Copyright holders have officially pressed pause on a scheme that would have seen alleged pirates sent warning letters before being pursued in courts for copyright infringement.
The decision comes after months of failed negotiations between rights holders and internet service providers (ISPs) over how costs of administering the scheme would be divvied up.
The so-called "three-strikes" or "graduated response" scheme would have required ISPs to send letters to customers on behalf of film studios if they detected a user had infringed copyright by downloading content without paying for it.
The Communications Alliance, representing ISPs, worked with rights holders to submit a copyright notice scheme code for authorisation to ACMA in April 2015. The code was scheduled for implementation in September.
But the plan backfired.
Within weeks ACMA sources told Fairfax the code would not be ready by the flagged date due to a lack of agreement on costs.
This week CNET revealed the parties had asked the Australian Communications and Media Authority to sit on its hands for one year while they reassessed the viability of the scheme.
In a letter written to ACMA acting chair Richard Bean last month, Communications Alliance chief executive John Stanton and Foxtel director of corporate affairs Bruce Meagher, on behalf of a broad group of rights holders, asked for reassurance from the authority that it would not recommend the government introduce legislation or otherwise act to implement a new copyright notice scheme in the next 12 months.
In its response, ACMA agreed to the terms.
While Foxtel and the Communications Alliance stressed negotiations between the parties had been "in good faith", Fairfax understands discussions were not active for months, and that the stalemate was predominantly due to ISPs not wanting to foot the bill.
An insider said there was "inflation" by some ISPs on how much it actually cost to send warning letters to alleged pirates.
"We were able to agree on the mechanics of the code and some elements of cost allocation," Foxtel's Bruce Meagher said.
"However, we were unable to reach agreement on other significant commercial terms."
Copyright holders were now focusing on other anti-piracy measures, he said.
Intellectual property awareness group Creative Content Australia, which receives funding from Foxtel and other copyright owners, is looking at educational measures to change pirates' behaviour.
The first court actions under website-blocking legislation introduced last year are also under way.
Foxtel has initiated court action to have The Pirate Bay and other copyright infringing websites blocked in Australia, while a consortium of film distributors led by Village Roadshow is seeking to block Solarmovie.
A third action by music industry labels to block Kickass Torrents has been put on hold pending the outcome of the other actions.
Cost considerations could also prove a sticking point in these actions, as it will be up to ISPs to administer any site-blocking orders.
Foxtel's Mr Meagher said rights holders would prefer to reach agreement outside court but would ask the court to make a ruling on details if necessary.
The Productivity Commission recently said the best way to prevent piracy was for content owners to make it easier for Australians - notorious copyright infringers - to access timely, affordable content through legal avenues.
Laurie Patton, chief executive of internet users' group Internet Australia, said the industry had been focused on publicity when it pushed for the graduated response scheme.
"They suggested this 'three strikes' rule hoping they wouldn't have to pay for it and now they've walked away when it turned out they were going to have to pay for it," he said.
