James Murdoch Tries to Save Satellite Deal and Murdoch Era

| About: News Corporation (NWS)

James Murdoch, son of founding chairman Rupert Murdoch and heir-apparent as News Corp. (NASDAQ:NWS) CEO, tried to put a line under the “phone hacking” scandal threatening his takeover of satellite broadcaster BskyB today by closing News of the World, the 168 year-old Sunday tabloid (and best-selling paper in Britain) at the heart of the scandal.

The paper was charged with hacking into the voice mail accounts of many prominent people over the years in an attempt to get stories. Allegedly these included a host of celebrities, politicians and sports stars, but also private people like teen-age murder victim Milly Dowler, the parents of two other murdered teens in Southampton and Iraq War casualties.

The scandal comes at an especially dangerous time for James Murdoch, whose ambition is to make News Corp. more of an infrastructure play and less dependent on content. The company's effort to buy the 60% of BskyB that it does not own has been put on hold – the company was on the doorstep of winning the right to go ahead with the acquisition.

When I last wrote about the company on June 29, I noted a very similar chart pattern to that of Comcast (NASDAQ:CMCSA), the cable operator that bought half of NBC-Universal this year. The pattern remains, save for a gap-down by NWS early on June 6, after U.K. Attorney General Dominic Grieve indicated the BskyB deal could still be blocked.

The scandal has enveloped Rebekah Brooks, chief executive of News International and former editor of News of the World. Brooks made her name there with an investigation of child sex offenders, which may have included phone hacking of the type the company now admits later became routine.

Reaction focused on the fate of Brooks, the responsibility of both James Murdoch and his father, and the idea that News of the World just might be quickly replaced by a Sunday edition of The Sun, another Murdoch tabloid, making it a purely symbolic act.

Rupert Murdoch refused to comment on the scandal at this week's Sun Valley industry retreat, which only underlined that this is James Murdoch's problem to solve. In his statement on the closing, delivered to the paper's employees, James emphasized a high ethical line, saying “I insist that this organization lives up to the standard of behavior we expect of others.”

What's critical now is whether the BskyB deal goes forward. Feelings against it have been running high and the scandal has enveloped the government of David Cameron, given that his former director of communications was also the editor of News of the World when many of the crimes took place.

If James Murdoch can't give Cameron enough political cover to let BskyB go through, his reign as his father's successor may end before it starts. And that would leave Rupert Murdoch, now 80, in a very delicate position regarding his successor. James' older brother Lachlan seemed poised to replace his father until leaving the company in 2005.

If no son rises will News Corp. remain a Murdoch company?

And what would it be then?

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.