Story first appeared in the Wall Street Journal.
Youngest son James, 38 years old, has been groomed as heir apparent. But people close to the company say his future has been clouded by questions about his role in the scandal, which has shaken the media giant's U.K. newspaper unit and led to the closure of the 168-year-old tabloid News of the World.
A U.K. parliamentary panel said Tuesday it has asked him to come back for a second round of testimony over events at News of the World, where voice mails were intercepted in the pursuit of scoops. His earlier appearance in July set off a crossfire of conflicting accounts over what he was told and when.
James, currently News Corp.'s deputy chief operating officer, has said he became aware of evidence late last year that phone hacking went beyond the former News of the World royals correspondent and a private investigator on the paper's payroll. Contradicting him, though, the tabloid's former editor and former top lawyer say they told him in 2008 about evidence suggesting that phone-hacking extended beyond one reporter.
With no hard evidence yet to support those allegations, some people inside News Corp. feel the threat to James's career has diminished. But many accept that he still faces a challenge ahead to clear his name and preserve his path to the top.
A News Corp. spokeswoman said James, who has said he stands by his testimony, is happy to appear in front of the committee again to answer any further questions that members might have.
The questions facing James Murdoch are the latest hiccups in a succession strategy orchestrated—and often improvised—by his father. James's older siblings, Lachlan and Elisabeth, long ago left the company, although Elisabeth rejoined this year. The family controls the company through its 40% voting stake.
In August, Rupert Murdoch, age 80, told analysts that if he were hit by a bus, chief operating officer Chase Carey would succeed him. It was the first time the plan was publicly clarified. Mr. Murdoch had discussed that short-term succession scenario internally before, including earlier this year, as a likely interim step to one of the Murdoch children taking the role, according to people familiar with the matter.
Mr. Murdoch also said he and Mr. Carey have full confidence in James but in the end, it's a matter for the board.
Mr. Murdoch has since continued to defend James in conversations with executives and advisers, according to a person familiar with the matter.
News Corp., which owns The Wall Street Journal, declined to comment.
Over the years, Mr. Murdoch tried not to show favoritism toward Lachlan, James or Elisabeth, all children of his second marriage. Oldest son Lachlan, the original front-runner, quit six years ago in part because his father sided with other News Corp. executives in disagreements over strategic moves. Lachlan, who now lives in Australia, has advised the company recently on the scandal, and his father has in the past discussed finding a way to get him to return, say people familiar with the matter.
The children have at times bristled under a patriarch who is easily frustrated and difficult to please. In some ways it's easier to be a Murdoch outside News [Corp.] than inside, said Elisabeth Murdoch in an interview in 2004, four years after she left News Corp. to start her own production company.
She rejoined the fold this year when News Corp. bought her production company, Shine, and Mr. Murdoch has envisioned her one day running an array of News Corp.'s television properties, according to a person who has spoken to him about it. But Ms. Murdoch recently shelved plans to join the board, and her husband has told her News Corp. colleagues she has no plans to leave the U.K. right now, according to a person familiar with the matter.
His siblings' departures created an opening for James, who joined News Corp. when it bought his hip-hop label, Rawkus, in the mid-1990s. He has earned respect among executives for overseeing growth at News Corp.'s Asian satellite business Star TV and then British Sky Broadcasting Group PLC. But he has had a sometimes disruptive effect as he tried to put his stamp on the company, say people close the matter.
In one instance in 2007, James, based in London, pressed for a series of new hires in News Corp.'s headquarters in New York, where his father is based. The elder Mr. Murdoch felt James was over-reaching.
The two quickly put the episode behind them, the executive added. News Corp. declined to comment.
Stylistically, James has been a contrast to his father—deliberately so, say some people close to him. While Rupert Murdoch famously shuns textbook management practices like focus groups, James is known for fluency in business jargon like ARPU, the average revenue per user. He rehearses earnings calls and takes copious notes during meetings.
Cautiously navigating his roles of son and scion, James sometimes calls his father "Dad" or "Pop," other times "the boss," the term used by other News Corp. executives. He argues with his father openly. At a strategy session for a since-scrapped digital subscription service in early 2010, the two debated how content from various News Corp. properties should be packaged, interrupting each other and finishing each other's sentences, say people familiar with the discussion.
After running News Corp.'s Internet division, James became CEO of News Corp.-controlled BSkyB in 2003. There, he made his name, transforming the company from a satellite business to a phone, Internet and TV company. Analysts feared his target of reaching 10 million subscribers would sacrifice profits. But he kept earnings steady and, in 2010, the company reached that goal.
In December 2007, he rose to become chairman and CEO of Europe and Asia. James, who inherited little of his father's sentimentality toward newspapers, focused on TV. In 2008, he helped persuade his reluctant father to enter Germany, known as a risky market for pay TV, by acquiring a 15% stake in Premiere for $423 million, according to people familiar with the matter. The company, now called Sky Deutschland and 50% owned by News Corp., still isn't profitable but has started to increase subscribers.
From his London base, James pushed a corporate image makeover for the entire company. Executives in New York questioned the need for the campaign, say people familiar with the matter, while James argued the company ought to take corporate reputation more seriously. Ads featuring a timeline of News Corp. milestones that stirred things up, like acquiring 20th Century Fox studio, ran in papers in the U.K and U.S. immediately after the company's acquisition of Dow Jones & Co. in December 2007. But a next phase with video and new logos was killed, as James and executives in New York fought over how it should proceed, say people familiar with the matter.
This past March, James was named deputy chief operating officer, a move widely perceived as a stepping stone closer to the top, though it was also aimed at bridging two increasingly separate power centers—James's in London and News Corp. headquarters in New York.
A few months ago, James appeared on the verge of capping his crowning achievement. News Corp. was poised to buy the rest of BSkyB. But in July, just as U.K. officials were expected to sign off on the deal, allegations of phone-hacking and police bribery at News of the World escalated with the accusation that a former reporter hacked into the phone of a murdered schoolgirl in 2002.
As a political firestorm erupted, James proposed to his father the idea of closing the 168-year-old tabloid. Rupert Murdoch agreed. The July 10 edition was its last. In a note to staff, James said News International didn't have "full possession of the facts" when it made earlier statements to Parliament and when James signed off on out-of-court settlements to victims of phone-hacking. "That was wrong and is a matter of serious regret," James said.
James turned his focus to BSkyB as politicians urged News Corp. to abandon the deal. In July, James agreed with other executives that News Corp. should pull out.
It was a blow for James, who would have played a major role in consolidating the company he once ran and exploring integrations with other News Corp. properties, says a person familiar with the matter.