The clip, filmed as part of the upcoming 41st season of Sesame Street, recently hit the internet - sparking a wave of complaints from parents concerned Perry's low-cut dress was too revealing for kids' TV.
The deluge of criticism prompted TV executives to axe Perry's New Year's Eve (31Dec10) appearance altogether - but top producer Carol-Lynne Parente admits she was surprised by the fuss the clip caused - because producers didn't think the footage of Perry's bouncing cleavage was that bad.
Parente says, "We would never produce anything we thought was inappropriate. We were surprised not only by the amount of feedback, but how fast it came in. It was a lot."
Parente insists not all comments were complaints but show bosses decided to ditch the segment to avoid any further controversy.
She explains, "We have a great interactive relationship with our viewers. They trust Sesame Street and we take that seriously. Parents' opinions are very important to us."
And Parente still stands by Perry's talents as a singer, describing her as "a wonderful musical talent", adding, "We had a great time."
Perry has since posted footage of her appearance on her official website so fans can judge for themselves.