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BSkyB is to launch a package of up to 200 free channels to counter the growing threat from Freeview, the rival service backed by the BBC offering 30 channels for no fee.
In a major change of policy, BSkyB is abandoning its "pay-TV only" service and trying to appeal for the first time to satellite "refusniks" who have never been attracted to the concept of subscription TV.
Up to now viewers who wanted satellite TV were obliged to buy into a package of channels in order to get services such as the BBC that were otherwise free through an aerial.
The new service will be available for the cost of the installation of a satellite dish and receiver - around £150 - and allow viewers to pick up the five terrestrial channels and other stations including BBC3 and BBC4 without having to pay a subscription.
It is the first time since the satellite giant launched more than 10 years ago that it has reached out to those who don't want to pay for movies and sport, BSkyB's most popular and most expensive services.
What's on offer in the new Sky package
The package will include ITV, BBC1, BBC2, BBC3, BBC4, CBBC, CBeebies, News 24, BBC Parliament, Channel 4, Channel Five, ITV News, CNN and scores of other channels, although most of these are of minority interest such as Extreme Sports.
The move is the brainchild of the BSkyB chief executive, James Murdoch, and marks his first major strategic initiative since joining the pay-TV giant last year.
Analysts and rivals have been waiting anxiously to see how Mr Murdoch would cope with the twin challenge of increasing Sky's average revenue per subscriber while continuing to attract new customers who up until now have been uninterested in pay-TV.
The runaway success of the BBC-backed Freeview service, which offers 30 channels for a one-off fee of around £80, has increased the pressure on BSkyB.
Figures released earlier this month by media regulator Ofcom showed Freeview was now in more than 3.5 million homes and its growth continued to outpace pay-TV.
Mr Murdoch will hope the launch of a free-to-air alternative on satellite, offering access to more channels than Freeview and with added interactivity, will persuade potential customers to pay a one-off fee of £150 and no monthly subscription.
"These initiatives are another step in giving consumers a choice from Sky that suits their needs at the top and lower ends of the scale. They will help drive even greater take-up of digital TV services and enable Sky to enjoy a close relationship with even more customers," said Mr Murdoch, who controversially replaced Tony Ball as Sky chief executive last year.
Today's moves are designed to reassure investors concerned at recent figures showing that Sky's subscriber growth had slumped to its lowest level since 1998 that Mr Murdoch can retain the initiative his predecessors have shown in making Sky the pre-eminent pay-TV platform.
The new package will prove attractive to those households, particularly in rural areas, that can't receive Freeview or require an arial upgrade in order to do so.
And once they have a Sky dish installed, the company hopes they will eventually upgrade to pay-TV. BSkyB, 35.3% owned by media mogul Rupert Murdoch's News Corporation, will also hope to make money from interactive revenues.
The move will also be welcomed by the government and Ofcom as a significant step forward in plans to switch off the analogue signal by 2010. Earlier this year the regulator identified the lack of a viable free-to-air satellite service, filling in the gaps in coverage, as one of the main barriers to digital switchover.
While customers can already buy a dish and box from Sky without subscribing, the company has ironed out the flaws that made it an unattractive option for those considering switching to digital.
New free-to-air customers will receive access to all five existing terrestrial channels through the Sky electronic programme guide.
ITV, Channel 4 and Five have been unavailable to free-to-air satellite viewers since last year when the BBC made all its channels free to air and stopped paying for the "solus" cards required to watch the terrestrial channels.
Under the new offer, Sky will provide a viewing card to allow viewers to watch the correct regional variant of all the existing terrestrial channels plus over 200 free-to-air channels, including the likes of CNN and QVC.
In a separate initiative, BSkyB also unveiled plans to launch the UK's first high definition TV - HDTV - service to appeal to the big spending, early adopter end of its subscriber base.
With the boom in home cinema, widescreen TV and hard disk recorders like Sky Plus, Mr Murdoch hopes the new format, which offers pin-sharp pictures, will appeal to a significant minority of its customers.
HDTV has already taken off in the US, where a number of sport, drama, entertainment and news shows are already made in the format. Sky hopes the new service, not due to launch until 2006, will encourage subscribers to pay a premium to receive channels and one-off events, such as big football matches, in the new format.
Having ruled out plans to launch a free-to-air competitor to ITV and Channel Five, Mr Murdoch has pledged to continue to grow Sky's subscriber base beyond the 8 million figure targeted by next year.
