Amazon is to offer subscribers unlimited, commercial-free, instant streaming of more than 5,000 movies and TV shows.
The move follows its acquisition of the European subscription entertainment service LOVEFilm last year and makes it a significant competitor in the growing online video market.
According to research carried out by the communications network giant Cisco, the global number of internet users is already about the population of India. Cisco forecasts video will account for more than half of all internet traffic by 2014. This represents what could be a vast, multibillion-dollar global industry.
But although the global market for online video is potentially huge, there is evidence that consumers are reluctant to buy internet services, preferring to download or stream video and TV content for free.
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Online content providers such as Netflix, which is reported to have about 20 million subscribers, are increasingly offering free content alongside their paid-for content.
"The battle between content owners and pirates is now on, as they both have an interest in making access to their content as simple as possible," the Forrester analyst James McQuivey says.
"Meanwhile, casual video piracy has arrived in full force, only to have its attack blunted by the widespread availability of legal video streaming sites."
Legitimate video content suppliers are betting the mass of consumers will prefer the convenience of a legitimate service, offering content in a choice of formats, to illegal video downloads.
Although the illegal sites offer free content, they offer only internet services. Companies such as Amazon are moving to a business model that offers DVDs and Blu-ray discs along video streaming services.
Amazon was planning its online video strategy as long ago as 2008. It bought LOVEFilm's UK and German DVD rental businesses and invested in the company to acquire a significant shareholding before acquiring it outright.
LOVEFilm offers disc rental by post and online movies through LOVEFilm Player software. This can stream movies on to PCs, laptops, games consoles and the new generation of internet-connected TVs.
So far, the battle between legitimate content providers and illicit sites has been dominated by the pirate sites. Film viewers realise that despite harsh penalties in countries such as the US, the chances of being prosecuted are extremely small.
But Mr McQuivey says even those consumers who download content from pirate websites using file-sharing technology to distribute illegal copies of copyrighted films also pay for content.
"File sharers are just people who really love content enough that they believe it is worth paying for," he says. "In fact, they love video so much they actually pay for it more often than the rest. They go to the movies, rent DVDs and pay for video on demand anywhere from 1.5 to three times as often as the average US online adult.
"Just as it was with the music industry, it turns out that the people most likely to pirate are the same ones who value the content most."
But the problem facing legitimate video content suppliers such as Netflix and Amazon is they must find ways of further differentiating their online video services from those of the pirates. A key part of Amazon's strategy is to stream online video directly into the living rooms of consumers.
For the most part, pirate videos are watched via an internet connection on a PC or laptop screen. This is usually an isolated experience and not in keeping with existing consumer habits. Most people would prefer to watch films on a TV screen along with family and friends.
"Perhaps the best way to satisfy viewers is to make sure they can watch their favourite shows in the more comfortable surroundings that the living room TV offers," says Mr McQuivey.
By making films and TV shows available across a range of devices, the legitimate content providers hope to provide a service that cannot be matched by the pirates.
"Pirates can't easily support the desire for convenient access to video on multiple platforms in the way that Netflix has pioneered," says Mr McQuivey. "This means supporting devices like game consoles and connected TVs, something that we think consumers will ultimately find valuable enough to pay for."
Although analysts are convinced consumers using the pirate services will be prepared to switch to legal services, no one can as yet predict the devices they will buy.
Legitimate players such as Amazon offer content over internet-connected devices such as games consoles and connected TVs.
But as more devices such as tablet computers and smartphones connect to TV screens, the legitimate online service providers may find it hard to charge the subscription fees their business models demand.
