In yet another twist to offering video content over the Internet, ZillionTV unveiled its plan yesterday to offer free digital video to subscribers.

While ZillionTV’s content is free, customers must be willing to watch advertising from ZillionTV’s sponsors and advertisers. While some competing Internet video service providers download content into a set-top box, ZillionTV streams it to its set-top box, which means it costs less to produce because it doesn’t need to store the content.

If a ZillionTV subscriber opts in, the ads that are sent to ZillionTV’s customers are based upon programming that they’ve already watched, as well as their demographic and geographic information. Since the ads are more interactive, advertisers are willing to pay more to get their ads in front of ZillionTV’s subscribers.

Sunnyvale, Calif.-based ZillionTV is run by cable and broadcast veteran Mitchell Berman and has the backing from Sierra Ventures and Concept Ventures. Other investors include Visa and Sigma Designs. ZillionTV will provide content from the libraries of Disney, 20th Century Fox Television, NBC Universal, Sony Pictures and Warner Bros. Digital Distribution.

ZillionTV is currently working on deals with Internet service providers, including cable operators, to offer its services over their broadband connections.

While currently in beta testing, ZillionTV’s device, which will have a one-time fee of $50 and no monthly service charges, is slated to go on sale later this year.