Internet broadcasters should not be subject to the same rules which govern television, peers have been told.
Video-sharing sites could be included in the EU directive
Attempts to update the 1989 TV without Frontiers EU directive, are being considered by a Lords committee.
Moves to ease rules on TV broadcasts - particularly advertising rules - were welcomed by those giving evidence.
But peers were told trying to impose new rules on audio-visual internet providers - like the YouTube site - could stifle new broadcasters.
The cost of complying with new rules could deter new would-be internet entrepreneurs, the committee heard.
And it would prove difficult to get TV regulation to fit online services, as well as impose any rules on such fast-changing technology.
Giving evidence on Monday, Wes Himes, director of the European Digital Media Association, said online broadcasters had already introduced self-regulation - such as the Internet Content Rating Association.
"There is already E-Commerce regulation, it's not as if our services exist in a regulation-free world - we already have regulation that we comply to," he said.
He dismissed the argument that the new rules would allow better "pluralism of content" saying: "I can find more content online than I will find in the biggest 'offline' store out there."
And he pointed out that the internet is already an "environment for invention" - pointing to the success of video-sharing phenomenon YouTube, 18 months after it was created.
The committee also heard that the E-Commerce directive already provided regulation for online broadcasters and introducing a new directive might confuse things for businesses.
Jeremy Beale, head of the CBI's E-Business group, said: "It is adding another layer of regulation on what companies already face. Inevitably they will be saying 'to what extent does this contradict that EC directive? To what extent does it override it?'"
"It's not the appropriate time to [create] new legislation, things are moving very fast and that will mean that any regulations that are created now will in many cases already be ineffective."
He said putting restrictions on the European online market place would only push consumers to services outside the EU - leaving the UK and Europe internet services in "stunted development".
There were also concerns about any attempt to weaken the "country of origin" principle - which allows broadcasters to offer pan-European services, while complying with the laws of the country they are based in.
Matteo Maggiore, the BBC's head of Europe policy, told the committee: "We would be extremely concerned if the country of origin principle should go. It would be tantamount to going back to a world of erecting frontiers to the communication of services."