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Amazon loves LoveFilm (true)

Enough to buy out the company?

Amazon is mulling a £200 million bid for Lovefilm, the UK's answer to Netflix, the Sunday Times reports.

Techcrunch UK's Mike Butcher is sceptical - he reckons The Sunday Times is often used as a stalking horse to help investors achieve a "liquidity event" - i.e. cash in some or all of their shares.

Unlike Mike we cannot claim any inside knowledge, but an Amazon-Lovefilm tie-in makes sense to us, even if nothing is on the cards now.

First up, Lovefilm is running the slide rule over a stock market flotation - at a time when IPOs are unpopular.

Secondly, the act of preparing a flotation often smokes out a buyer - it is easier, cheaper and gives investers the chance to sell out in full.

Third, and this is crucial, Amazon is already Lovefilm's biggest shareholder,, with a 42 per cent stake, after reversing its European film rental operation into the company in 2008 and later buying out one of the VC backers.

Lovefilm has the customers - 1.4 million all told - that Amazon wants. And it does something that Amazon used to do and wants still to do.

Most Lovefilm customers rent their films by post, rather than by Internet or TV, and Techcrunch thinks that buying a" legacy physical operation" would be a distraction for Amazon.

We disagree: Amazon does physical distribution as good or better than anyone. It is also managing the transition to online - witness The Kindle - rather well. As an independent Lovefilm will struggle to convert all its customers to a world of media players and video on demand. It is simply too small to take on the internet giants. This makes it a perfect fit for Amazon.

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