The company, which handles TV and radio transmitters for most UK broadcasters and is a partner in the BBC-backed YouView video-on-demand venture, will pull the plug on SeeSaw next month.
The decision comes five months after Arqiva – which is headed by John Cresswell, former interim chief executive of ITV – appointed Ingenious Media to find an investment partner or buyer for the business.
The company informed its 28 staff on Friday that a buyer had not been found and that it is launching a 30-day consultation.
"[SeeSaw] no longer fits with the strategic direction in which we are taking Arqiva and requires considerable investment to succeed in an increasingly competitive market," a spokesman for Arqiva said. "We have tried to find an investment partner, however this has not proved possible."
SeeSaw was launched using the assets of ITV, Channel 4 and BBC Worldwide's defunct VoD venture Project Kangaroo, which Arqiva acquired for about £8m.
It is expected to close around 20 June so that costs relating to the business can be accounted for in Arqiva's financial year to 30 June.
At its launch in February last year, SeeSaw offered 3,000 hours of free programmes including Skins, Kingdom and Doc Martin. Three months later it began offering paid-for content, with 1,000 hours of shows including South Park and Spooks, and struck deals with US broadcasters including MTV and NBC Universal.
But third-party internet TV aggregators have strugged to compete with broadcasters' own in-house on-demand services, and SeeSaw failed to gain a significant following compared to rival offerings such as the BBC's iPlayer, ITV Player and Channel 4's on-demand service, 4oD.
Joost, the web TV service founded by the Dutch technology entrepreneurs behind Skype, closed its UK service in 2009.
SeeSaw's predecessor, Kangaroo, was originally conceived as a way for the BBC's commercial arm, BBC Worldwide, to monetise the corporation's content. While iPlayer programmes are free, they are only available for a limited window after broadcast.
The future of SeeSaw rival Blinkbox looks assured following Tesco's decision to acquire an 80% stake in the business last month. Blinkbox offers a range of free and paid for downloads, with shows including Shameless, Peep Show and Top Gear.
Tesco is one of the largest UK retailers of physical DVDs, and Blinkbox will complement its in-store offering as the market for downloads grows.
In a parting message to customers, SeeSaw said on its website: "As part of an ongoing strategic review of its business activities Arqiva, our parent company, is no longer able to support the service.
"As it will soon be 'goodbye' from SeeSaw, we'd like to take this opportunity to say a big 'thanks' for all your support, custom and loyalty over the last 16 months."
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