LOVEFiLM and Video Island Merge to Create Europe's Leading Online Home Entertainment Group

LOVEFiLM and Video Island Merge to Create Europe's Leading Online Home Entertainment Group

LONDON, April 6/PRNewswire/ -- LOVEFiLM International Ltd and Video Island Inc, the owner of
ScreenSelect.co.uk, today announce their intention to merge and create
Europe's leading web-based home entertainment subscription service.

The deal, a 50-50 merger, will give the combined group more than 400,000
subscribers and a strong position in the UK market with around 17% of all DVD
rental transactions; as well as strong market share in Sweden, Denmark and
Norway. Both companies will be consolidating under the LOVEFiLM consumer
brand.

The group will offer customers the largest DVD library in Europe, with
more than 70,000 unique titles and 1.2 million DVDs and Video games, as well
as a fast-growing Video-on-Demand (VoD) service. The new company will ship
more than two million rental DVDs every month.

Both companies currently work with major partners including AOL, CD Wow,
Channel 4, Dixons Store Group, easyGroup, Guardian Newspapers, ITV, MSN, News
International, Odeon, Sainsbury, Tesco and Vue Cinemas, some of whom offer a
fully white-labeled service.

In the year to December 2005, sales of the combined group were more than
GBP25m and the group turned profitable in December.

The deal will bring together a strong investor base including Arts
Alliance Media (AAM), the majority shareholder in LOVEFiLM, alongside Video
Island's backers Benchmark Capital, Index Ventures, Cazenove Private Equity,
and European Venture Partners.

Following the merger, Arts Alliance Media will provide video on demand
and electronic sell through services to LOVEFiLM International under a long
term commercial arrangement.

The new executive team will be a combination of the two firms, with Simon
Calver, the current CEO of Video Island becoming the group's CEO. On
completion of the merger, LOVEFiLM's CEO Mark Livingstone will step down and
act as consultant to the group.

The new company plans to exploit synergies on marketing, technology,
distribution and operations to grow profits faster and accelerate expansion
across Continental Europe. The merged group believes it will be better
positioned to exploit these opportunities and be more competitive against US
rivals such as Amazon, Blockbuster and potentially Netflix.

In addition, the larger customer base and stronger finances will allow it
to capitalize further on new technologies and delivery methods including
Video-on-Demand and the recently launched Download-to-Own service

Simon Calver said: "For three years both companies have done an excellent
job changing the way DVDs are rented in the UK and Scandinavia, by providing
customers with unparalleled value, choice and convenience. Together we will
be a stronger company offering better features and service. I am delighted to
lead this talented team and make it a force in the European Home
Entertainment market."

Mark Livingstone. "I am privileged to have led the creation of LOVEFiLM
over the last 2 years. The new combined management represents a world class
team and I believe the company will now become a major force to be reckoned
with in the entertainment world."

LOVEFiLM and Video Island were both advised by Altium, the mid-market
investment bank, during the merger. The deal is subject to shareholder
approval.

Notes to Editors:

Management Team:

In addition to Simon Calver, the new management team will include Simon
Morris, currently marketing director of LOVEFiLM, as the group marketing
director; while William Reeve and Alex Chesterman, the founders of
ScreenSelect.co.uk, will become group COO and Director of UK respectively.

Video Island delivers unlimited DVD subscription services, through its
ScreenSelect.co.uk brand, and by operating fully integrated DVD subscription
services for some of the UK's largest national brands such as Tesco, ITV, MSN
(MSFT) and easyGroup.

It has grown rapidly from its launch in September 2003, and following its
acquisition in September 2005 of the Scandinavian leader Brafilm, became
Europe's largest online DVD rental provider. Brafilm operates out of
Gothenburg and has strong partnership with TV4 in Sweden and TV2 in Norway.
Video Island has recently extended its offering to include all major games
platforms, cinema listings and digital streaming. The ScreenSelect.co.uk
service has been awarded numerous 5 star ratings including the highest rated
service from Computing Which? Magazine in January 2005.

LOVEFiLM was founded in 2003 and is part of the Arts Alliance Media
group. It has one of Europe's largest online DVD rental libraries with over
53,500 titles and was the first player to expand into Europe with the
acquisition of Swedish online DVD rental company Boxman (www.boxman.se) and
also operates as LOVEFiLM in Denmark (www.lovefilm.dk). It currently provides
both DVDs and Video games and provides services in partnership with CD-WOW,
Five, Guardian, Sainsbury, Sony and WH Smith.

