The device, due later this year, will connect to televisions, the people said. It will also provide access to Amazon's expanding video services, which include the Amazon Video on Demand store.
Amazon would move into closer competition with Apple, which sells its own set-top box called Apple TV. The device would also compete with products from Roku and Boxee, as well as gaming consoles from Microsoft and Sony that deliver video programming. Amazon Chief Executive Officer Jeff Bezos is pushing the company into a broadening array of hardware, including tablets, electronic readers and a planned smartphone.
"It would certainly make some sense," said Jason Krikorian, a general partner at venture-capital firm DCM, and the former co-founder of Sling Media, who does not have knowledge of Amazon's plans. "They have a ton of content, an existing billing relationship with millions of users."
Many competing set-top boxes already give access to Amazon's video catalog. By building its own device, Seattle-based Amazon can put its content more directly in center of consumers' living rooms, while giving developers another reason to create applications for Amazon's digital ecosystem.
A representative of Amazon declined to comment.
The set-top box is being developed by Amazon's Lab126 division, based in Cupertino, the city that's also home to Apple. Lab126 has toyed with building connected television devices for several years, the people familiar with the effort said.
Amazon could also draw on its marketplace of downloadable apps, as well as its "reputation for solid hardware products and a terrific channel through which to promote the product," Krikorian said.
Plans for pricing couldn't be determined. Amazon's typical strategy is to sell hardware at competitive prices, sometimes at a loss, with the intent of making up for discounts through sales of content, including books and movies. Amazon could also use the set-top box to promote its online store.
The project is being run by Malachy Moynihan, a former vice president at Cisco Systems who worked on the networking giant's various consumer video initiatives. In the late 1980s and 1990s, Moynihan spent nine years at Apple. Among the other hardware engineers working at Lab126 with experience making set-top boxes is Andy Goodman, formerly a top engineer at TiVo Inc. and Vudu, which is now owned by Wal-Mart Stores Inc., and Chris Coley, a former hardware architect at ReplayTV, one of Silicon Valley's first DVR companies.
Amazon's set-top box would include programming from the company's on-demand video service, which includes newer films and TV shows, and the instant-video service provided free to members of the Prime two-day shipping service.
Amazon has been rapidly expanding its efforts in the video arena. Earlier this week it introduced several television pilots, which it financed, and it is now monitoring customer feedback to decide which ones to produce as full series. The company has also paid to secure exclusive streaming rights to hit shows such as "Downton Abbey."
While the device will compete with other set-top boxes, it could coexist with rival streaming services, such as Netflix, Hulu and Google's YouTube. Owners of Amazon's Kindle Fire line of tablets can already access those services. Still, Amazon's own video and music services will probably be more prominently integrated into the device.
Another looming question: the product's name. While the people familiar with the project were not sure what it will ultimately be called, Amazon's five-year history in the hardware business suggests an obvious choice: Kindle TV.