Lovefilm chief executive Simon Calver is redefining his business. Although it has grown more than 30 per cent in the past year, only four per cent of UK households are signed up to the film- and game-rental service. While there is therefore immense opportunity for expansion in the DVD market, Calver is preparing for life after DVDs.

"For a long time there have been new technologies emerging in how people watch films at home. There has always been the question of what's going to happen after DVD? It's a truism, but it takes people a while to embrace new technology. When you get there it's always bigger than you expected."

Calver and a carefully "cherry-picked team of industry experts" have backed internet TV as the preferred mode of delivery. He rejected the idea of a set-top box, for space and cost reasons, but also because he's worried about the technology becoming out of date. "We are trying to make sure we are hedged for the future and are into tomorrow's technology today. It could be five, 10 or even more years before the transition to digital takes place. We are wedded to this hybrid world."

As well as streaming films from an online library of 4,000 titles (to hit 10,000 this year), customers can use the website to manage wish lists, which will still reflect the DVD library of 70,000 titles. "It is a hybrid model, where you can access the website on your TV, watch a streamed film or manage your list and order a DVD."

For a business in which half of the staff are employed in warehouses picking a million DVDs a week, this new business presents challenges. "If you've got staff focused on the physical product, how do they feel about this shiny new digital toy? The reality is you have to communicate to all teams that while that may be the future, this is today. We have to make sure that we continue to deliver and grow a profitable business."

Calver is reluctant to put figures on how quickly the new business will grow. "It depends on factors such as pricing by the studios and content availability, technology changes, what's happening in the home and DVD film releases."

So what keeps him awake? "I can control our destiny in terms of what we do, but it is hard to control the competition. We've moved from competing with High-Street rental businesses to having some 800lb gorillas that operate cable and satellite businesses. [But] they do a great job."

Surely his thriving business will soon become an 800lb gorilla? This thought horrifies Calver. "I am excited about growth prospects, but terrified that we will become a large corporate culture and everyone will think 'what a stuffy organisation'. The challenge is to keep close to what's going on. People join entrepreneurial businesses because they like the excitement and ability to get lots of experiences. We have to keep that culture."