A U.S. federal court on Wednesday blocked controversial new Federal Communications Commission (search) media ownership rules pending a full judicial review in a major blow to large media companies.

In a loss for the Republican-led FCC, the three-judge panel of the Third U.S. Circuit Court of Appeals (search) in Philadelphia granted a stay order that prevented the new rules from taking effect as scheduled on Thursday.

Critics argued that the FCC rules would concentrate too much power in the hands of media moguls.

The new rules were backed by media giants including Viacom Inc.'s CBS, General Electric Co.'s NBC and News Corp. Ltd's Fox television networks, none of which had any immediate comment on the stay order.

"Given the magnitude of this matter, and the public's interest in reaching the proper resolution, a stay is warranted pending thorough and efficient judicial review," the three-page judicial order stated.

A spokesman for the FCC said, "While we are disappointed by the decision by the court to stay the new rules, we will continue to vigorously defend them and look forward to a decision by the court on the merits."

The new rules, adopted by a 3-2 vote in June after vehement criticism from consumer advocates and both Republican and Democratic lawmakers, would allow a single media company to reach 45 percent of the national television audience through local TV station ownership -- up from a current 35 percent.

MEDIA MARKET REFORMS

Companies also would be able to own both newspapers and broadcasters in the same markets.

The ruling marks the latest skirmish in a battle over media market reforms that have pitted the FCC and leading media companies against an unusual alliance of Democrats, Republicans, consumer advocates and conservative groups including the National Rifle Association.

The order was requested by a media-activist group called the Prometheus Radio Project (search), which argued that the new rules would precipitate a new wave of media consolidation by loosening long-standing limits on the ownership of local television and radio broadcast stations.

The panel headed by Circuit Chief Judge Anthony Scirica said that not granting a stay, and allowing the rules to come into effect as scheduled, would have harmed the interests of Prometheus and other FCC critics who fear the regulations would further narrow the existing diversity of media views.

By contrast, the judges concluded there was little evidence to suggest that the FCC and large media companies who have backed the rule change would be harmed by a delay. In fact, the judges said their action would only preserve the status quo.

The ruling followed two-hours of oral arguments in which panel members repeatedly underscored what they viewed as the gravity of the FCC rule change for the public interest.

They also heard attorneys from both sides attest that FCC Chairman Michael Powell had ruled out the possibility of the agency issuing its own stay. Later, in their order, the judges said they ordinarily would have directed Prometheus back to the FCC but that it was "virtually certain" the FCC would not grant a stay in the matter.

"We're pleased and optimistic we can prevail ultimately on appeal," said Andy Schwartzman, an attorney for the public interest law firm Media Access Project, which represented Prometheus at Wednesday's hearing.

Measures in both the U.S. Senate and House of Representatives would reverse the ceiling on national audience reach to 35 percent. The Senate effort would also drop rules allowing television broadcasters to own more local stations and permitting a company to own a newspaper, television station and radio outlet in a single market.

The appellate judges will decide later if the case should be moved from Philadelphia to a federal court in Washington.

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