Tesco has confirmed it is to sell off its loss-making Blinkbox Movies streaming service to TalkTalk for just £5m.
The supermarket's broadband service was also bought by TalkTalk in the deal. TalkTalk said work to integrate Blinkbox into its existing TV business will "begin immediately," with "revenue synergies" expected to be felt before the end of 2015.
As part of the deal, TalkTalk will receive Tesco's 75,000 broadband and 20,000 phone customers, who will be integrated into its existing services over the next few months.
The deal will see TalkTalk strengthen its position in the telecommunications market at a key time, as BT continues to negotiate its £12.5 billion buyout of EE.
Tesco acquired an 80% stake in Blinkbox in April 2011, hoping to use the streaming service to bolster sales of its digital entertainment offering, but after pumping tens of millions of pounds into it, the service never posed a threat to rivals like Netflix and Amazon-owned Lovefilm.
The supermarket bundled access to Blinkbox with its popular Hudl and Hudl 2 Android tablets, which won praise for offering a budget alternative to the iPad and Samsung Galaxy range. Tesco is also working on a smartphone, but despite producing several prototypes a finished model is yet to see the light of day. The sale of Blinkbox may now have caused Tesco to reconsider this strategy.
TalkTalk CEO Dido Harding said: "Since launch TalkTalk TV has demonstrated its popularity with value-seeking customers to become the UK's fastest growing TV service. We are excited about the opportunity that Blinkbox's platform and technology expertise bring, and which will significantly accelerate the development of our TV platform."