Player scheduled for end of 2013 with experts and public helping to choose which films will be digitised over next five years

An internet "player", which will give unprecedented access to Britain's film heritage online, whether that's the innovations of the early pioneer RW Paul or the Mass Observation documentaries of Humphrey Jennings, was announced on Tuesday as part of a five-year plan for British film.

The British Film Institute, which has taken on a lead role for all aspects of film since the abolition of the UK Film Council outlined how it plans to spend over £500m over the next five years.

The organisation's chairman Greg Dyke said that included spending £50m a year of lottery money, which was "not as much as you might think". He promised a less London-centric approach and said the BFI's three priorities would be: education and audiences; film and film-making, and film heritage.

On that last priority Dyke said: "It's all very well having the greatest film library in the world but if you can't actually get to see it, it's of limited value. I keep on making jokes that I don't believe it's there, but they tell me it is."

In fact, more than 450,000 cans of the nation's film are stored at a secret location in Warwickshire and the BFI said it was committed to digitising 10,000 films by 2017, with experts and a public vote helping to decide which films should be included. The BFIPlayer, scheduled for the end of next year, would allow viewers to watch films on-demand.

The BFI's creative director, Heather Stewart, said the strategy was rooted in "looking at films that have changed our understanding of our film culture". That might include animations, advertising films and documentaries such as those made after 1937 by the Mass Observation project.

Using new technologies will be a key element of the BFI's strategy, its chief executive Amanda Nevill said, and five different apps are being developed to help show content.

"Eventually this will lead to a BFIPlayer," planned for the end of 2013, added Nevill.

The BFI has also taken over responsibility for providing money for film production – The King's Speech, for example, benefited from £1m of lottery money.

In the five-year plan the money given out for production and development will rise annually to £24m by 2017 with "new opportunities for film-makers working in documentary and animation".

There is always lively debate about where money should be given, with David Cameron reported as saying it should be films that have wide commercial appeal.

The BFI's film fund head, Ben Roberts, said tough decisions had to be made. About 20 films a year will be funded, but another 300 will be turned down. But he said: "I don't believe commercial appeal and critical appeal can't co-exist. We can't underestimate how much audiences respond to strong, original film-making."

"The criteria for everybody is that we support film-makers with strong, original, inventive ideas," said Roberts. "It is up to us to have instincts about what we think is going to strike a chord with its audience."

He promised that the "doors are open to all kinds of film-makers" and that the process would be "very open and transparent".

The wide-ranging report, called Film Forever, follows an 18-month consultation process and was welcomed by culture minister Ed Vaizey who faced flak when he abolished the UK Film Council and gave additional responsibilities to the BFI. "It has proved to be the right thing to do and has gone very smoothly," he said.

"This government understands that film is just as valuable in terms of inward investment as other more traditional industries and this five-year plan is very clear and exactly what I wanted to see."