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BT is backing its pay-to-view IPTV (Internet Protocol TV) service BT Vision to the tune of £100m over the next year, but it may not be enough to reach its target of three to four million customers over the next three to four years, according to analysts.

"We think it's a tall order," says Annelise Berendt, a senior analyst at Ovum. "Look at other IPTV operators around the world - customers are in the 100,000s. It's going to take a while to educate the market."

Yet the potential to entice digital refuseniks to cheap pay TV seems wide. There are 11 million UK homes with 13 million TV sets currently subscribing to TV packages through either Sky or cable. There are also 14 million homes with 47 million TV sets that do not have access to Freeview, Sky or cable.

"We have spoken a lot to our customers," says Marc Watson, BT Vision's commercial director. "Beyond that, we think there is a big marketplace in between Freeview and subscription suppliers."

Paul Richards, a media analyst at Numis, agrees: "If you've got a box that gives you a lot more for not much more money, then there is a gap in the market that you can fill."

BT is concentrating on its 13 million broadband customers and claims to have tens of thousands of registrations. Beyond that, it expects to poach Sky's customers. But what can it offer them that Sky cannot?

Football tie-up

In the battleground for premium football content, BT Vision last week announced a tie-up with Setanta Sports - customers will be able to watch 46 live Premiership games, but this is far fewer than Sky.

"(The Setanta deal) brings it a bit closer to Sky," Berendt says. "But I don't think they've got what they need to pull away the hardcore Sky Sports customers."

Some observers are more optimistic about the longer term and concede that there is a question mark, albeit small, over Sky's dominance.

"You've got Setanta nibbling away, so it will be more of a challenge for Sky, which is so dominant. It'll be hard to hold onto everything," says one telecoms and TV insider. "Not just from a commercial standpoint, but from a regulatory one. I imagine BT and the cable companies are presenting their case to the regulators."

Movie attraction

In the meantime, BT Vision will hope to attract customers with its movies. Its pricing of up to £3 undercuts Sky by 50p.

However, one industry observer questions the strategy: "My own experience is that pay-per-view buyers of films don't drive big revenues," he says. "Ongoing monthly subscribers are the big drivers."

Watson counters that observers should look at BT Vision's offering as a whole - children's TV, sport, interactive and film. "This is only the beginning," he says. "We've got a compelling line-up of significant content deals. We are looking to acquire more content to make it more compelling."

Berendt is cautiously upbeat: "They've made a number of announcements over the last few months," she says. "It's a solid line-up, but not the most amazing."

Current efforts are being described as a "soft launch", with the short-term aim of getting as many BT Broadband subscribers to upgrade as possible. Although Watson refutes the term, he admits that BT is initially only courting its own customers, claiming this is prudent in ensuring that demand for BT Vision does not outstrip supply. In the New Year, BT will cast its net wider with heavy marketing aimed at non-BT customers kicking off in the spring.

"One of the things that we have to ensure we do is get across what the product is about - price, convenience and control," Watson says.

Pricing is a core part of BT's strategy. In addition to its low price films, sport and entertainment, there is the set-top device itself - the heavily subsidised V-box. BT believes it is a compelling product in its own right. But is its aggressive pricing strategy economically viable?

"Yes," says Watson. "We have a target of three to four million in the next three or four years, during which we expect to be profitable."

Yet, in the short term, BT will only have one revenue stream, with advertising on IPTV services yet to take off. Watson acknowledges this: "The long-term potential (for advertising) is significant," he says. "The platform has got functional interactivity and we will be able to offer personalised ads and other dedicated advertiser and sponsored sites."

BT is a vast telco, but coming late to the content game, it will have to employ all its might if it is to succeed against established players with very deep pockets BT VISION: WHAT YOU GET

- BT Vision is a TV service positioned somewhere between Freeview and subscription services provided by Sky and NTL

- Viewers will need to subscribe to BT Broadband and will be given a V-box at a cost of £60, plus £30 connection fee

- 40 channels of Freeview

- Library of 500 on-demand films by Q1 of 2007, increasing to 1,000 by the end of the year, costing between £1.99 and £2.99 each

- Additional TV programmes, sports coverage and music videos are available on demand or through pay-per-view or monthly subscription packages, which range from £6 to £14 per month

- The V-box doubles as a PVR and is able to record up to 80 hours of programming and allow users to pause, rewind and fast-forward TV

- BT Vision promises more content in the future, including interactive features, gambling, video phone calls, voting and user-generated content

- BT Vision will air 46 of the season's 380 Premier League football games and 242 matches after 10pm on the same day that they are played.