Amazon is preparing to battle the rumoured international expansion plans of Netflix after buying the booming pan-European movie and games rental business Lovefilm for a sum believed to be around £200 ($320 million) million.

The US company already owns a 42 percent stake in the privately-held Lovefilm after the latter merged its competing film rental business with Amazon’s in 2008.

LoveFilm’s genesis into a wing of Amazon is complicated, with the company having been formed from the merger of two venture capital-backed Scandinavian rental businesses, themselves in turn built out of a scattering of older businesses.

It is now believed to have around 1.4 million subscribers in the UK plus as many again in Scandinavia and Germany and is extremely popular with its user base.

What has probably prompted the buy is that Amazon has suddenly woken up to the huge untapped potential of steaming movies to home users. Although this market is still in infancy compared to the Lovefilm’s core business, sending people DVDs through the post, nobody doubts that it is the future of home film watching.

Amazon needs the head start offered by Lovefilm and Lovefilm in all honesty needs the investment that Amazon can make in what will be a capital-intensive service to set up to serve possibly tens of millions of European subscribers.

Problems? Lovefilm has in the past occasionally endured mini-disputes with film distributors that have delayed its ability to show some films. Amazon’s clout might help sort out this issue in the future.  

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