Move over Fairfax, here comes the new challenger in the mass media stakes – well the challenger is not so new.

Telstra is expected to take a major step toward becoming a full-blown media company in 2009 when it rolls out set-top boxes that allow internet customers to download films and play them on television.

The launch of a digital video recorder would put Telstra in competition with Foxtel‘s iQ DVR and Home Box Office on-demand movie service after the non-competition agreement between the two parties expired last month.

Telstra, which owns 50 percent of Foxtel, is pitching the service as a ‘TiVo-killer’, targeting the Seven Media Groups TiVo DVR and media device.

The company is likely to offer its broadband internet customers streamed TV programs and BigPond movie downloads that can be played on a computer or TV.

A spokesman believes it was in Telstra’s interest to ensure that Foxtel, which also has News Corporation and James Packers Consolidated Media as shareholders, continued to be profitable.

The box will be given free to broadband internet customers as early as the first quarter of next year, with Telstra expecting customers to upgrade their broadband download package to take advantage of the service.

Existing Telstra customers are paying at least $59 a month for high-speed broadband that includes access to BigPond content, plus new release movies for an extra $5 each.

Foxtel iQ users pay at least $40 a month for a basic package, plus $10 a month for an iQ box, which allows them to pause, rewind and record live TV programs, and $5.50 each time to download movies. A TiVo costs $699, with other content available free.

The internet TV content market is wide open at moment. Telstra says it had 3.3 million retail broadband customers, but sources estimated BigPond’s internet TV and movie download service had only about 30,000 users. Foxtel said in June it was in 1.5 million homes, 40,000 of which had taken up iQ DVR.

However, the total number of other DVRs sold in Australia is less than 60,000 a year. Telstras expectations will depend on more consumer earnestness in this area.