It has been a busy few months since LoveFilm merged with rival Video Island in April 2006. Simon Calver, CEO of the combined company who previously led Video Island (known for its consumer brand Screen Select), can point to an impressive set of statistics: the company is the number one online DVD rental service in Europe (it operates in the UK, Sweden, Norway and Denmark, and has recently launched in Germany) with about 500,000 active subscribers.
Yet Calver does not sound content - he has ambitious plans and is quick to show how the company and its market can grow. The company only serves about 3% of UK households and has about 20% of the entire rental market. "In the next couple of years we want to double or triple our size in the UK," Calver suggests.
While Netflix in the US only several weeks ago began offering its VoD service, LoveFilm has been a leader in the space since late 2005, already securing digital rights from studios including Universal, Sony and Warner Bros. Calver knows that VoD has not taken off yet, but he thinks LoveFilm will be well positioned when it does.
He warns that for legal downloads to appeal to consumers, content owners might have to rethink their approach. "In a survey, 70% of our customers said they would prefer a single monthly fee for unlimited downloads," Calver says. "We could create models that give studios greater revenues than on a pay-per-transaction model. The biggest trend in the market is that (consumers like) 'free and short' content at the moment, and the challenge is to move that to 'long and paid'. The question is how to make that transition."
How and when the market shifts to VoD is not keeping Calver awake at night, because LoveFilm makes it a priority to offer a diverse service to its users - from tickets to theatrical releases, to postal DVD rentals, to online offerings. "Overall our business model will be about promoting choice," he says. He is practical about how slow the transition might be. "Rental will still be the largest part of our business for years to come."
LoveFilm is a stand-alone entity but keeps close ties to UK digital entertainment services company Arts Alliance Media, which is still LoveFilm's largest shareholder (rather confusingly, AAM, not LoveFilm runs the LoveFilm Pro brand for industry users).
On a tour of Love Film's new west London office, Calver is proud to show extra space ready for staff growth, as well as the integrated IT department. The latter is the result of a successful merging of the former LoveFilm and Video Island systems onto a single platform that serves all customers.
With the merger behind them, LoveFilm now plans to grow through aggressive marketing of the current UK service, including direct mailings and the company's first TV ads. That is part of the reason for hiring new UK managing director Andrew Ground, a veteran of Homeserve and Sainsbury's. LoveFilm already has a number of key UK partners including Tesco, Boots and HMV.
The other push will be geographical expansion further into Europe. Calver says the company's next moves will be through organic growth and strategic acquisitions. "The goal is to build LoveFilm into one of Europe's largest entertainment brands," he says.
LoveFilm: by the numbers
- 2 million rentals per month
- $75m+ 2006 revenues
- 500,000 subscribers
- 20% of UK DVD rental market
- 80% of surveyed LoveFilm customers have watched video online
- 2,000+ digital titles.