Plans for a linked video-on-demand service from the BBC, ITV and Channel 4 were thrown into disarray today after regulators ruled that the joint venture project is anti-competitive.

The Competition Commission ruled that UK Video-on-Demand (UKVOD), that would allow BBC, ITV and Channel 4 to offer viewers recently aired and archived programmes via the web, “would restrict competition in the supply of Video on Demand (VOD) services in the UK”.

Commenting on the joint venture, which is also known as "Project Kangaroo", Peter Freeman, chairman of the Competition Commission, said: "Video-on-Demand is a relatively new and rapidly expanding medium and UKVOD clearly has much to offer.

“However, we are concerned that a loss of rivalry between BBC Worldwide, ITV and C4, which are normally regarded as close competitors, could restrict existing and future competition for VOD. Whatever benefits viewers would gain from this rivalry would clearly be lost.”

In July, Michael Grade, chairman of ITV, blasted the Office of Fair Trading (OFT), which referred the matter to the Competition Commission, for delaying progress on the project.

He said that large groups, such as Apple and Google, were being allowed to build dominant internet media businesses while his company's efforts were being held up.

Earlier this year, ITV was forced to cut its revenue target in its online business because of regulatory delays to the launch of Project Kangaroo. Online revenues are now expected to grow to £150 million by 2012 instead of the previous target of 2010.

Designed as a "one-stop-shop" for archived UK TV programmes, the commission said that Project Kangaroo would offer the majority of programmes to viewers for free and would be funded through advertising, but would also charge customers for some content.

As well as providing a retail service to customers, the broadcasters also hope to license the service, or a substantial part of it, to other groups on a wholesale basis.

But the commission decided that the combination of Britain’s three biggest terrestrial broadcasters would give them unhealthy control over the emerging market for such services in Britain and hand them the ability to restrict access to content from third parties.

“The evidence that we have seen tells us that domestic content is key to being able to offer strong competition to UKVOD’s proposed service,” Mr Freeman continued.

“The parties control most of that content, putting them in a powerful position in relation to competitors and viewers. We think that it would be difficult to obtain content from third parties to match UKVOD's offer in scale or attractiveness.

The OFT originally referred Project Kangaroo to the commission in June with concerns that "there was a danger that the platform could be too powerful".

The commission will now hold further meetings with the broadcasters, including discussions of possible remedies to address their concerns.

It will publish a final report by February next year.

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