I’ve been speaking to Lovefilm CEO Simon Calver about how the business will evolve digitally over the next few years, and his views on customer retention and social media.
Is the business still growing?
Yes, Lovefilm continues to be very strong; our subscriber base has grown in the last two years by half a million, and we have experienced a continued growth rate of 25% to 30% per year.
You have been launching streaming services recently, is the key to Lovefilm’s future success getting the service direct to people’s TVs?
We launched our new streaming service recently, the Lovefilm Player, so we have continued to move from being just a physical service to offering a hybrid to customers.
This recent move, which puts Lovefilm direct to people’s TVs, also means that our competitor set will increase, but we believe it is important to give consumers the choice of how they use the service and access films.
The way we look at the market is that it will become more of a hybrid over the next five to ten years and people will want the option of streaming, as well as renting physical DVDs. As long as we can make sure that we can offer this, we will be well placed.
You recently announced deals with Sony and Samsung to offer services through their web-enabled TVs, will you also be looking to offer Lovefilm through consoles and set top boxes?
These deals mean that we can get Lovefilm into TVs and blu-ray players which are connected to the internet. Lovefilm comes pre-installed into these devices, and all customers need to do is to link their TVs to their Lovefilm accounts, and we have more than 4,000 films available digitally.
Whether we get into people’s living rooms via web-enabled TVs or through games consoles or other methods, it’s important that we can offer this option to our customers.
We have been seeing a lot of growth in streaming; the popularity of the iPlayer has helped raise awareness of this, and this is something we will expand in future.
How much funding have you taken to get Lovefilm off the ground?
We’ve taken around £20m from various VC s and investors. We needed money to set up this business initially, just buying enough DVDs to offer the services required a lot of capital.
It was a challenge for us at first, as offering DVD rental online could be difficult to do really well. We succeeded by offering great customer service, and choice, as customers could choose from 70,000 titles. This combination of choice, value and convenience enabled us to grow.
However, you reach a certain stage where you can fund the business from the profits, and that’s where we are now.
What are plans to expand Lovefilm overseas?
We have over 1.4m subs across Europe, with the majority (1.2m) in the UK, so there is room for us to expand in Europe. We’re currently seeing the fastest growth in Germany and Sweden.
We do have aspirations to become a pan-European business but to expand you need a number of factors in place; a country with strong DVD watching habits, high broadband penetration, and a reliable postal system. These things need to be considered before launching in a new country.
However, we are fully expecting to launch digitally in more countries, and the speed of this expansion will increase significantly, and it helps that the suppliers we work with all operated across Europe.
You launched a mobile site recently, do you have other plans around mobile?
Our priority has been to get more content direct to customers’ TVs first, but a lot of our customers are early adopters, so it makes sense to have an iPhone app, and we plan to move onto more mobile platforms at a pace we are comfortable with.
How do you approach the issue of customer retention?
We have spent a lot of time and effort in building a sophisticated CRM database, and this helps us to understand customers by drawing pictures of their behaviour.
For instance, we can see inactive customers who haven’t ordered new DVDs for a while, and who are more likely to leave. This is important for us as we have no long-term contracts, and therefore customers can decide to leave anytime, so we have to work hard to keep them engaged.
We try to first have the knowledge and understanding of the customer, secondly to have a dialogue with them to find out what would help us retain them. This may mean encouraging them to leave ratings and reviews, as these customers are more engaged and therefore less likely to leave, or incentivising them with offers to reignite their interest.
We’ve worked hard on retention over the last few years, and as a result we have seen a reduction in churn, and this has helped us grow. Growth doesn’t just keep from new acquisitions, retaining existing customers is a big part of it for us.
How is Lovefilm using social media?
We have integrated Twitter and Facebook into the site so customers can easily share films or reviews. We recently introduced the Facebook ‘Like’ function to the site so that Lovefilm users can share favourite films on their Facebook newsfeeds.
Our view is that, wherever people are talking about films and entertainment, we should be there. Invariably, people are on Twitter etc talking and sharing.
Over the last year or so, we have also built an API for developers, which is all part of a strategy to allow people to share content more easily.
Customer experience at LF is about three things
1) Helping customers to find films, through user ratings and reviews, as well as editorial content.
2) Helping them watch films, whether through DVD rental, online streaming, or direct to their TVs.
3) Lastly, allowing them to share and talks about what they want to watch and what they have watched. It’s this ‘third pillar’ that we have been working on more recently.
What plans do you have for the next year or two?
The next 12 months will see a continuation of the strategy of getting Lovefilms services into people’s homes and living rooms, part if which will mean making more and more digital content available, but the basics of the Lovefilm service, renting DVDs by mail, are still incredibly strong.
We also plan to build awareness of our streaming services, so you’ll begin to see an acceleration of marketing around our digital services.