Amazon plots expansion as it buys out Lovefilm

The online retailer Amazon is to take full control of Lovefilm in a deal that values the DVD rental business at £200m. Amazon, which already owns 42 per cent of Lovefilm, said yesterday it had reached an agreement to buy the remaining shares and the deal is expected to close by April.

Greg Greeley, the vice-president of retail in Europe for Amazon, which competes in the US rental market with Netflix, said: "We knew we would be expanding to Europe at some point."

Amazon sold its DVD rental business to Lovefilm in 2008, when it took the minority stake in the latter. Mr Greeley said: "As we got to know the management team, we saw the companies had a good cultural fit."

Lovefilm has 1.6 million customers in the UK, Germany, Sweden, Norway and Denmark. For a monthly subscription, it mails out DVDs from a catalogue of 70,000 titles – the most popular blockbusters currently include Inception and the second instalment in Stieg Larsson's Millennium trilogy, The Girl Who Played With Fire.

Customers can also stream films over the internet. In Britain, Lovefilm handles more than one million rentals a week yet, as the company points out, there is room to expand: it is still only in 5 per cent of UK homes.

Yesterday's deal comes after prolonged speculation about the future of Lovefilm. Private equity companies had expressed interest in a potential buyout, and management also considered a stock market flotation.

The chief executive, Simon Calver, said: "There were a number of options but we thought with Amazon's scale, expertise, resources and capabilities we could really expand. Since 2008, we have worked very closely together. Lovefilm has grown and now seems the perfect time to do a deal."

Amazon said it was too early to go into specific expansion plans for the Lovefilm, but it would continue to seek deals similar to those it has signed with Sony, to stream movies through the PlayStation 3 games console, and with Samsung, to bring content direct to television sets.

Lovefilm was founded as Online Rentals in 2002 and rebranded under its current name two years later. It grew through a series of mergers of similar services, most notably Video Island in 2006, to become the UK's dominant postal DVD rental business.