British Sky Broadcasting Group PLC said Tuesday it will launch a new Internet-based pay-television service in the first half of 2012 amid mounting competition from Netflix Inc. and Lovefilm, as the U.K.'s biggest pay-TV operator reported a 8.4% jump in first-half net profit on strong demand for its products.
BSkyB, better known to its customers as Sky, said the new service will initially offer access to its movies, and will expand to offer sport and entertainment "soon afterwards."
No satellite dish or contract will be needed to use the new service. Instead, users will be able to pay monthly fees for unlimited access to the group's movies or rent a movie on a pay-as-you-go basis. That's in contrast to BSkyB's existing offering, which requires customers to sign-up to a contract. No details on pricing were available Tuesday.
"Alongside the continued growth of our satellite platform, this will be a new way for us to reach out to consumers who love great content, but may not want the full Sky service," BSkyB Chief Executive Jeremy Darroch said.
"Bringing a distinctive, new choice to the marketplace will help us meet the needs and demands of an ever-wider range of consumers," he added.
BSkyB's announcement comes a few weeks after U.S.-based Internet movie service firm Netflix began a long-awaited push into the U.K. and Ireland, pitting it against Lovefilm, a U.K.-based online-video rival that Amazon.com Inc. acquired in 2011. In response, Lovefilm cuts its prices.
YouView Ltd., an Internet-TV project backed by some of the U.K.'s top broadcasters, is scheduled to launch later this year.
BSkyB's existing contract customers can already access 39 live channels and on-demand content via its Sky Go product on their laptops, smartphones or iPads.
Morgan Stanley said in a note to investors that the new Internet-based pay-television service is "designed to address the Netflix/Lovefilm and YouView unbundling threat." While this may be a way to broaden Sky's revenue base, it may fuel fears of spin down and customers unbundling their contracts from BSkyB, the broker added.
In the European morning, BSkyB shares were up 18 pence, or 2.7%, at 684 pence, valuing the company at £11.98 billion ($18.82 billion).
BSkyB booked a net profit of £441 million for the six months ended Dec. 31, up from £407 million a year earlier, due to strong demand for its phone, broadband and high definition products.
First-half revenue rose 6% to £3.36 billion, broadly in line with expectations, from £3.19 billion a year earlier.
In the second quarter to Dec. 31, 100,000 new households signed up to BSkyB's services, taking its total customer base to 10.47 million. Demand for line rental, broadband, telephone and high definition TV services was strong in the period, it said.
BSkyB also announced it would offer fiber broadband to around 30% of U.K. households from April, offering up to 40 megabytes broadband speeds, for £20 a month.
BSkyB—which was at the center of a failed takeover bid by its biggest shareholder, News Corp., last year—said operating profit before exceptional items, one of the key figures tracked by U.K. analysts, rose 16% to £601 million in the first six months of its fiscal year, from £520 million a year earlier.
News Corp. abandoned its bid to take full control of BSkyB in July in the wake of a phone-hacking scandal at its now-closed U.K. tabloid newspaper, News of the World.
News Corp. holds a 39.1% stake in BSkyB. It also owns Dow Jones & Co., publisher of Dow Jones Newswires and The Wall Street Journal.
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