BSkyB's new £9.99 Now TV set-top box is targeted at budget conscious Freeview households looking to upgrade to an internet-connected television service, the company's chief executive has confirmed.

Jeremy Darroch said on Friday that the new low cost set-top box was aiming at Freeview consumers who might be thinking of upgrading to rival internet-connected TV services offered by TalkTalk and BT – stopping just short of admitting it is a "YouView killer".

The new service unveiled on Friday will allow viewers who balk at a monthly Sky pay-TV subscription to access on-demand content including the BBC iPlayer, Facebook and Sky News.

"It will enable us to target Now TV to new segments of the market we don't currently penetrate very highly," Darroch said. "We know there is a pool of customers who really like Sky's content, Freeview customers who like Sky's content but for a variety of reasons don't want an install, or pay through a regular monthly contract, want to pay more on the go. I wouldn't describe it as a YouView killer but it allows us to target that part of the market."

Darroch said that BSkyB is subsidising the Now TV set-top boxes, but that they are "pretty cheap, we take a small hit when we sell it".

He said that viewers would only need to pay for a few services, on top of the one-off £9.99 set-top box cost, such as a £9.99 "day pass" for access to Sky Sports, or a monthly Sky Movies pass.

"People will just need to use a handful of [pay] services, two or three usages [to breakeven on each box], it's not a lot," he said.

Darroch said BSkyB, which has 10.4 million pay-TV customers, wants to tap into the 13 million UK households that are not subscribers, mostly Freeview consumers.

This puts BSkyB on a collision course with TalkTalk, which earlier this week revealed it has signed up 390,000 budget pay-TV customers in just nine months, and BT.

Both companies are offering subsidised YouView boxes, which offer free and pay content via a broadband connection.

"Over 20 odd years we have seen sustained growth in pay TV," Darroch said. "But still 13 million households don't [have pay TV], so there is a big pool for everyone to play in I think. And we can take out fair share of that and I'm sure others can do so as well."

Darroch said that as well as Freeview households he could also see the service appealing to standalone broadband customers "who want a bit of extra TV, who can have access to Sky TV", and in urban areas where some people "have trouble getting a satellite dish".

He said BSkyB intended to market the product throughout the year identifying times such as "back to school", for cost-conscious university students, as well as a gift idea at Christmas where it could be bundled with a Now TV sports or movies pass.

He also said that in the new year many people also do their household budgets, when there are "big switch and save deals" on telecoms products like broadband, another time to appeal to belt-tightening consumers.

Darroch said that, to date, BSkyB has seen very little in the way of cannibalisation of its main TV subscription business from new, cheap, pay-as-you-go services such as Now TV.

"Those sorts of segments that can sit in a very complementary way alongside the satellite subscription service, the full service we offer," he said. "I think [monitoring cannibalisation] is sort of a month by month thing. We have found these services sit alongside each other pretty well. But obviously we keep a close eye on it day to day."

He added that he hoped the fledgling Now TV set-top box service will grow substantially and become attractive to many more content partners.

"We'd want more other free-to-air broadcasters on there, and more of our partner channels on there," he said. "One of the services we can offer [partners] is we can reach the whole UK, there is real alignment of interests, we are a big distribution platform."

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