Online online movie rental company Netflix and LG Electronics are to develop a set-top box to enable customers to stream movies and other programmes over the internet directly to their televisions. The collaboration is expected to deliver the new online home entertainment service in the second half of 2008.

Netflix has more than 7 million members and a catalogue of over 90,000 titles, currently delivered on DVD through the mail. The company also has around 6,000 movies available over the internet for viewing on personal computers.

The planned product developed in conjunction with LG Electronics will allow subscribers to watch movies streamed over the internet directly on connected televisions, bypassing the need for a computer.

“Internet to the TV is a huge opportunity,” said Netflix founder and chief executive Reed Hastings. “Netflix explored also offering its own Netflix-branded set-top boxes but we concluded that familiar consumer electronics devices from industry leaders like LG Electronics are a better consumer solution for getting the Internet to the TV.”

Netflix says the service will be “a meaningful addition to its existing DVD delivery platform and a valued enhancement to the Netflix subscriber experience.”

One possibility is that the LG product will include a high-definition capable DVD player, to support both traditional physical media and online streaming in a single device. Netflix is also planning to partner with a number of other companies to expand its delivery options.

Netflix will be launching into a highly contested and confused market, which has so far managed to elude companies such as Apple, which is reportedly preparing to launch its own online movie rental service.

Other online video initiatives, such as those from Wal-Mart, CinemaNow and Vongo have also struggled. Movielink was recently sold to Blockbuster.

Many analysts expect online delivery to eventually overtake the distribution of physical discs, as is already taking place in music sales.

The convergence or connection of networks and home entertainment systems is expected to be a key theme of the Consumer Electronics Show in Las Vegas.