BSkyB had originally hoped to negotiate an exclusive pay-per-view deal with studios such as Disney, Universal, MGM and Warner, but it is now clear it will have to put up with sharing the rights with the cable companies.
On Demand's move comes just a week after NTL, the US cable company, joined the consortium, which is led by Telewest Communications, the second largest UK cable operator.
Gaining the rights is a victory for the cable companies, which have in the past been poor at presenting a united front against BSkyB.
Apart from Telewest and NTL, On Demand is also thought to include General Cable, Diamond Cable Communications and Comcast Cable. Cable & Wireless Communications was originally part of the consortium, but it dropped out after entering talks with BSkyB about using the satellite broadcaster as its exclusive pay-per-view supplier. CWC and BSkyB have still not reached agreement, after key executives at CWC questioned the value of teaming up with Rupert Murdoch's satellite broadcaster.
Neither BSkyB nor On Demand could be contacted for comment last night, although an announcement is due early next week.
So far, pay-per-view events - where consumers pay to see a specific film or sporting fixture - have all been negotiated by BSkyB and have mainly been limited to boxing events. But digital television, which launches next Spring, will open the way for a range of pay-per-view opportunities, especially in the film industry.
The proliferation of channels promised by the switch from analogue to digital will enable individual movies to be shown at roughly 15-minute intervals on different channels, a system known as near-video-on-demand.
According to some City analysts, pay-per-view movie services could be a big money-spinner for the cable companies. Although digital technology will enable BSkyB to carry far more channels than it can currently, transmitting by satellite still limits the number. Cable, on the other hand, has virtually limitless capacity.
NTL's involvement in On Demand did not come as a surprise as the US company is involved in merger talks with Telewest. NTL had first approached Telewest about merging in the hopes of creating a rival to CWC, which was formed from a pounds 4.5bn four-way merger in April. City analysts say the cable industry desperately needs to consolidate if it is to improve penetration and reduce its debts.
However, some observers are sceptical about the likely success of a merger, as both Telewest and NTL are in a fairly shaky financial position. Telewest has recently adopted an initiative to boost its profits by charging broadcasters for channels aired on the cable operator's network.
Telewest has continually attacked the high fees charged by BSkyB and other programmers, which have eroded margins.