The competition commission headed by its chairman, Peter Freeman, has hit out at Kangaroo, the online Video on Demand joint venture backed by BBC Worldwide, ITV and Channel 4, accusing it of undermining competition in the UK market.
The government watchdog warned that should the scheme be given the green light, it will result in a "substantial lessening" of competition in the growing video on demand services.
Paradoxically, the commission said that the project would not have any adverse effect on online advertising or content acquisition which is puzzling given that Kangaroo will be paid partly by advertising revenues.
Indeed, ITV is expecting Kangaroo to generate up to £150 million by 2012 and to offer more than 10,000 hours of programmes on demand.
The Commission's chairman also said that there could be issues in the future when it comes to the three broadcasters granting licenses to third parties and added that it would investigate how a reduction in competition could be remedied.
Interestingly, all the major UK broadcasters, except ITV, have some sort of Video on Demand online service with the BBC leading the way with the hugely popular iPlayer.
Kangaroo has the potential to emulate Freeview's success as a platform if it manages to enroll the rest of the competition - Bertelsmann-owned Channel 5 and BSkyB Sky channels - as it is in the interest of the public to have a federated platform.
'Video on demand' competition risk