The television industry says being forced to produce children's programming, some of which is watched by fewer than 1000 children, is preventing investment in other content.
Commercial TV broadcasters must show a minimum of 260 hours of children's 'C' programs a year, including 32 hours of first run children's drama programming, as well as a minimum of 130 hours of Australian preschool 'P' programs annually.
But studies have shown YouTube, Netflix and Amazon Prime are now the platforms of choice for children, while all of the top 30 children's programs on free-to-air television are on ABC Kids.
Peak body Free TV has asked the federal government to move towards deregulation of quota obligations other than an overall Australian content target.
"Children's quotas are a clear example of how regulatory interference in a market not only causes significant commercial harm but also fundamentally serves no purpose for Australian children," the body said in a submission to a review.
"The quotas have become completely irrelevant to modern Australian families, their children and their viewing choices. It is time they are abolished and a new approach is adopted - one that recognises what and where children are watching."
There should be production support and incentives to better respond to audience demands, Free TV says.
As an alternative to quotas, Free TV proposes a points system for commercial TV broadcasters that allows them greater flexibility.
Free TV CEO Bridget Fair said the quota system was like "stepping into a time machine straight back to the 1980s".
"We have seen fundamental change in the media landscape but there has been no significant change in Australian content regulation for almost 20 years."
The industry says it remains committed to Australian content, including news and current affairs, entertainment, sport and drama.
It spends around $1.6 billion a year, with 85 per cent of programming budgets spent on Australian programs.