The new BT service will be offered to consumers through a broadband phone line and set-top box.
The telecoms giant is already in talks with content providers to show programming such as ITV's 'Coronation Street' and BBC's 'EastEnders' through the service.
A BT spokesman said: "We are not negotiating any exclusive deals and have been talking to a variety of content providers about the new service."
Internal trials are due to start this week with the full commercial service to be launched by summer 2005.
Viewers can expect to download a selection of programmes from an archive by typing in a keyword like 'Dr Who', giving the viewer complete control of their own schedule.
Last week, Ofcom's latest figures on multichannel TV revealed a further 4% of homes subscribed to analogue cable during the second quarter, bringing the total number of homes receiving multichannel television to more than 59%.
The figures reveal that digital household penetration reached 13.7m, with an additional 630,000 households adopting digital during the quarter.
Sky's subscriber base grew by 76,000, accounting for less than 20% of the total growth.
If you have an opinion on this or any other issue raised on Brand Republic, join the debate in the Forum here.