Tesco is going head-to-head with Amazon's Lovefilm by acquiring an 80% stake in the BlinkBox video-on-demand service, according to MediaGuardian.
BlinkBox offers a range of films and TV shows as free and paid-for downloads, with a catalogue including Shameless, Peep Show and Top Gear.
Tesco has acquired its stake in BlinkBox, set up by former Channel 4 and Vodafone executives in 2006 and launched two years later, from Eden Ventures and Nordic Venture Partners for an undisclosed sum.
The supermarket giant, which reported profits of £3.8bn on Tuesday, said the acquisition of the five-year-old UK VoD business would help position the business for "the next stage in the internet-driven revolution in home entertainment".
"Whether customers want to own the DVD, download a digital movie, stream a rental or all three, Tesco is committed to giving customers choice," Tesco's Richard Brasher told The Guardian.
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"We want to allow them to decide how they access entertainment content and on which devices, whether it's on PC, TV or tablet."