BSkyB, in its first broad initiatives under new Chief Executive James Murdoch, also said Wednesday it would develop by 2006 a package of channels for high-definition TV, which is being promoted gradually in the United States to become the next default TV format.
Murdoch's two announcements, at a Merrill Lynch investor conference, sent Sky shares up 19.5 pence, or 3.2 percent, to 631.5p in afternoon trading.
"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," Murdoch said in a statement on Wednesday.
The company provided no financial guidance on how the new initiatives would affect its revenue or profits or how much investment they would require.
Dealers and analysts said the prospect of higher revenue for Sky outweighed concern that its margins might decline.
"They are both ways to expand the product range so that they can get more subscribers or more revenues," said Sarah Simon, an analyst at Morgan Stanley, which repeated its "overweight" position on BSkyB shares.
"If more customers generate more revenue in absolute terms, it matters less whether they have lower margins. What you want is profit," Simon said.
Dealers said the news marked Murdoch's first major strategic announcement since he took the top job at BSkyB last November.
"Murdoch's been pretty vague about strategy, which has been a bit disappointing, so the fact that he's come out with something has got a few people excited," one dealer said.
Sky's move pre-empted initiatives by the BBC to launch a free-to-air digital satellite service. The public broadcaster earlier this year asked the government to back a so-called Freesat model to help meet the analogue switch-off date targeted for 2010.
"This follows the BBC's own view that free-to-air digital satellite is an important missing piece in the jigsaw to achieving a fully digital Britain," a BBC spokesman said.
MORE CHANNELS, GREATER REACH
Sky's free-to-air package will offer far more channels than does the rapidly growing Freeview, a rival service in which BSkyB is a partner. However, Sky's set-top box will be priced at 150 pounds and will only be available from the company, while Freeview's box costs about 60 pounds and can be bought in retail outlets.
Sky, the UK's leading pay-TV provider, also said its subscription-free service will reach the approximate one-quarter of households that cannot receive Freeview and offer an alternative to those who otherwise would need to upgrade their aerials.
Yet it remains to be seen whether Sky's 116 free satellite TV channels, including the Wrestling Channel, the Horror Channel and the God Channel, will lure large numbers of new viewers. The package also includes other news, kids, shopping and entertainment channels, as well as the BBC, ITV, Channel 4, five, and 81 radio channels.
Freeview, which was launched in October 2002 offering 26 TV channels, has rocketed past cable to become the UK's number-two provider of digital TV services.
It is a joint venture of Sky, publicly funded broadcaster the BBC and U.S.-based transmitter operator Crown Castle, and has 3.5 million subscribers, compared with Sky's seven million.
By signing up free-to-air watchers now, Sky wants to be well positioned to turn them into paying customers when terrestrial TV is eventually phased out.
"There is no obligation to subscribe to a pay-TV service and FTA satellite viewers pay no monthly fee," Sky said. "However, the FTA satellite proposition offers an easy upgrade path for viewers who choose subsequently to add a pay-TV service to their viewing options."
Sky also aims to position itself properly for those viewers willing to pay top dollar for new features with the high-definition TV offering.
Picture quality on the service is superior, especially for sports and films, but has been slow to attract customers in the United States because of the high cost of the new TV sets needed to watch the service. The price has slowly been dropping.
