OFT clears LOVEFiLM's acquisition of Amazon's online DVD rental business

51/08 15 April 2008

The OFT has today cleared the acquisition by LOVEFiLM International Ltd (LOVEFiLM) of the online DVD rental business of Amazon, Inc. (Amazon), which provides online DVD rental (ODR) services to consumers in the UK and Germany.

In its inquiry, the OFT considered the many obvious channels aside from online by which UK consumers can watch or hire video content, including traditional rental from Blockbuster and other stores, purchasing DVDs outright, pay per view, specialist film channels from satellite and cable providers such as Sky and Virgin, video on demand, Freeview and internet downloads or streaming.

However, the presence of numerous delivery channels beyond ODR did not satisfy the OFT from the outset that no competition issues could arise. LOVEFiLM will account for over 90 per cent of ODR services in the UK post-merger, and there was economic evidence indicating the parties may be closest competitors within a wider spectrum. Loss of close competition would, in principle, raise concerns that the merged firm could worsen its retail offer - by a small but significant amount - before constraints from other channels would take effect.

The OFT therefore subjected the transaction to close scrutiny before announcing its clearance, and was ultimately persuaded that no concerns arose because of the parties' documents that were prepared in the ordinary course of business. On the basis of this evidence, the OFT has concluded that this merger will not give LOVEFiLM a lasting incentive to worsen its customer proposition because of the competitive discipline it faces from an array of other providers of video content.

Simon Pritchard, OFT Senior Director of Mergers, said:

'Under the statute, we decide cases based on evidence rather than intuition. While we fully expected LOVEFiLM to argue that it faces competition from a wide variety of players, our decision was based squarely on what the documents told us.'

NOTES

1. The reference test - the OFT has a duty to make a reference to the CC if the OFT believes that it is or may be the case that a relevant merger situation has been created; and the creation of that situation has resulted, or may be expected to result, in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services.

2. Merger jurisdiction - under the Enterprise Act 2002, a relevant merger situation is created if two or more enterprises have ceased to be distinct enterprises, and the value of the turnover in the United Kingdom of the enterprise being taken over exceeds £70 million, or as a result of the transaction, in relation to the supply of goods or services of any description, a 25 per cent share of supply in the UK (or a substantial part thereof) is created or enhanced.

3. The full text of this decision will appear in the mergers section.

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