The Demise of LoveFilm By Post: Lessons Learned

Amazon recently announced to it’s LoveFilm By Post subscribers that it would cease the service at the end of October this year. Declining interest and the rise of full HD streaming make this news no surprise.

Amazon sent this message to LoveFilm subscribers recently:

We have very much enjoyed delivering the LoveFilm By Post service to our customers. However, over the last few years we’ve seen a decreasing demand for Blu-ray and DVD rental as customers increasingly move to streaming. Due to this, we will be closing the LoveFilm By Post service on 31st October 2017.” (source)

LoveFilm by Post envelopes
photo credit: John Telford / Twitter

If you’ve never heard of Amazon’s European-based DVD rental service, it’s the last remnant of an online subscription rental model started by Netflix in 1998 that disrupted and eventually destroyed the brick-and-mortar video rental industry. In fact, LoveFilm is often referred to as “The Netflix of Europe.”

Subscribers of this service in the UK and Germany are currently afforded the ability to receive their favorite titles by mail. While this might sound silly to most who have a decent Internet connection, the majority of LoveFilm subscribers live in rural areas with poor web access or limited bandwidth ability with the ISPs they have to choose from.

The Back Story on LoveFilm

Reed Hastings of Netflix got his idea for a video rental subscription service in 1998 after being charged an outrageous $40 “late fee” for not returning a movie to Blockbuster on time. He decided enough was enough and a shade over a decade later, the very last Blockbuster store closed, to very little fanfare.

Netflix had already moved to a digital streaming model by Blockbuster’s official demise in 2010, and Amazon was hot on their heels with Amazon Unbox (now Amazon Video). LoveFilm at this time was operating on a smaller scale in the UK and Europe, mailing DVDs and Bluray discs to their two-million-plus subscribers, until they too made the shift to their Watch Online business model in February 2009.

Watch Online initially allowed users to download movies, but couldn’t offer the bandwidth at the time to offer streaming for its subscribers. LoveFilm still offered DVD and BluRay rentals during this period, but with the rise of digital downloads and streaming, the future of their popular postal delivery service was bleak when contrasted with the streaming model Netflix and Amazon offered subscribers.

Eventually, Watch Online changed to LoveFilm Instant, where users could stream content. However, the service was absorbed into Prime Instant Video after the Amazon purchase. With this move, Amazon made it clear they weren’t going to keep LoveFilm around for mere nostalgic reasons; they are in the business of making money after all.

Why LoveFilm is really closing

LoveFilm By Post is closing because the majority of the planet is now highly connected. Even developing countries have high-speed Internet access now. With a decline in interest, Amazon is making a very practical decision – to make money and not waste resources on something that will die off completely, sooner rather than later.

LoveFim by Post disks
photo credit: Alphahr

The writing on the wall has been obvious for some time:

  1. Amazon became a majority shareholder in the company as of 2008, putting the ecommerce megalith in control of LoveFilm’s eventual fate.
  2. While LoveFilm offered online streaming and allowed customers to order titles to be delivered by post, the convenience of digital meant they were Amazon’s direct competitor in the UK and parts of Europe.
  3. Amazon is thought to have purchased the company in an effort to thwart Netflix from doing the very same thing and gaining LoveFilm’s market-share in the process.

Considering the above reasons, LoveFilm never stood a chance. By offering Amazon a majority stake in the company in 2008, then selling out entirely for a little over 300-million in 2011, the founders of LoveFilm are the only people that disappointed subscribers should be angry with. And, even they were just doing what the majority of modern day tech startups aspire to.

Amazon gave LoveFilm subscribers plenty of time to make the shift over to their service, absorbing LoveFilm Instant into Amazon Prime immediately after purchasing the smaller company. LoveFilm By Post has been kept alive for years, and likely hasn’t been making the billion dollar ecommerce company much money in comparison to their content streaming, and physical DVD and BluRay disc sales.

Opportunities to a competitor?

In the UK, there are practically only two major DVD and Blu-ray rental services existed: LoveFilm and Cinema Paradiso. With the demise of LoveFilm, the underserved niche market is now up for grab by Cinema Paradiso.

Cinema Paradiso website screenshot

In their website, Cinema Paradiso released an important statement regarding the closing down:

We have just learned the sad news that LoveFilm, the only other service in the UK offering DVD and Blu-ray rental, is closing down its service on 31st of October 2017. As a result, we have been overwhelmed with questions so please refer to our FAQ page to get some of the answers. And NO, we are not closing our service. We are going strong as ever and investing in the titles all the time. So we are here for many years to come.”

With such guarantee, it’s safe to assume that LoveFilm’s existing clients will be more than happy to jump ship to Cinema Paradiso, which essentially making them a stronger-than-ever company.

Business lessons learned from LoveFilm By Posts closure

From a business standpoint, the real lesson to be learned here is that you need to continually focus on scaling in order to survive. When LoveFilm sold their business to Amazon, it showed just how savvy they were. They could have taken a major risk and scaled their business up to the level it would have needed to be in order to compete with Amazon and Netflix, but instead the founders sold the business when it was at its peak, with millions of subscribers. Had they tried to scale, they surely would have lost the battle.

Instead, they sold for hundreds of millions when an offer was made, rather than dying a slow death at the hands of declining consumer interest, a lack of buying power to purchase limitless movie and television content, and lack of capital to make original content like Amazon and Netflix are now doing on a grand scale.

LoveFilm wouldn’t have been able to compete and the founders more than likely understood this when the final decision to sell was made. Instead, they left the business as millionaires and their investors made out just fine, too.