The web giant will make a cash investment in LoveFilm, which will acquire Amazon Europe's DVD rental business in the UK and Germany as part of the deal.
"Customers are faced with an astonishing array of choices in the entertainment world," said Simon Calver, chief executive at LoveFilm.
"LoveFilm International will ensure that Amazon Europe's customers get the best possible DVD rental service. We will be delighted to welcome all Amazon Europe customers to the LoveFilm service."
The two companies will enter into a multi-year marketing agreement in which Amazon Europe will promote LoveFilm's services on its UK and German sites.
"As one of Europe's largest online DVD rental businesses, LoveFilm is well established to serve the increasing demand for entertainment," said Greg Greeley, vice president of European retail at Amazon.
Amazon Europe will continue to operate the DVD rental business on behalf of LoveFilm for a period of time once the deal is completed.
The new LoveFilm subscriber base will total over 900,000 customers predominantly in the UK and Germany, but also in Sweden, Norway and Denmark.
Completion of the deal is subject to regulatory approval in the UK and Germany. No staff reductions are planned at Amazon's German or UK operations as a result of the business transfer.
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