When it launches its digital service in October, Sky's cheapest package will cost subscribers just pounds 6.99 a month. The broadcaster will also offer four different packages targeted at viewers' particular interests for pounds 8.99 a month.
The move is seen as a further attempt to undermine ONdigital, the joint venture between Carlton and Granada, which is hoping to launch a 15-channel digital service later this year.
Shares in Carlton dropped 23.5p to 468p yesterday as investors became nervous about prospects for ONdigital. BSkyB shares rose 10.5p to 423p, in spite of the company reporting its first pre-tax profits fall since it moved into the black in 1995.
BSkyB profits dropped 14 per cent to pounds 270.9m as programming costs soared and subscriber growth slowed. The number of people signing up to Sky's analogue satellite service grew by just 16,000, or 4 per cent.
Its cable subscriber base grew by 20 per cent, but revenues slipped as cable operators attempted to lure customers with cut-price packages.
The rise in programming costs, up 21 per cent to pounds 687m, was almost entirely due to the introduction of Sky's new Premiership football contract. In the year, the company paid an extra pounds 92m to the Premier League.
Mark Booth, the BSkyB chief executive, yesterday dismissed his rivals. "ONdigital's current channel line-up is less attractive than our existing analogue line-up," he said. The cable companies planning digital services next year were "not committed to digital," he said.
ONdigital is planning to attract viewers by offering its channels for less than pounds 10 a month, while pointing out that subscribers to its service do not need a satellite dish.
However, analysts said its offering was looking less and less attractive. "Sky is trying to be all things to all men, and ONdigital has nowhere to go," one observer said.
Sky also announced a management restructuring that separates its satellite platform from its programme production division. One division, known as Sky Entertainment and run by Ian West, will take charge of selling satellite dishes.
Mr Murdoch's daughter Elisabeth becomes managing director of Sky's programming arm, Sky Networks. A Sky Sports division will be run by Vic Wakeling.
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