Broadcaster BSkyB started the fightback against competition Netflix and YouView today as it announced a new internet TV service.
Launching in the first half of this year, the service will be aimed at the 13 million households who do not subscribe to pay-TV.
It will initially allow customers to pay to download films without a contract or a satellite dish but will expand its offer to include sport and entertainment soon afterwards.
Sky's TV sales will face growing competition with the launch in the summer of YouView, an internet-connected set-top box involving the BBC, ITV and BT.
And the recent expansion into the UK of Netflix, which allows customers to pay to download movies, and the Lovefilm download and rental business adds a further threat to its model.
The new service was announced as Sky revealed a further slowdown in the number of households that signed up to its TV services to 40,000 in the three months to December 31, down from 140,000 in the same period a year ago.
However, underlying profits grew 16% to a record £601 million in the six months to December 31 as it sold more telephony and broadband packages to existing customers. Revenues rose 6% to £3.4 billion.
Sky also announced it is to create 1,300 jobs over the next two years in the UK and Ireland as it brings more of its customer service and installation work in-house and opens a new service centre in Dublin.
Chief executive Jeremy Darroch denied that the business was threatened by the growth of online businesses such as Netflix and Lovefilm.
He added: "I don't see it threatening our business at all. It's further evidence that this is an exciting market and lots of people see opportunities in it.
"We have competed in the last few decades against all competitors."
Sky said the new service will allow customers to pay to watch its content on devices connected to the internet, including PCs, laptops, smartphones, games consoles and TVs.
It will allow customers to choose whether to pay monthly, or rent a movie on a pay-as-you-go basis, it added.
Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said: "Amidst all the Netflix noise comes a reminder that Sky is not about to give up its crown lightly.
"The launch of its online offering further complements its existing technical reach alongside the potential for new customers."
He said Sky's results were "solid" but concerns lingered that it faces fierce competition and there has also been speculation that it could be outbid for the rights to show Premiership football.