Amazon.com
London's Sunday Times is reporting that the leading online retailer is making a play to acquire all of LoveFilm, the United Kingdom-based Netflix-esque service that rents DVDs with a streaming component.
We've heard this before.
This is the same publication that reported a similar rumor back in September. The deal's price tag -- now at $312 million -- hasn't changed much over the past four months.
What has changed, though, are the reasons to believe that Amazon may be serious this time.
Wake me up when September ends
There are two major developments that have taken place since the original chatter.
For starters, Amazon went for an acquisitive passport stamp when it acquired Spain's BuyVIP.com online buying community in October. It only makes sense for it to consider LoveFilm, especially since it already owns a 42% stake in the service with 1.4 million members.
Perhaps the bigger reason for Amazon to roll up its sleeves and settle for more than a minority stake in LoveFilm is that Netflix is coming.
Netflix's launch of a streaming-only service in Canada has been a success since its launch in late September. Netflix expects the offering to be profitable within a year, and it's likely to announce an expansion to at least one international market in 2011.
It can always target Latin America or Asia next, but Europe is the safer wager. If Netflix does tap the European market, Amazon acquiring LoveFilm would give it a 1.4-million-member head start.
It's getting crowded closer to home
It makes sense for both companies to be eyeing a European vacation given the competitive climate in the United States.
Amazon and Apple
However, the competition is getting smarter. Comcast
Advantage: Amazon -- in Europe
Netflix's moat is more impressive than cynics think, but it's going to be in for a meaty surprise if it thinks it can snap its fingers and conquer Europe.
If Amazon is able to buy LoveFilm -- and it would come at a lower price than the $312 million being discussed since it already owns more than a third of the venture -- it will be the one to beat in Europe.
Amazon would have the advantage of physical distribution. Unless Netflix plans to break from the Canadian playbook and build regional distribution centers, rolling out a strictly digital rental service would require aggressive pricing to compete against LoveFilm. Europe's largely tiered Internet pricing also eats into the value proposition of Netflix's "unlimited" digital content.
In other words, Netflix won't have it easy in Europe. Just as Netflix's aggressive pricing strategy was enough to scare away Amazon from launching a similar stateside service several years ago, Amazon beefing up its presence in Europe may be enough to find Netflix deploying its streaming service to other continents first.
The two companies are messing around with the Risk board game, though these moves are more about rewards than risks.
Who do you think will be the top dog in Europe in five years? Share your thoughts in the comment box below.
