The new division will be operational in the first quarter of 2007 and run by Frederique Dumas. Dumas is an independent producer who formerly consulted on film to the ministry of culture as well as heading development at Polygram audiovisual.
While France Telecom has been providing a VOD service since 2003, the company says, "With this commitment, France Telecom shows its desire to participate in the pre-financing of French and European film in a significant manner, to contribute to its diversity and to maintain the balance of the sector."
France Telecom's Orange brand already has close ties to film which have increased strongly in recent months with a flurry of deals with studios for its 24/24 video-on-demand service.
Last month, it signed content deals with Twentieth Century Fox and EuropaCorp.
What France Telecom's new arm demonstrates is a commitment to move away from its core network calls business to providing entertainment services.
Agence France Presse reports that the new division will only take a minority stake in films rather than become a full-fledged production company.