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Christian Voice director, Stephen Green, had hoped to overturn a previous ruling which forbade him from prosecuting Mark Thompson.
Mr Green said the show "clearly crossed the blasphemy threshold".
Two judges ruled it was reasonable to conclude the play "in context" could not be considered as blasphemous.
They said the production "as a whole was not and could not reasonably be regarded as aimed at, or an attack on, Christianity or what Christians held sacred".
The BBC received a record 63,000 complaints when the musical - a satire based on US TV host Jerry Springer's controversial talk show - was broadcast on BBC Two in January 2005.
The corporation also received many messages of support for screening the musical, which includes scenes set in Hell with Jesus and Satan.
Solicitors for Christian Voice urged Lord Justice Hughes and Mr Justice Collins to allow the blasphemy prosecution to go ahead.
(BBC)
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