The Competition Commission said today that it has decided to block plans for a video on demand (VOD) joint venture between ITV, BBC Worldwide and Channel 4.
The service, called Project Kangaroo, had been expected to launch last autumn with thousands of hours of TV.
But the Office of Fair Trading referred the venture to the Commission amid concerns that it could give the partners involved too much muscle over prices for their own content.
Plans for the service had included it containing some free and some paid-for programmes, launching online and eventually on TV sets.
The Commission looked at possible remedies and concluded that none proposed could remove the threat to competition in the VOD market.
Peter Freeman, Commission chairman and chairman of the inquiry group, said: "After detailed and careful consideration, we have decided that this joint venture would be too much of a threat to competition in this developing market and has to be stopped.
"The case is essentially about the control of UK-originated TV content.
"VOD is an exciting and fast-moving development in TV, which makes programmes previously broadcast available to viewers at a time of their choice.
"The evidence we saw showed that UK viewers particularly value programmes produced and originally shown in the UK and do not regard other content as a good substitute.
"BBC Worldwide, ITV and Channel 4 together control the vast majority of this material, which puts them in a very strong position as wholesalers of TV content to restrict competition from other current and future providers of VOD services to UK viewers."
He said the inquiry thought the joint venture parties would have an interest in doing this, in order to make Project Kangaroo a success.
He continued: "Without this venture, BBC Worldwide, ITV and Channel 4 would be close competitors of each other.
"We thought that viewers would benefit from better VOD services if the parties - possibly in conjunction with other new and/or already established providers of VOD - competed with each other."
A statement from the BBC said: "We are disappointed by today's decision that prevents the partners taking Kangaroo forward.
"However, we remain absolutely committed to delivering distinctive quality BBC programmes online and will continue to drive innovation through our successful iPlayer platform."
A joint statement was released by BBC Worldwide, ITV plc and Channel 4, saying the decision was a "missed opportunity" and the real losers were British consumers.
It said: "We are disappointed by the decision to prohibit this joint venture.
"While this is an unwelcome finding for the shareholders, the real losers from this decision are British consumers.
"This is a disproportionate remedy and a missed opportunity in the further development of British broadcasting."
Michael Grade, chairman and chief executive of ITV, spoke of the broadcaster's surprise at the move.
He said: "We are surprised by this decision because we believed that the Kangaroo joint venture, competing in a crowded online world against dominant global brands, was an attractive UK consumer proposition, free at the point of use.
"However, in the two years since the idea for Kangaroo was born, the success of ITV.com has proved that our UK content is attractive enough to stand on its own and we remain focused on our online growth.
"We will provide a further update on our online plans with our full-year results on 4 March."Reuse content