Amazon will acquire LoveFilm International, the London-based DVD rental and online streaming company in which it already had a significant shareholding. LoveFilm, which operates in the United Kingdom, Germany, Sweden, Norway and Denmark, offers a similar service to Netflix in the United States. Amazon previously promoted the LoveFilm service, with which it did not compete, having previously closed its own offering in Europe to partner with LoveFilm. Buying out the rest of the business will enable Amazon to defend the European market from possible expansion by Netflix.

“LoveFilm and Amazon have enjoyed a strong working relationship since LoveFilm acquired Amazon Europe’s DVD rental business in 2008,” said Greg Greeley, the Amazon vice president of European retail, “and we look forward to a productive and innovative future.”

The widely anticipated deal is expected to close in the first quarter of 2011. The details of the transaction were not disclosed, but it was reported to be worth £200 million.

Simon Calver, the chief executive of LoveFilm International said: “With Amazon’s unequivocal support we can significantly enhance our members’ experience across Europe.”

LoveFilm was formed in early 2004 when Arts Alliance Media acquired and rebranded DVDs On Tap and added similar services from Sweden and Denmark. A merger with Video Island in 2006 was followed by the acquisition in 2008 of the Amazon DVD rental customer base in the United Kingdom and Germany, with Amazon taking a 42% stake in the venture.

The service now claims over 1.5 million members. It launched a digital film download service in 2006 which failed to get much traction, but launched an online streaming service in March 2010 which allows subscribers on top tier packages to view any of thousands of titles at no extra cost, with unlimited online viewing, or order premium titles on a pay-per-view basis. The online offering is now available on Samsung and Sony connected television devices and displays, including the PS3 game console.

Customers have provided over 80 million movie ratings and written over 800,000 member reviews, which help LoveFilm to promote relevant recommendations to subscribers.

LoveFilm reported revenues of £97 million and a pre-tax loss of £934,000 in 2009.

Amazon also owns the Internet Movie Database, IMDb, which it acquired in 1998. The database began as newsgroup list in 1989, moving to the World Wide Web in 1992, hosted by the computer science department at Cardiff University in Wales, becoming a separate company in 1996.

Amazon will be able to use its web site and the IMBd database to promote the Lovefilm brand, which it plans to retain. Amazon also has highly regarded fulfilment infrastructure that could be employed to support the mail order rental business, which still provides a much greater range of titles.

Although still perhaps best known as an online bookshop and a leading retailer of DVDs, Amazon now provides an electronic marketplace and fulfilment service across a broad range of consumer goods, from A to Z. It offers music downloads as unrestricted MP3 files and electronic books in its own digital format, with its Kindle reader device being its most popular product. Amazon also operates an extensive cloud based internet infrastructure, which it offers to third parties, including Netflix.

In the United States, offers Video on demand that can be viewed on Windows or Mac computers, and on network-connected devices and displays from Samsung, Sony, Panasonic, Vizio, as well as TiVo and Roku boxes.

Amazon had once been thought to be interested in acquiring Netflix, but missed the opportunity to pick it up before its stock rose over 250% in the last year, with 17 million subscribers and a market capitalisation approaching $10 billion.

The deal with Amazon gives LoveFilm the scale to defend the European market from the expected international expansion of Netflix, whose strategy it has closely emulated.