Users of Microsoft's Xbox Live video game service will be able to download movies and TV shows from 22 November.
The service will offer high-definition downloads to Xbox consoles
The US software giant has teamed up with Hollywood studios to sell shows and rent movies such as such South Park and Mission Impossible III.
The Xbox live service currently allows gamers with an Xbox 360 to download movie trailers and game demos.
The move potentially pits Microsoft against rival Apple and firms such as Amazon that offer video over the net.
Amazon Unbox, from the online shopping store, was launched in September this year to a muted response.
Days later, Apple expanded its iTunes music store to offer downloads of movies and TV shows to computers and iPods.
Crucially, the company also unveiled a device, temporarily called iTV, which will stream music and video wirelessly between televisions and computers.
The new service from Microsoft also allows consumers to watch downloaded material on their television.
The iTV will stream video wirelessly between televisions and computers
Microsoft has done deals with CBS, Warner Bros Home Entertainment, MTV networks and Paramount Pictures.
The firm said it expected to offer 750 hours of content when the service was launched, rising to 1,000 hours by the end of the year.
Some of this content will be offered in high-definition, although most will be in standard format.
No price information has been given for the new service.
However, the company has said that although it will sell TV shows, it will only rent movies.
Customers who download a film will have a two-week window to watch it. Once they begin watching they will have just 24 hours to keep it.
This is not Microsoft's first foray into movie downloads. The company already partners with Movielink, a service that lets people download films to their PCs.
Sony has not announced plans for a similar service for the PS3
It is also aiming to take a chunk of the portable music and download market when it launches its Zune music player and online music store next week.
Currently, Apple controls 88% of the legal music download market with iTunes, while 60% of those possessing a portable music player own an iPod.
Microsoft has said that people with a Zune will be able to stream photos, music and video to the Xbox 360.
Currently, four million Xbox 360 owners subscribe to the Xbox live service, which offers a free basic service and a enhanced subscription offering.
Xbox live Marketplace, the online store, offers gamers the chance to download movie trailers, music videos and game demos.
The new service will launch less than a week after Sony releases the long-awaited PlayStation 3.
The next-generation console also has internet capability but the Japanese electronics firm has not specified whether it intends to launch a similar service.