BSkyB has reported a 6% rise in pre-tax profits, with the broadcasting firm making £1.26 billion in the year to the end of June.

It hailed a strong summer of sport, which has seen it broadcast Lions rugby and Ashes cricket, as a significant driver behind its strong performance.

Sky said its subscriptions rose 3.3 million to 31.6 million in the period, with its customers increasingly adding products like broadband, HD TV and mobile access to their accounts.

It said 35% of customers were now taking TV, broadband and phone services, up from 32% last year. That helped grow revenues 7% to £7.24 billion.

However its churn rate - how many customers are leaving - increased to 10.9% from 9.9%.

Sky warned that it expects the year ahead to be challenging as consumer spending remains squeezed.

It also announced plans to buy back £500 million of shares to boost investor earnings.

Sky faces a challenging period as competitor BT launches its own sport channels next month in a head-on challenge to its dominance of pay-TV sport.

BT's channels will be free to its broadband subscribers in Britain, while it has also struck a deal with Setanta Sport to make it available to Irish viewers.

As part of an attempt to counter this, Sky has announced a TV box allowing viewers to watch on-demand services.

The Now TV box wirelessly connects a TV to a broadband connection, giving contract-free access to BBC iPlayer, Demand 5, Sky News and Now TV. Through Now TV, viewers can also pay to watch Sky Sports and Sky Movies.

The device also allows people to catch up on previously-broadcast programmes - known as on-demand TV.