Lovefilm: It's all in the name
It wasn't so long ago that renting a DVD meant traipsing down to Blockbuster only to find that the film you wanted was out of stock. Determined to watch something, you'd hastily choose an alternative, forget to return it on time and then get slapped with an extra fee for watching a film that you didn't really want to see anyway. That all changed when the likes of Lovefilm arrived.
We managed to grab some time with Lovefilm's chief marketing operator, Simon Morris, to find out how the brand started, why it's so successful and what's in store for the future.
"When we started back in 2003, Blockbuster was an institution in this country and it's well documented how its fortunes have changed and we've certainly played a part in that. We've moved with the times by evolving our digital service. Lovefilm is growing because people want the convenience of DVD by post and the ease of digital films streamed to PCs and to internet TV."
The idea behind Lovefilm is simple, the company offers postal rentals, whether that's DVDs, Blu-rays, games or streamed movies using a range of rental packages (starting at £5.99), free postage and no late fees.
"The Blockbuster model was dying a long time ago - turning up to a shop, paying late fees, for a limited choice at their convenience and their opening hours. Things have definitely moved on".
Lovefilm has been a familiar name in the UK for some years now, but how did the name synonymous with the new wave of film rentals first get itself going?
"About nine years ago, the UK DVD rental industry comprised a range of independent start-ups, maybe 10 or so small companies who had seen what was going on in the States with Netflix. Lovefilm was born at the end of 2003 and officially founded in 2004 when it acquired one of those small startups and invested in more technology and more people - creating the brand that we know today. It wasn't exactly a standing start.
"I guess I must be Lovefilm's oldest customer. My account from 2004 has thousands of rentals on it and nearly 10,000 film ratings."
In 2009, Lovefilm smashed through the 1 million subscriber barrier and currently operates in Germany, Sweden, Denmark and Norway, as well as the UK. Part of its success is no doubt down to the sheer amount of films that if offers.
"We have 70,000+ titles which is by far the broadest range in the UK. It's not 100 per cent there because from time to time we have commercial problems in getting hold of some films, but we do strive to offer as much as possible. If there's a more obscure title, we go out to try and find the rights holders so that we can deliver it. Digital rights tend to be sold differently to the DVD rental rights so there's a whole new environment of rights ownership that has to be navigated. We are considerably further down the line with our DVD rental mechanics.
"We have just under 10,000 digital titles but we're moving at a hell of a speed to get more. These have to be readied, in a technical sense, as we're dealing with files and metadata, sourcing rights with different people, and it has to be made ready so that they work on the different platforms that we have available. It's a fast-evolving industry."
Here at Pocket-lint we hold our hands up to having lost one or two Lovefilm discs in the past (thankfully, there was no charge) but, with so many discs to keep track of, is the issue of lost DVDs a problem?
"This is one of the questions that I get asked most often. It's a trust-based business model to a certain extent but equally, people want to send the discs back to us because when we get them back, we send them the next title in their list.
"The system is not without its faults, but they are tiny in comparison to the millions of successful transactions that take place every week. The amount of titles that are reported lost is a fraction of 1% and most of those get cleared up, because there's been some sort of postal issue.
"We don't want you to keep a disc for a long time because that means that you're not getting the best out of the service. If you're holding on to discs then it means that you're not using the service, so we try and give you a polite nudge. We want you to enjoy your film and send it back because we want you to stay with us and we want you to tell your friends about us."
With so many discs out in people's homes and knocking about in the warehouse, how on Earth does the company know how many discs to buy of which film and how does it keep track of them? Having enough titles available is something that bricks and mortar rental stores have always struggled with as they're limited by shop space, to a certain extent. With a massive warehouse in Cambridgeshire, this isn't quite so much of a problem for Lovefilm.
"At our UK distribution centre in Peterborough, you'd be staggered at the resources and the number of people and envelopes and DVDs. But the bulk of our discs are out in people's houses, which is quite a strange thing to get your head round. Imagine a shop where most of the stuff is actually in people's homes. That was part of the appeal of the business model in the very early days.
"We have numerous copies of everything in the range but the volumes of available rentals change. For example, around the time that we first started, we overestimated the demand for Underworld and underestimated the demand for Touching the Void. It makes me smile to think of how far we've come in terms of evaluating what the actual demand is, so that now we have a pretty clear sense of what's going to be needed for each title and we buy accordingly.
"There are some very sophisticated algorithms that we use - we look at market demand, customer demand, titles that people have queued up in their lists. That changes over the lifetime of a title. It's usually much higher at the start of a product's life, and then diminishes but can then come back, like when a famous film star dies. After seven years of honing our operation, we're confident that we've got enough of what people want."
One of Lovefilm's most attractive attributes is its ability to keep up with technological change, as well as trends in the entertainment industry. Around 25 per cent of its customers are now making use of the Blu-ray discs. When it comes to the titles on offer, TV series account for around 30 per cent of business, which is no surprise considering the huge amount of high-quality TV in recent years, such as The Wire, The Sopranos and Mad Men. What's more, the company also offers movie streaming and, in 2010, it launched major streaming services in collaboration with Sony and Samsung so that you can stream films to your web-enabled TV or even your PS3 (which happens to be Morris' favourite element of the Lovefilm offering right now).
