According to a report in The Times this morning Murdoch vetoed what has been dubbed "Channel 6", which was to be an new advertising-financed channel announced in September.
The launch of Sky's Channel 6 was seen as its big push into free-to-air television putting pressure on commercial rivals Channel 4, Five and ITV.
The plan to launch the channel was announced at the Royal Television Society convention in Cambridge by Sky chief operating officer Richard Freudenstein.
He said that the channel would evolve from Sky Travel, one of Sky's three free channels currently broadcasting on Freeview, once the platform hit 8m users.
Sky had never been clear on the timetable for the channel's launch with Freudenstein saying Freeview hitting this figure would depend on the government switching off the analogue signal and converting all viewers to digital.
News that the launch has been axed follows figures released in January showing that the number of UK homes with digital television broke through the crucial 50% in December.
Freeview has been a large driver of this growth in digital penetration, with the set-top boxes a popular Christmas gift. Uptake of the service increased by 41% during the last quarter of 2003 with an increase of 866,500 homes, meaning the digital terrestrial platform Freeview now accounts for nearly 3m households out of a total digital TV universe of 12.4m homes.
By the end of 2004 it is expected Freeview will have more than 4m tuned in.
Sky's subscribers have also continued to grow with numbers now standing at 7.2m
According to The Times the thinking behind the decision is that Murdoch decided that the satellite broadcaster should not allow itself to be distracted from its number one priority of continuing to develop pay-television in the UK.
With no entertainment channel from Sky that leaves its offering on Freeview comprising Sky News, Sky Travel and Sky Sports News.
The Times says that these three channels will remain on Freeview but will have no new resources put behind them.
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