A scheme to send warning letters to alleged copyright infringers has been scrapped by telcos and rights holders because it is too costly.

The Copyright Notice Scheme Code would have seen internet service providers (ISPs) send letters to customers on behalf of film studios if they detected a user had infringed copyright by downloading content without paying for it.

Months of negotiations on the so-called 'three strikes' scheme have reportedly come to naught.

The "graduated response" scheme would begin with a gentle warning to customer account holders whose IP addresses matched those of illicit downloaders, escalating to a "third strike" which could trigger legal action.

On Thursday, Village Roadshow's Graham Burke – an outspoken campaigner for anti-piracy measures in Australia – told CNET the parties had abandoned the scheme because "it was too much of an imposition to ask the ISPs, and also from our own point of view, the amount it would cost".