Microsoft's discussions with media companies to create a new online TV and movie service have been put on the backburner.
Sources close to the talks say the company withdrew its interest after deciding the licensing costs were too high for its planned business model, according to Reuters.
One media executive said: "They built Microsoft TV, they demoed it for us, they asked for rate cards but then said 'ooh ah, that's expensive'."
Microsoft's TV service was intended to offer movies and TV programmes from a range of providers for a subscription fee – similar to Netflix, which launched in the UK this week.
Unlike Netflix, Microsoft hoped to include current shows and live networks in its service, which drove potential costs higher. Voice and motion controls to change channels were also planned.
Media companies said that they believe Microsoft will resume discussions for this service at a later date.