2011. Although considered by many to be an atiquanted method of delivery, the service boasted one of the largest libraries of content, with more than 80,000 Movies and TV episodes, which compares to around 40,000-50,000 for Netflix and Amazon’s streaming services.

Amazon attributes this closure to “a decreasing demand for DVD and Blu-ray rental as customers increasingly move to streaming”. In the UK and Germany, Amazon also offers digital purchasing and rental of movies as well as the bundled and standalone versions of its subscription video service Amazon Prime Video.

 

Our analysis:

DVD rental market declines have been unrelenting and substantial with end-of-year 2016 UK and Germany consumer spend representing just under half the value of 2014 at €59.06m and €104.01m respectively. In the UK the closure of LoveFilm leaves the independent Cinema Paradiso as market leader and will no doubt provide a welcome boost to their subscriber numbers.

In Germany, Amazon’s departure again leaves the DVD rental market with very few players; companies such as Videobuster - also present in Switzerland and Austria, and has a video on demand option much the same as Amazon’s ‘Instant Video’ service. The Rental market in Germany has also experienced marked declines; from €188.6m in 2016 to €104m in 2014. However retail has shown some resilience not seen in other parts of Europe, partly due to local preferences to cash transactions and eschewing of online subscription contracts.

In both markets have largely stemmed from the closure of standalone rental businesses, with bricks and mortar rental stores now largely extinct, with the exception of a few small local and specialist retailers.

Amazon has been winding-down LoveFilm for some time

Not only has a marked decline in the overall rental business contributed to the services closure, but Amazon’s business practices have also loaded the dice against the DVD rental part of its business.

Amazon has been pushing LoveFilm subscribers towards Amazon Instant Video for some time. For example, within the LoveFilm interface digital rental options are also highlighted, with membership benefits for prime members displayed alongside. For its users who still have a preference for consuming media via disc, such as those with slow broadband speeds, Amazon’s marketplace offers a viable alternative. New titles are still relatively expensive, however third party and second hand traders provide a vast range of available titles. Amazon’s strategy is to convert consumers to membership of its digital ecosystem, as it is within bundled services that low churn and high ARPUs can be found. Despite Amazon making a relative success of the DVD rental by post service, the consumption habits of remaining LoveFilm customers are just not compatible with Amazon’s on-demand media future.

Organization
Amazon Lovefilm
Research by Market
Media & Advertising
Category
Digital Media Video
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