"Streaming entered the lexicon of the UK public about a year ago. We talk to our customers online and by email about what they want and noticed a change in terms of mainstream UK understanding - people were catching onto the idea that streaming is something good. I think that the move to streaming for film rental will be slower than people think, both for media and consumers.
"The point of reference in digital entertainment is music and the way it's evolved, with iTunes and downloads changing the face of the music industry. Video entertainment is different and has a different set of issues. The Lovefilm position on that is that we give customers what they want. If they want DVDs, Blu-rays and games by post then we'll deliver that service. And as streaming on different platforms becomes more important, then we want to be the people that offer them that as well."
It's certainly true that people are much more savvy when it comes to steaming nowadays. Arguably, this is mainly down to the growing popularity of TV catch-up services like the BBC's iPlayer. This has made a noticeable difference in the way that people watch TV, with fewer people tuning in for live broadcasts and instead opting for an online catch-up and a time that's more convenient for them. Using the same logic, is there any difference in the way in which people watch streamed films compared with DVDs or Blu-rays?
"We're definitely noticing changes in customer behaviour with digital films. We started out as a very male-orientated business and our core customer was in that 25-45 bracket, although this has started to broaden out a lot. We definitely do well out of offering a range.
"The average PS3 user is probably male and teen+, so something like Jackass 2.5 will do better on the PS3, rather than the PC. The Girl with The Dragon Tattoo, which we had exclusively on a digital transcription, did very well on PC, better than other platforms. We do tend to see marked spikes in usage, for example, with people watching short-form titles like Wallace and Gromit in their lunch hour. There's a constant cycle of learning about how people are streaming stuff that's very different to the way they rent DVDs from us. It's very data driven - every customer interaction is recorded."
One of the biggest buzz words in the tech and film worlds in 2011 is 3D. The masses aren't yet completely sold on high-definition and Blu-ray, so it may well be a little early to be talking about 3D Blu-ray rentals, especially as there are so few titles available. Does Lovefilm have any plans to offer films in the third dimension? Morris offered what he admitted himself was something of a "cagey answer".
"We're not currently offering 3D. Having said that, we've got plans to continue to offer the best possible service. The questions we have to look at are, do people really want 3D? Does it work well enough? Is it affordable? The answers to those will determine the future 3D landscape. We are industry shapers. Since we started we've been here to innovate and to deliver new stuff and we're looking to continue to do that."
Reading between the lines, it seems clear that Lovefilm will only offer 3D once (and if) there is a sizable market for it. As the coming year is set to be big for 3D, we'd be very surprised if the brand didn't start offering 3D Blu-rays at some point in the next year or two.
The fact that Lovefilm is so supportive of the cinema and the film industry in general is also to its benefit. It may seem odd that a company that relies on people sitting at home and renting DVDs encourages people to go out and spend money with other brands at the cinema. Lovefilm has a refreshingly enlightened take in the subject.
"We like to support the studios on their cinema releases. If the right place for you to see a certain film is in the cinema this weekend, then we want to tell you about it. People watch some films at the cinema, while some they prefer to rent and some they prefer to buy. We're not going to not talk about cinema. We make ourselves more useful by telling people what's at the cinema now so that they can go and see it and when they want to rent it, they'll come to us."
We've heard all about how the company works, but what is it exactly that has made Lovefilm so very successful? Speaking with infectious enthusiasm, Morris tells us, slightly tongue-in-cheek, that it's all about the love.
"I'm a bit of an old hippy really and I'm absolutely convinced that there's something in the fact that we have Love in our name."
We reckon there's probably a bit more to it than that, but Lovefilm has certainly proved that it's not the sort of company to rest on its laurels, so what can we expect to see next?
"In 2011, We'll be announcing some other platforms that will allow people to access Lovefilm streamed content as part of their subscription. We're keen to be on as many customer-facing platforms as possible."
Would those new platforms include the iPad, perchance? Are there definite plans to introduce an iOS steaming app soon?
"Not that I can tell you about. We're busting a gut, behind the scenes to get make our distribution as broad as we can so that people have as many access points to Lovefilm as possible."
While Morris wouldn't budge on telling us exactly what these new platforms might be, it seems a fair assumption that the brand will be bringing its services to more major TV manufacturers, just as it has for Sony and Samsung. We also think it's likely that the Lovefilm will introduce a streaming app for iOS in the not-too-distant future.
The company currently offers free iPhone and iPad apps, although these can only be used for watching trailers, browsing titles and updating your film list. What we would expect to see is an iPad app that would be available to subscribers and that could be used for watching films and TV programmes. The fact that Lovefilm was recently acquired by Amazon could even pave the way for some sort of colour Amazon Kindle service in the future.
Whatever happens next, it seems clear that streaming is the way forward when it comes to film rentals. Although the majority of Lovefilm's customers still opt for DVD or Blu-rays to be sent out to them, there's no doubt that more and more of us are streaming our movies, with the influx of web-enabled TVs and tablets set to make things even easier.
Are you a Lovefilm user? If so, do you rent discs or watch on your PC, TV or PS3? Or do you still make the trip down to your local rental shop?