Mr Murdoch insisted there were still 10 million potential pay-TV customers to target as the country moves towards digital switchover.
In a major change of policy, BSkyB is abandoning its "pay-TV only" service and trying to appeal for the first time to satellite "refusniks" who have never been attracted to the concept of subscription TV.
Up to now viewers who wanted satellite TV were obliged to buy into a package of channels in order to get services such as the BBC that were otherwise free through an aerial.
The new service will be available for the cost of the installation of a satellite dish and receiver - around £150 - and allow viewers to pick up the five terrestrial channels and other stations including BBC3 and BBC4 without having to pay a subscription.
It is the first time since the satellite giant launched more than 10 years ago that it has reached out to those who don't want to pay for movies and sport, BSkyB's most popular and most expensive services.
What's on offer in the new Sky package
The package will include ITV, BBC1, BBC2, BBC3, BBC4, CBBC, CBeebies, News 24, BBC Parliament, Channel 4, Channel Five, ITV News, CNN and scores of other channels, although most of these are of minority interest such as Extreme Sports.
The move is the brainchild of the BSkyB chief executive, James Murdoch, and marks his first major strategic initiative since joining the pay-TV giant last year.
Analysts and rivals have been waiting anxiously to see how Mr Murdoch would cope with the twin challenge of increasing Sky's average revenue per subscriber while continuing to attract new customers who up until now have been uninterested in pay-TV.
The runaway success of the BBC-backed Freeview service, which offers 30 channels for a one-off fee of around £80, has increased the pressure on BSkyB.
Figures released earlier this month by media regulator Ofcom showed Freeview was now in more than 3.5 million homes and its growth continued to outpace pay-TV.
Mr Murdoch will hope the launch of a free-to-air alternative on satellite, offering access to more channels than Freeview and with added interactivity, will persuade potential customers to pay a one-off fee of £150 and no monthly subscription.
"These initiatives are another step in giving consumers a choice from Sky that suits their needs at the top and lower ends of the scale. They will help drive even greater take-up of digital TV services and enable Sky to enjoy a close relationship with even more customers," said Mr Murdoch, who controversially replaced Tony Ball as Sky chief executive last year.
Today's moves are designed to reassure investors concerned at recent figures showing that Sky's subscriber growth had slumped to its lowest level since 1998 that Mr Murdoch can retain the initiative his predecessors have shown in making Sky the pre-eminent pay-TV platform.
The new package will prove attractive to those households, particularly in rural areas, that can't receive Freeview or require an arial upgrade in order to do so.
And once they have a Sky dish installed, the company hopes they will eventually upgrade to pay-TV. BSkyB, 35.3% owned by media mogul Rupert Murdoch's News Corporation, will also hope to make money from interactive revenues.
The move will also be welcomed by the government and Ofcom as a significant step forward in plans to switch off the analogue signal by 2010. Earlier this year the regulator identified the lack of a viable free-to-air satellite service, filling in the gaps in coverage, as one of the main barriers to digital switchover.
While customers can already buy a dish and box from Sky without subscribing, the company has ironed out the flaws that made it an unattractive option for those considering switching to digital.
New free-to-air customers will receive access to all five existing terrestrial channels through the Sky electronic programme guide.
ITV, Channel 4 and Five have been unavailable to free-to-air satellite viewers since last year when the BBC made all its channels free to air and stopped paying for the "solus" cards required to watch the terrestrial channels.
Under the new offer, Sky will provide a viewing card to allow viewers to watch the correct regional variant of all the existing terrestrial channels plus over 200 free-to-air channels, including the likes of CNN and QVC.
In a separate initiative, BSkyB also unveiled plans to launch the UK's first high definition TV - HDTV - service to appeal to the big spending, early adopter end of its subscriber base.
With the boom in home cinema, widescreen TV and hard disk recorders like Sky Plus, Mr Murdoch hopes the new format, which offers pin-sharp pictures, will appeal to a significant minority of its customers.
HDTV has already taken off in the US, where a number of sport, drama, entertainment and news shows are already made in the format. Sky hopes the new service, not due to launch until 2006, will encourage subscribers to pay a premium to receive channels and one-off events, such as big football matches, in the new format.
Having ruled out plans to launch a free-to-air competitor to ITV and Channel Five, Mr Murdoch has pledged to continue to grow Sky's subscriber base beyond the 8 million figure targeted by next year.
Mr Murdoch insisted there were still 10 million potential pay-TV customers to target as the country moves towards digital switchover.