Microsoft has decided to shelve a planned Xbox Live Diamond TV service due to high licensing costs.
Talks were ongoing with content producers last year for a subscription service that would allow users to watch multiple TV channels and access internet services such as YouTube and Netflix, as well as use Kinect for voice and motion controls.
"They built Microsoft TV, they demoed it for us, they asked for rate cards but then said 'ooh ah, that's expensive," a TV exec told Reuters.
Microsoft is still working with content producers to host apps on the Xbox Live service and has recently announced deals with IGN, Fox and The Wall Street Journal.
However, the report suggests Microsoft may return to the ambitious project at some point in the future. "It doesn't mean they won't be back in another iteration. We'll have to wait and see," said a media source.