The service will allow its Clubcard holders access to hundreds of films and TV shows with content specifically tailored to family and kids.
Tesco has launched Clubcard TV, an online free streaming of movies and TV shows for about 16 million Clubcard customers.
Clubcard data obtained from the user's shopping habits will be used by the company to know what would be appropriate for the customers in order to offer personalised ad service.
Tesco Digital Entertainment CEO, Michael Comish, said the service will make digital entertainment easy and accessible for the customers.
"The reason we can offer great programming for free is because customers will see relevant advertising before and during the movie or TV show they are watching. We'll use Clubcard data to tell us what might be relevant for our customers and therefore help us deliver a more personalised service,"Comish said.
Clubcard TV managing director, Scott Deutrom, said: "By using Clubcard, we can look at what customers buy from us, what things they like, and then make an effort to target adverts that are more relevant to them."
Tesco has already signed content deals with companies such as Warner Brothers, Endemol and Aardman Animations.
In 2011 Tesco bought an 80% stake in TV and movie-streaming site Blinkbox.