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When the LOVEFiLM is in the mail

The chief of DVD-by-post company LOVEFiLM International tells Andrew Cave about the need to keep ahead of technology

I have a story that Simon Calver ought to like. Before Christmas, a business profile writer I couldn't possibly name hired a five-part obscure Polish art film from a local video shop, overran the rental period and apologetically returned it a few weeks late, mentioning that he still hadn't found time to watch all the episodes.

Don't worry, said the shop owner, cutting the fine from £45 to £25, handing back the offending five-parter and offering two weeks extra viewing time free of charge. You'll guess what happened next. The offending tapes are still in the cupboard below the TV.

Calver does love the tale, though he stops short of calling my friend an idiot as his consultant brain works out the current liability at £3 a day.

LOVEFiLM International, the DVD-by-post company of which Calver is chief executive, is aiming to make such penalties a thing of the past.

Subscribers sign up online, compiling a list of movies they want to see and paying a monthly fee for the number of discs they'd like to pop through the letterbox each month (it starts at £4.95 for two a month).

After viewing, they use a postage-paid envelope to send them back.

If they forget, they simply don't receive any more.

"We have 65,000 titles to choose from and you can have them as long or as little as you like," says Calver.

"Stores have been closing at the rate of two or three a week for the past couple of years because they cannot provide the online experience, they're expensive and there are late fees.

"This business model has completely redefined how people rent DVDs. We have half a million subscribers and do 2m rentals a month in the UK and another 500,000 in Sweden, Norway, Denmark and Germany.

"The growth has been staggering and we are now doing over 23pc, or nearly one in four of all DVD rentals in the UK. We're larger than both Amazon and Blockbuster in online DVD rental. Within the next year or 18 months we want to get up to 1m subscribers."

While Calver, 43, may be revolutionising the film rentals industry, he's certainly no avant garde, black-shirted film noir fanatic.

His favourite movies are blockbusters such as Gladiator and The Shawshank Redemption, thrillers such as The Usual Suspects and feel-good flicks like Pretty Woman and Groundhog Day.

Neither is this nephew of a Gloucester grocer an art school drop-out.

He arrived at LOVEFiLM via a degree in computer science in Hull and a string of positions at multinational corporations.

After stints in marketing at Unilever, as a consultant with Deloitte and managing Pepsi Max drinks worldwide for PepsiCo, he worked for computer giant Dell in Dublin and then went on to join Riverdeep, a US interactive educational software group.

In July 2005, he became chief executive of a DVD rentals firm called Video Island, which then merged with LOVEFiLM.

Things rather spooled on from there.

As well as films, LOVEFiLM now offers video games for rental and promotes its website as a social networking site with space available for film rankings and reviews.

Mindful that the technological revolution that has enabled it to displace video and DVD shops will most likely one day see physical storage of films on discs give way to digital downloads and online distribution, the company aims to be in the vanguard of that too.

LOVEFiLM already offers video-on-demand over the internet and Calver believes its brand position on disc rentals puts it in a fantastic position to compete as home entertainment and the internet merge.

"For over 18 months now, we have been doing video on demand," he says.

"We have 1,050 titles that people can download and watch within seven days, 700 films that they can download to own and keep forever and 30 available on free downloads, funded by advertising.

"With a decent connection, downloading takes about an hour. It's one of the barriers but that's going to come down.

"Movie downloads account for about 10pc of the market at the moment but the thing about technology is that it's always easy to overestimate how quickly it's going to be adopted and always easy to underestimate the long-term impact it will have on the marketplace.

"Downloads will take time to take off and there's going to be the high-definition DVD format war between Sony's Blu-Ray and Toshiba's HD-DVD.

"The question is: over what timespan is this going to happen? I firmly believe that the DVD is going to be around for the next 10 years but we are involved in these other changes as well.

"We attract customers through movie rentals but we give them games, we give them video-on-demand and we give them downloads to own."

LOVEFiLM is also opening up its website site to give general global access to its 40m ratings of films by its members, half a million reviews and blogs, profile pages, user collections and its LOVEQUiZ game.

"We want to become a one-stop shop for home entertainment," says Calver. "We have a great brand but we have penetration into only 2pc of UK households.

"Netflix, the market leader in the US, has penetration of 14pc there. We think there's a long way to go."

That augurs well for private equity firms Benchmark Capital, Index Ventures and Esprit Capital Partners, which own 75pc of LOVEFiLM, which had revenues of £40m last year and has yet to make a profit.

Another 12pc is held by "angel investors" while Calver's management team has 13pc. Will he float the business?

"There's no rush in terms of an exit and that's not the only option available to us" is all he will say on that.

There may be lots of action before that, however, and LOVEFiLM has already had more than its share of drama.

"In September 2005, just two months after I arrived I had a call at 10pm to say that there was a fire in our distribution centre in Acton," recalls Calver.

"It was burnt to the ground but 75pc of our discs were out with customers so we kicked the marketing people out of the head office in North Acton and replicated our distribution activities there. Within three days we were back up and running. It was a baptism of fire. Literally."

And maybe my "friend" has also had one of those in the confusing world of DVD rental.

As our interview ends, Calver knowingly hands me one of LOVEFiLM's promotional envelopes.

But for now the Polish video is still very much in the cupboard below the television.
________________________________________

Name: Simon Calver

Age: 43

Position: Chief evecutive LOVEFiLM

Favourite films: Gladiator, Jean de Floret, Pretty Woman, The Usual Suspects, Groundhog Day and The Shawshank Redemption

Favourite actor: Anthony Hopkins

Favourite Actress: Helen Mirren

Married to: Christine