The British actor wanted to focus on Mercury's flamboyant lifestyle, while the late singer's former Queen band-mates wanted the film's tone to be more family friendly, the entertainment news website said.
The Guardian said Peter Morgan, the Oscar-winning screenwriter of "The Queen," is working on the script for the Mercury film, while David Fincher and Tom Hooper have been considering directing the project.
The film is expected to go ahead with another actor, although no new star has been announced yet, the newspaper said.
Mercury died of an AIDS-related illness in 1991. He was 45.