Project Kangaroo has been blocked by the Competition Commission.
The online TV project - a joint venture between ITV, Channel 4 and BBC Worldwide - has been deemed "too much of a threat to competition in this developing market".
The Project had previously been described as "anti-competitive" in December 2008, but the companies behind the venture resubmitted tweaked plans in the hope to get it approved.
The Competition Commission said: "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 video-on-demand services to UK viewers".
Responding to the findings, BBC Worldwide, ITV and Channel 4 issued a joint statement as follows:
"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".
There are no plans to appeal the decision, and 50 jobs will now be lost as Project Kangaroo shuts its doors.