In December 2005 LOVEFiLM and Arts Alliance Media launched the first UK
mass market movie download service to its UK subscriber base and also provide
a download-to-rent service to AOL UK customers. LOVEFiLM recently announced
the launch of a download-to-own service, in partnership with NBC Universal,
for the release of King Kong on April 10th 2006

Arts Alliance Media (AAM) is Europe's leading provider of digital film
distribution services, dedicated to building a European digital network to
deliver film to the cinema, between industry players and to the home. For
Digital Cinema AAM provides end-to-end creation of digital cinema networks as
well as the ongoing servicing and distribution of content through those
networks. With Video-on-Demand and Download-To-Own, AAM provides e-tailers,
ISP's and media companies with turn key solutions for acquiring rights and
distributing digital content. AAM won the bid to install the UK Film
Council's Digital Screen Network (DSN), the world's first digital screen
network and recently launched a trial network in Norway.

As part of the LOVEFiLM-Video Island merger, AAM remains the largest
shareholder of LOVEFiLM and will serve as its digital content aggregator
providing the scale which will allow LOVEFiLM to compete with any other
operator in the European marketplace. AAM is part of the Arts Alliance group
of companies. Arts Alliance focuses on technology-enabled service and media
companies and supports a growing network of entrepreneurs in Europe. Past
investments include Lastminute.com (sold to Travelocity) and Spinner (sold to
Time Warner). Current companies include Smartjog, Atom Entertainnment, Prepay
Technologies, Player X and Servista.

Benchmark Capital is an early-stage venture firm that's based on the
principles of teamwork and an intense dedication to building technology
companies of lasting value. The firm's strategy is to be the first investor
in technology-driven companies that seek to create new markets and have
significant growth potential. The firm focuses on early-stage investing and
takes a labor-intensive, service-oriented approach in markets where partners
have direct experience.

Benchmark invests in technology-driven companies in the areas of
enterprise software and services, communications & security, semiconductors,
mobile computing, consumer services and financial services. The firm's
portfolio includes such franchise companies as eBay (EBAY), Handspring
(HAND), Juniper Networks (JNPR) and Red Hat Software (RHAT). It currently has
offices in Menlo Park, London and Tel-Aviv and manages more than US$3 billion
in committed venture capital. Benchmark investments range in size from as
little as US$100,000 to as much as US$10 or US$15 million.

Index Ventures is a leading European venture capital firm
active in technology venture investing since 1996. The firm is dedicated to
helping top entrepreneurial teams both in the Information Technology and Life
Science sectors build their companies into market defining global leaders.
The firm has offices in Geneva, London and Jersey and focuses its investment
activity primarily on Europe and Israel. Investments include Betfair, Skype,
(recently acquired by eBay), MySQL, BioXell and FON. For more information,
visit www.indexventures.com

Cazenove Private Equity (CPE), a division of Cazenove Capital Management,
manages the GBP234m / US$410m Cazenove New Access Europe Fund. CPE invests
between US$5m and US$25m in venture, development and replacement capital in
Europe's brightest technology, telecoms and media prospects. It has backed
more than 20 companies which operate in proven or high-growth markets and are
driven by exceptional management teams with the vision and ambition to
dominate their chosen sectors. Cazenove Private Equity was voted Venture
Capitalist of the Year at the UK Technology Innovation and Growth Awards,
2005.

European Venture Partners ("EVP") was formed in 1998 as Europe's first
Venture Debt provider in order to expand the financing alternatives of the
maturing Venture Capital market. EVP's Venture Debt facilities is a
combination of traditional leasing and venture capital and was devised to
specifically address the debt needs of innovative early stage companies. EVP
II was established in November 2004 and continues the tradition of enabling
both entrepreneurs and Venture Capital investors to leverage a company's
initial equity at a time when traditional debt financing is simply not
available. EVP has offices in London, Tel Aviv and Stockholm.

Source: LOVEFiLM International Ltd and Video Island Inc

For more information please contact: Simon Calver, Video Island, +44-(0)20-8951-9850; Mark Livingstone, LOVEFiLM, +44-(0)20-7751-7500; M: Communications +44-(0)20-7153-1530, Nick Fox +44-(0)207-153-1540/+44-(0)7711-727-618, Gemma Knowles, +44-(0)20-7153-1523

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Profile: intent