The UK's top online DVD rental companies,LoveFilm and Video Island, have announcedplans for a 50-50 merger.

Video Island' brand will be consolidated under the LoveFilmconsumer brand.

LoveFilm and Video Island said that the newcompany "plans to exploit synergies on marketing, technology, distribution andoperations to grow profits faster and accelerate expansion across continentalEurope."

The new combined executive team will be led by Video Island CEO Simon Calver, while LoveFilm's CEO MarkLivingstone will step down from his post and serve as a consultant once themerger is completed.

"Both companies wereincredibly successful at what they did," Calver told "Video Island came to the merger with a larger number of subscribersand operating efficiencies at distribution centres. LoveFilmcame with good innovation, VOD partners, astrong brand, and strong white label partners. When you combine those twotogether you get a much stronger, more competitive company."

The combined company will have about 300 employees. Calversaid that it was "early days" in terms of staffing decisions but that therewouldn't be large-scale redundancies.

Both companies were founded in 2003. In the year that ended December 2005, sales of the combined groupwere more than $43.7m (£25m) and thegroup turned profitable in December.

The combined company will have more than 400,000 subscribers and amarket share of about 17% of all UK DVD rentaltransactions (online and offline).

Calver said that likely territories for expansionwould include Germany, France and Benelux. The company alreadyoperates in Sweden, Denmark and Norway.

Calver noted that they settled on the LoveFilm brand name because "thinking about international expansion, the words 'love' and 'film' areubiquitous across the world."

After the merger, the company will offer Europe's largest DVD library, withmore than 70,000 titles and 1.2 million DVDs and video games.

In recent months, LoveFilm had ramped up itsvideo-on-demand business, including a recent download-to-own deal withUniversal UK. Arts Alliance will continue toprovide VOD and electronic-sell throughservices to LoveFilm under a long-term agreement.

Video Island had started developingits VOD platform as well, but hadonly offered shorts thus far.

The combined company's investors include LoveFilm'smajority shareholder Arts Alliance Media and Video Island funders Benchmark Capital, Index Ventures, Cazenove Private Equity, and European Venture Partners.

During the merger talks, both companies were advisedby investment bank Altium. The deal is subject toshareholder approval but Calver said he hoped itwould be completed quickly.

The management team willalso include LoveFilm's current marketing directorSimon Morris, who will serve as group marketing director. ScreenSelectco-founders William Reeve and Alex Chesterman willserve as COO and director of UK, respectively.

Added LoveFilm's Livingstone: "I am privileged to have led the creation of LoveFilm over the last two years. The new combinedmanagementrepresents a world class teamand I believe thecompanywill now become a major force to be reckoned with in theentertainment world."