Project Kangaroo, the plan by the BBC, ITV and Channel 4 to launch a joint online video-on-demand service, has been blocked by the Competition Commission because it posed "too much of a threat to the competition".
The Commission said the project "had to be stopped" and viewers would benefit more if the three participating broadcasters were "close competitors" rather than allies.
The broadcasters said in a joint statement: "The real losers from this are British consumers."
If it had gone ahead, the service would have sold current programmes form ITV and C4, and archived material from the BBC, online. It would not have replaced the BBC iPlayer, which offers current shows for free.
Commission chairman Peter Freeman said that, as the three broadcasters controlled most programmes produced in the UK, the project could stop other on-demand services developing.