Walt Disney has agreed to license copy-protection technology from Microsoft for distributing movies over the Internet.
Disney, which was last year's top Hollywood studio by revenue, will license Microsoft's digital rights management technology that prevents illegal distribution and copying of audio and visual content stored digitally.
Disney said it wanted to start selling its movies on the Web by late this year or early 2005.
Hollywood has been fearful that releasing films over the Internet will lead to unauthorised copying and distribution of content, a problem that has plagued the music industry and hurt CD sales.
"They (Disney) don't want the film industry to go the way of the music industry," said Will Poole, Microsoft senior vice president in charge of the Windows desktop business.
Disney said it needed technology to keep it from losing control over content.
"We are looking at both retailing the content through our own Web site as well as making the content available through third-party Web sites," Disney Chief Strategic Officer Peter Murphy said.
Disney already sells movies through third-party sites and is trying other technologies from its own set-top boxes to disposable DVDs.
Microsoft and Disney plan to put movies in digital format, distribute them via the Internet and on portable media. The movies could be legally transferred between computers and a new generation of portable video devices with hard drives.
The nonexclusive agreement between Microsoft and Disney was similar to some aspects of a deal made in May 2003 between Microsoft and Time Warner Inc.
Under that arrangement, part of a $750 million settlement between Microsoft and Time Warner's AOL business, Time Warner agreed to work together to promote the creation and distribution of digital content.
Time Warner owns the Warner Bros. movie studio.